SEC says crisis should not derail more open rules

By Victoria Thieberger

MELBOURNE, Feb 20 (Reuters) - A landmark move by the U.S. Securities and Exchange Commission that would allow foreign financial institutions to operate under their home country's rules should not be derailed by the turmoil in financial markets, a senior SEC official said on Wednesday.

The SEC is working on ways to allow banks, brokers and exchanges from Australia, the European Union and other countries to operate in the U.S. market more easily, without going through a full, cumbersome U.S. authorisation process.

Ethiopis Tafara, director of international affairs at the SEC, said liberalising the rules, known as "mutual recognition", would help boost cooperation between regulators in times of crisis, such as the current U.S. credit crunch.

"Mutual recognition would be a positive step in dealing with crises such as the subprime crisis," Tafara told a conference.

The new system would mark a radical shift in how the SEC regulates its markets. It has previously insisted foreign bond and share trading firms meet all the SEC requirements, even though they were fully supervised in their home market.

It would have a similar impact as a bilateral tax treaty between countries or an "open skies" agreement to open up airline routes.

Deutsche Bank general counsel for Australasia and Japan, Mark Grolman, told the conference there was a serious risk the credit crunch and subprime writedowns would lead governments to enforce their own regulatory regimes, and not open up.

Earlier this month, the SEC agreed to begin talks with the European Union regulators on the subject. It is likely to seek selective, bilateral agreements with countries with similar regulations and laws.