The European Union is ready to revolt against new U.S. corporate governance rules that they call too far-reaching and, in some cases, too quickly drafted in the wake of U.S. corporate accounting scandals.

If the U.S. persists in holding EU companies accountable for Sarbanes-Oxley Act regulations, U.S. financial groups could face a whole new wave of regulation from the EU, making it more difficult to conduct international business. Brussels is threatening to make U.S. companies with banking and insurance operations in Europe comply with a new law, unless EU auditors are exempted from the Sarbanes-Oxley Act.

Frits Bolkestein, EU financial services commissioner, met last week with Roel Campos, member of the US Securities and Exchange Commission, to discuss the growing breach between the U.S. and EU on issues of corporate governance.

The new EU rule would allow regulators in 15 countries to impose extra requirements on non-EU financial organizations if they believe domestic rules are not as stringent as EU rules.

A group of financial experts are deciding just what those additional requirements will be, but some believe they will include new ways of determining capital adequacy and restrictions on intragroup transactions.

The thinly veiled threat from Brussels is a sign that another shot has been fired in the EU’s battle to gain exemption from the Sarbanes-Oxley Act regulations. In the past, Brussels has indicated that it would retaliate by putting U.S. auditors under the regulation of European watchdogs.

U.S. bankers are hoping the EU is bluffing and that the dispute can be resolved to both sides’ satisfaction. Some U.S. bankers are sympathetic to the EU’s position and agree that certain aspects of Sarbanes-Oxley might have been pushed through too quickly.

By the same token, U.S. regulators have been worried about whether EU financial conglomerate rules, effective next year, will overwhelm U.S. companies with another layer of regulation.

Alan Beller, director of the SEC's corporation finance division, said last October that the EU’s law would place U.S. firms "at a competitive disadvantage with European-based firms."

The SEC’s position is that U.S. financial conglomerates are regulated domestically and should not face an additional set of European rules. Of course, this is exactly the position the EU has taken in regard to exempting European audit firms from the requirement that they register with the new Public Company Accounting Oversight Board.

Mr. Campos said last week that the U.S. would refuse the EU’s exemption request on the grounds that the PCAOB has already given European auditors an extra six months to register.