As early as tomorrow, the Public Companies Accounting Oversight Board is expected to release less cumbersome auditing requirements consistent with recent Securities and Exchange Commission guidance. Last week, the SEC offered new guidance to corporate executives for “internal control” under Section 404 of the Sarbanes-Oxley Act. Whether the new guidance will actually reduce the costs of complying with a complicated law, particularly for small publicly traded firms, remains to be seen.

America is not alone in overregulating financial markets. The European Union is cultivating its own regulatory hemlock, known as the Financial Services Action Plan. London, which has a rapidly growing financial sector in part because of refugee capital fleeing America, is naturally skeptical of the E.U. plan. Why would Europe want to impose greater regulation on financial services given the results in America?

SOX was written to protect investors and employee pension plans from the type of financial fraud that brought down WorldCom, Enron, and other bad actors. SOX may well make financial fraud more difficult, but the cost is staggering.

Estimates of the costs of SOX vary widely, with losses just to the value of publicly traded securities estimated to be as much as $1.4 trillion. Actual losses are likely less, but a law intended to restore public confidence in securities should raise rather than lower their value. The Committee on Capital Markets Regulation convincingly argues in a recent report that SOX has harmed U.S. equity values.

Estimates of the incremental compliance costs for publicly traded firms vary from a few hundred thousand dollars to a few million. A nuisance for a large firm, compliance with SOX is undeniably a substantial burden for smaller firms. That is why the SEC and many members of Congress have been exploring ways to reduce the burden on small firms. Reducing the burden on small firms begs the question of whether the law’s benefits outweigh the costs for firms of any size.

The Committee on Capital Markets Regulation recommends that the SEC and other financial regulatory bodies evaluate rules based on cost-benefit analyses both initially and periodically after implementation. But the problems with SOX were not lack of laws requiring cost-benefit analyses.

Such laws have been on the books for years, and the SEC apparently found that the initial SOX rules had greater benefits than costs. A government agency that has written a rule that it believes to be reasonable and lawful and that is then required to conduct a cost-benefit analysis will quite understandably find the rule to have greater benefits than costs. Once a rule is in place, neither the SEC nor any other government agency wants seriously to review it. The failure of the rules implementing SOX is the result of agencies having discretion to construct cost-benefit analyses as they see fit.

By many measures, New York is still the largest financial center in the world. But the decline of New York’s dominance in public securities in just the past few years is dramatic, in large part because of SOX. As investors leave American public securities, they move to public securities in other countries and to private equity, in which New York is also the central market.

The calculated costs of SOX from additional auditing fees and loss of equity value are large. So, too, are the costs to the American economy of financial services migrating offshore. But there is perhaps an even greater, immeasurable cost: mistrust. Under normal business conditions, management, boards of directors, and outside accountants and auditors should have high regard and trust for one another to act in a professional manner. Under SOX, trust is replaced with mistrust, even paranoia. Auditing firms have incentives to write reports with circular logic rather than run the risk of being sued. Outside directors worry over liability. Management frets over SOX compliance, a great distraction to the implementation of a business plan. These are not conditions that foster successful businesses.

Many investors prefer investment vehicles without SOX protection. By most measures, SOX has done more harm than good. The E.U. would do well to take note, and so would our government.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.