On the same page: is this the beginning of global regulation for the financial services industry?14 June 2012
In the aftermath of the global economic crisis, a wave of new legislation has flooded the financial services industry and organisations are grappling with the biggest regulation implementation changes in a generation. Coming from all over the globe, these regulations have the common goal of making the industry more transparent and are placing organisations under more scrutiny than ever before. Are we now starting to see the beginning of global regulation and standards that apply to all jurisdictions?
International standards could certainly offer benefits for the financial services industry, including better integration and coordination across countries. But we aren’t there yet. What we see currently is a move towards the cloning and adoption of standards which have worked well in one country being taken up across other countries. This represents a slow burning homogenisation of best practice which has the potential to save time and costs, rather than a truly international approach.
In the UK, the Retail Distribution Review (RDR) and European MIFID (Markets in Financial Instruments Directive) II are proposed to have similar elements; for example the removal of commission as a means of paying advisers. South African regulators have already agreed with elements of RDR and it isn’t too much of a leap to see why other governments would look to re-use successful ideas.
The EU has provided some useful regional supra-national harmonisation with the roll-out of EUSD, UCITS and AIFM for example but, beyond this, it is harder to find examples of truly international standards. The closest thing would be multi-lateral (or a series of bi-lateral) reciprocal agreements between countries which provide harmonised treatment.
Highlighting the need for a coordinated approach, FATCA (Foreign Account Tax Compliance Act) is a major piece of legislation from one country (the US) that affects all jurisdictions worldwide. The US government recently issued less onerous requirements for a small group of countries (UK, France, Germany, Italy and Spain), that have entered into a specific multi-lateral agreement with the US. Unfortunately they have retained a more onerous regime for countries outside this group.
While truly global regulation is perhaps the key to harmonising the financial services industry and putting everyone on the same page, my view is that we are a long way from any kind of global regulatory regime. A number of countries do seem to be attempting to move in similar directions when it comes to regulation, but they are doing so at different speeds and (understandably) with some levels of protectionism and self-interest. For the foreseeable future the most we will see is a continuing drift towards a homogenisation of regulatory objectives.
We’d like to hear your thoughts on this. How far away is global regulation?