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Regulation: Turbulent times

Regulation: Turbulent times

Charlotte Moore
Friday 17th November 2017

Ambitions of a globally harmonised regulatory environment appear more myth than reality. Charlotte Moore reports.

“While regulators might be working more collaboratively on data sharing,  it does not feel like there is global harmonisation.”

Andrew Formica, Janus Henderson

The aftermath of the global financial crisis heralded a new era of financial regulation. To ensure the avoidance of a similar disaster, broad principles were set at a G20 level and then developed and implemented by regional authorities.

By setting regulatory principles at an international level, this should allow a set of harmonised rules to shape financial regulation around the globe.

Andrew Henderson, financial regulation partner at Eversheds-Sutherland, says: “These principles aim are to protect investors from their lack of understanding of financial products and to provide financial stability.”

But while there is an ambition to have a set of globally agreed principles, the reality is far from synchronised.

Monica Gogna, partner at Dechert LLP, says: “In the day-to-day practicalities of implementation, there is far more difference than would be expected from a supposedly harmonised approach.”

That variation is caused by a number of different factors. Sometimes it’s just down to timing. Even when there is broad international agreement about a particular set of rules, they are rarely introduced in different jurisdictions on the same date.

Sean Tuffy, EMEA head of market and regulatory intelligence for Citi custody & fund services, says: “This creates dislocations between different regions.”

Take the introduction of regulations that require companies clearing houses to act as counterparties to derivative contracts. Tuffy says: “These came through in the US first and were introduced later in Europe.” That created a misalignment for global firms.

The level of harmonisation has also varied across different parts of the financial sector. Tuffy says: “While banking regulation has been harmonised at an international level, there is much more regional variation in financial markets legislation.”

In Europe, much of the financial regulation comes in the form of directives which generally allow interpretation at an individual member states level. Henderson says: “This introduces yet more variance into the system even where there is a move towards uniformity.”

While the overall goal of setting regulation at a G20 level is to encourage a more harmonised environment, these factors can make it seem to individual businesses that synchronisation is just a pipe dream.

Andrew Formica, co-chief executive officer of Janus Henderson Investors, says: “While regulators might be working more collaboratively on data sharing, it does not feel like there is global harmonisation.” Instead regional regulatory priorities and agendas are distinctively different.

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