Tuesday 25 September 2018 10:41 am

Patchy regulation prevents the world from reaping the full benefits of the markets


  Ten years ago today, the world woke to the news that yet another bank had collapsed.

Washington Mutual was the latest casualty in what became the worst financial crisis since the Great Depression.

Those events have cast a long shadow. Governments, businesses, and households have had to tackle the legacy of that crisis.

As well as repairing the damage from the crash, policymakers have focused on reforming regulation to reduce the risk posed by a global financial system.

We now have an enhanced and coherent international framework for financial regulation, which has made great strides in addressing the risks of market fragmentation, regulatory arbitrage, and global financial instability, while improving efficiencies for the benefit of the real economy.

The UK has played a leading role in these reforms, and ensuring its effective implementation at home and abroad. Successive chancellors have promoted multilateral solutions to the risks posed by global financial services, while preserving their benefits for consumers. Mark Carney’s chairmanship of the Financial Stability Board has made a real difference. The Treasury, the Bank of England, and the FCA have all led from the front.

Yet we cannot assume the job is done.

Populism, protectionism, reform fatigue and, yes, Brexit too, still pose real risks. We must maintain a regulatory framework that can react to new innovations and problems, increasing benefits for businesses and consumers, while protecting us from systemic risk.

That is why the International Regulatory Strategy Group (IRSG) – a network of UK-based financial services leaders that I chair – is today launching a new report on global regulatory coherence. This document is a call to arms to the City to look beyond Brexit and address the vital questions of global regulation.

Our report highlights success stories from a coordinated international approach to regulatory issues.

One example is the regulation of over-the-counter (OTC) derivatives, the so-called financial weapons of mass destruction.

In 2009, global regulators formed the OTC Derivatives Regulators Forum, allowing them to share knowledge, agree on approaches, and defer to each other’s judgement in the supervision of cross-border business. As a result, the regulation of OTC derivatives is better, safer, and more efficient. But there is still more to be done.

Patchy implementation prevents the world from reaping the full benefits. Approaches that create unnecessary market fragmentation add to costs. Technological advances – from blockchain to AI and beyond – throw up new challenges for global regulation. New risks require new responses.

The UK’s financial services industry must take part in this conversation. While politicians and regulators will make the final decisions, they need detailed market knowledge and practical insight to make effective regulation.

Private sector engagement can help create effective solutions to emerging risks, and ensure that consumers continue to benefit from global markets.

The IRSG is recommending that the UK government, regulators, and industry intensify their engagement at the global level. For our part, we will establish a new committee on global regulatory coherence to develop ideas to help shape the international agenda, and support UK engagement.

We believe that well-regulated global markets are in the interests of businesses and their customers. We also believe that business must play an active role in shaping global regulation.

The City, therefore, stands ready to work with UK and global regulators to ensure that financial services play their role promoting a global Britain.