Getting global regulation right

Today, even the smallest buy-side firm can be a global business and for them, one of the most important issues is how regulation is applied globally.

David Wright, Secretary General of the International Organisation of Securities Commissions (IOSCO) spoke at the ICI Global conference in London today, and said that a new global model of regulation is needed to provide safe markets but also to ensure fair competition.

He said politicians should firstly ensure that they adopt more symmetric timetables across their jurisdictions, highlighting the current drive to implement regulation for OTC derivatives trading across the world.

It’s well known that the US is currently the most advanced in implementing these reforms, with Asia and Europe lagging behind. The US has still to finalise some details on the cross border implications of its rules, Europe is still part-way thorough making equivalence judgments for regulation in other regions and Asian regulators are complaining that the extra-territorial rules are being applied to stringently.

Wright said it would be more beneficial for countries to agree on a common timetable to ensure that these kind of issues, where trading in different parts of the globe means firms are having to deal with multiple regimes at different levels of development.

He also highlighted that much of the confusion over cross-border rules is damaging and anti-competitive, with big firms more able to deal with the regulatory burden that arises from global trading activity than smaller businesses.

The sentiment was echoed by Martin Wheatley, CEO of UK regulator the Financial Conduct Authority (FCA). The FCA is currently consulting on the introduction of tighter rules around how asset managers use client money to pay for research and other services through dealing commissions.

At present, the scope of the rules only covers the UK, and local businesses have argued the rules could put them at a disadvantage to other jurisdictions. Wheatley recognised the issue, but said he was hopeful that the FCA can also push European regulators to follow and plans to speak to global bodies like ISOCO in order to widen the geographical scope of these rules, based around principles of investor protection and transparency.

A new model of regulation that implements broad regulation based on principles might well seem a long way off, but if industry and regulators can work together, it is not an insurmountable challenge to ensure that currently reforms of both the equity and OTC derivatives markets are introduced in a way that continues to encourage cross border trading and limits the risks of regulatory arbitrage without requiring businesses to comply with dozens of similar but slightly different sets of rules.