New FRSGlobal Research Compares Global Regulatory Responses to the Financial Crisis

Throughout 2009, global regulators around the world have been putting forward their thoughts and ideas on how to escape the current financial malaise, as well as how to prevent such a calamitous collapse in the markets going forward. Examples include the Turner Report in the UK, the Financial Regulatory Reform report in the US, the EU’s de Larosiere report, as well as several statement and framework updates from the Bank for International Settlements (BIS) and the Basel Committee. New research from FRSGlobal has compared the various regulatory reports, identifying common trends and pointing out differences.

The report targets 13 key areas of regulatory response to compare:

  1. Capital adequacy.
  2. Accounting.
  3. Liquidity.
  4. Institutional and geographic coverage.
  5. Deposit insurance.
  6. Bank resolution.
  7. Credit rating agencies.
  8. Regulation of financial markets.
  9. Remuneration.
  10. Consumer protection.
  11. Macro-prudential analysis.
  12. Supervisory approach.
  13. Risk management and governance.

The research then identifies the regulatory responses to each of these 13 issues from the UK, US, EU and the BIS and others. This comparison then leads to a highlighting of points of difference and comment, and advice on which regulatory body to look to for developments in this issue.

Speaking to gtnews, Selwyn Blair-Ford, author of the report and senior domain expert at FRSGlobal, explained that, in general, the major regulators are mostly saying similar things in their reports. However, in terms of implementation speed, the UK seems to be the most aggressive in its approach, particularly with regard to its liquidity regulations. “Others may get swept along with this,” said Blair-Ford, “even if they have reservations about the UK approach.” He also highlighted that the UK’s Financial Services Authority (FSA) seems to be the most ready to start to implement all of their proposals. However, they need to wait for international agreement before proceeding with the implementation.

Slightly behind the UK is the EU. Blair-Ford pointed out that the EU is well on the way to formulating the new rules, and once set will have the power to do so. The regulatory recommendations set out in the de Larosiere report have been generally accepted but, “there is a certain amount of politicking to take place before agreement has been reached.” That said, it is vital that any new regulatory framework is flexible enough to dump bad regulations or suggestions that prove to be weak.

The US, by contrast, is in a slightly different position to both the UK and the EU. “The US regulators are under a lot of pressure to make a kneejerk reaction. But there are also fears in New York that it may lose out to London if it went its own way,” explained Blair-Ford. The US is referring a lot of its prospective regulation to BIS and the Basel Committee to ensure a level international environment. The sheer quantity of regulators within the US financial system means it would take a much longer time for the new framework to be ratified when compared to the EU and UK. The US regulators and major public bodies interest do not always converge, which means even if initial agreement is had on regulatory reform, this does not mean implementation is imminent. Finally, the fact that the US has not implemented Basel II, and in particular Pillar 3, means that this method of disclosure in not really considered in the US, but is underlying in the EU and UK deliberations.

The research from FRSGlobal shows that there is a vast amount of work still to be done before implementing the many and varied new and amended types of regulations around the world. The problem that regulators in the UK, US and EU now face, is selling this to the politicians in a way that will let them focus on the really important issues of reforming how institutions behave, rather than just the headline grabbing ones. This has been highlighted the recent case in the UK where George Osborne, Conservative member of parliament and shadow chancellor, pledged to abolish the FSA if the Conservatives win the next UK election. “Given everything that has happened, it would be bizarre to stick with a system of regulating the banks that failed so spectacularly,” he said.

However, Blair-Ford attacked Osborne’s proposals as political points-scoring, pointing out that, as an exercise in stress testing the regulatory system, the lessons learned by the FSA from the financial crisis have given it the experience to carry out the reforms needed. “To scrap the FSA would set the UK’s regulatory landscape back by seven years,” argued Blair-Ford. Considering the work the FSA has already put in to ensure that the UK is at the heart of global regulatory reform, it is hard not to agree with Blair-Ford’s point.


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