As Recent Basel Talks Suggest, Banks Need More Time to Meet Regulatory Requirements – Could Hurt Growth and Recovery if Applied Too Soon
A new study released by global professional services firm Kinetic Partners reveals that more than three-quarters (77 percent) of senior managers in the financial services sector would consider ending relationships with clients in a particular jurisdiction because of local regulatory requirements and their global consequences. Kinetic Partners’ Global Regulatory Outlook (GRO) researched the views of senior executives within the banking, broking and asset management industries. Chief Operating Officers in particular had this concern. 86 percent of this group said that they would consider ending relationships with clients in a particular jurisdiction over the potential consequences of local legislative requirements. Furthermore, 78 percent of Chief Compliance Officers and 66 percent of Chief Executive Officers (CEOs) shared the same view. While unconnected to this report, a meeting attended by regulators and central bankers in Basel on January 6, allowed banks worldwide additional time to comply with new regulatory capital rules aimed at preventing financial crises, implying banks currently have a significant regulatory burden and further time is needed to avoid any additional regulatory burden that might threaten economic recovery.
Jonathan Saxton, New York based Partner at Kinetic and study co-author said, “Reading into these results and the potential consequences for the U.S. market, there’s clearly a sentiment that overregulation will have undesirable and unintended consequences. Between the various governing bodies such as the SEC, CFTC, FINRA and others, and the various markets and institutions they overlap, regulation has become increasingly complex. The number of authorities to which institutions are answerable, makes for a more difficult environment in which to do business. This could therefore seriously harm the competitive environment.” Saxton added that firms also need to look at the implications to their global groups of local regulation, saying, “Financial institutions, for example, will need to take a global view on how to deal with AiFMD and Dodd Frank, which have implications beyond U.S. entities within global groups.”
The GRO research study also revealed that, whilst the majority of respondents highlighted commercial opportunities as the biggest influence over where they look to do business, local regulatory requirements was the second most important factor listed. The challenge is both local and global. While the financial crisis has moved the stability of financial firms to the top of the regulatory agenda, the shift towards more localized regulation has resulted in significant cultural differences in interpretation across several countries or regions, and therefore a more ambiguous regulatory environment. Saxton notes, “When regulators are looking at how they are going to regulate the market, they are reacting to risk or an event. But it’s also important to balance that with what the impact of the new regulation might be. It’s therefore key for regulators and the industry to engage, to make sure the balance is sensible, so as to create an environment that addresses the public’s concern without stifling business and competition.”