The new U.S. administration may be eager to roll back much of the regulatory reform that has taken place since the global financial crisis, but that effort is likely to be rebuffed at the international level, according to Ian Russell, president of the Investment Industry Association of Canada (IIAC).
In his latest letter to the industry, Russell recounts recent meetings in London and Basel with global policymakers in his role as chairman of the International Council of Securities Associations (ICSA). He reports that there is little appetite among these bodies — such as the Bank of International Settlements, the Financial Stability Board, and the International Organization of Securities Commissions — to back away from recent reforms.
Global regulators view the efforts to reform bank capital and liquidity standards and to enhance regulation of the over-the-counter (OTC) derivatives markets as “providing a significant bulwark against reoccurring financial crises,” Russell says.
While efforts to undo some of this work driven by the new U.S. administration, and possibly as part of the Brexit negotiations, “will have some impact … it is more likely that significant rollback in the G20 reforms will be resisted and limited,” he suggests.
“Any adjustments to the existing regulatory framework will be carefully scrutinized in terms of promoting capital formation and economic growth, and these changes will be minimal,” Russell says.
At the same time, Russell says that regulators do not appear to share the financial industry’s concerns about bond market liquidity, or liquidity in global repo markets. “Discussions confirm that regulators are not convinced by the quantitative evidence and related analysis of a widespread liquidity problem in corporate bond markets,” he reports. “Certainly, they do not see sufficient evidence to justify broad-based countervailing adjustment to regulatory reforms.”
Russell also notes that there is also a lack of unity from regulators on possible reforms to conduct standards in fixed income, currency and commodities (FICC) markets. As a result, “it is unclear whether consensus on market conduct in debt markets can be achieved,” he says.
Ultimately, global regulators are not interested in dramatically changing course on their recent reforms to the global financial system. “It is evident from discussions with the key global regulators, notably the BIS, FSB and IOSCO, that recommendations for some easing in the regulatory reforms in the cash and OTC derivatives markets will be strongly resisted,” he says.
Although there may be some room for tinkering around the edges, in areas such as margin rules for the OTC derivatives markets, and technical changes to bank liquidity requirements, Russell says, “The regulatory objective will be to strengthen the resilience of capital markets by improving market liquidity (and boosting bank lending), without undermining the stability framework of the global financial system.”
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