A group of international securities industry lobby groups says that regulators, and the financial industry, should restart efforts to ensure that transatlantic financial markets remain open, and avoid protectionism.
A report commissioned by the EU-US Coalition on Financial Regulation calls on regulators on both sides of the Atlantic to “come together with a view to resuming the pre-crisis negotiations on regulatory recognition or, as it has been otherwise described, ‘substituted compliance’ in order to enhance the regulation of cross-border business and reduce jurisdictional conflict, legal risk and compliance complexity.”
The coalition, which includes the Investment Industry Association of Canada (IIAC) along with various other industry associations, was formed before the global financial crisis in order to encourage governments and regulatory authorities to promote inter-jurisdictional regulatory recognition and exemptive relief where regimes are compatible, and, where possible convergence in the rules.
“The overall objective was to facilitate customer choice and market access and establish a more coherent framework for the effective regulation of cross-border financial services business,” it notes.
Now, in a new report, the coalition calls for that effort to be revived. It says that, prior to the crisis, it was generally agreed that regulation was effective, and the challenge was to make it more efficient. “After the crisis, the general belief is that regulation needs to be made more effective as well as more efficient,” it says.
“The time to start thinking about global co-ordination and mutual recognition is at the start of the legislative process – and particularly now, as authorities on both sides of the Atlantic converge their agendas for regulatory repair in accordance with internationally-set standards,” it says.
To that end, it recommends that regulators form a working group to establish the criteria for transatlantic regulatory recognition, which would be based on compliance with the regulatory principles agreed by the International Organization of Securities Commissions (IOSCO); accepted levels of compatibility in the areas of supervision and enforcement; and, reviewing existing agreements to ensure that they facilitate information-sharing and cooperation.
In the longer term, it envisions the working group undertaking an analysis to determine how fundamental differences in regulatory approaches can be converged or reconciled to facilitate common standards and approaches. It also calls for specific work processes to implement regulatory memoranda of understanding; and, establishing a process whereby new regulations which potentially have extraterritorial effects are subject to inter-regulatory consultations prior to their introduction (other than in cases of extreme market stress or urgency).
Additionally, the paper suggests that the industry (including investment banks, non-bank broker dealers, market infrastructure firms such as clearing houses and corporate and institutional investors) set up an advisory group to work with the regulatory authorities in identifying areas of regulatory conflict which impose significant burdens on both industry and regulatory authorities.
Michelle Alexander, director of policy with IIAC, said that the association fully supports the report’s conclusions.
“It is apparent that not only the regulators, but the investment industry as a whole should re-engage in the pre-crisis discussions to establish effective and credible framework of inter-jurisdictional transatlantic regulatory accreditation and recognition. This is critical not only for facilitating global recovery, but to improving the efficiency and effectiveness of the regulation of cross-border business,” she said.