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Differences in financial regulation cost business $780bn annually


https://www.ft.com/content/d793068c-3d99-11e8-b9f9-de94fa33a81e

 

Differences in financial regulations across the world are costing businesses $780bn a year, according to a report that calls for more joined-up policymaking.

 

A poll of more than 250 executives in financial services found that institutions spend up to 10 per cent of their annual revenue dealing with a patchwork of divergent regulations, much of it introduced since the financial crisis, with smaller companies facing disproportionate costs to keep up.

 

The “conservative” $780bn figure was spent implementing different sets of rules across different countries, most of which went towards the cost of separate systems, staff and hiring outside experts. The report noted that even when a common standard existed, companies often had to deal with different interpretations depending on the jurisdiction.

 

Another finding was that executives expect even higher costs to business as a result of regulatory divergence between the UK and the EU after Brexit. That forecast was particularly pronounced among UK respondents.

 

The report was based on interviews with bank, insurance, asset management and capital-markets executives conducted by the International Federation of Accountants and BIAC, a business group that partners with the OECD, the Paris-based club of rich nations.

 

The survey highlights the need for increased international regulatory co-operation to reduce the regulatory divergences which are costly on business.

 

“The survey highlights the need for increased international regulatory co-operation to reduce the regulatory divergences which are costly on business,” said Marcos Bonturi, OECD director for public governance.

 

The report’s release comes at a time of increasing concern that the consensus among governments during the financial crisis to do whatever was necessary to save the financial system was now fracturing, as politicians’ main priorities move to other areas such as job creation.

 

President Donald Trump’s administration has spoken openly of the need for greater deregulation, with senior US lawmakers questioning the legitimacy of international forums such as the Basel Committee on Banking Supervision and the G20’s Financial Stability Board, which both set minimum global rules.

 

Mark Carney, governor of the Bank of England who also chairs the FSB, has warned against diverging standards.

 

However the areas identified in the IFA survey as having the most divergent rules, including competition law, capital markets requirements and consumer protection, are not part of the remits of either the Basel Committee or FSB.

 

A separate survey released on Thursday found that regulation put in place since the financial crisis had reduced banks’ holdings of capital-market assets by 39 per cent between 2010 and 2016.

 

AFME, the European finance lobby group, and the professional services group PwC polled 13 large banks which together represent 70 per cent of capital-markets activity globally. In aggregate, the regulatory cost on their capital-markets activities every year is $37bn, the survey found.

 

Banks have long complained that post-crisis rules, such as having to hold more capital against riskier assets, have forced them to shrink their balance sheets because certain activities are no longer profitable.

 

Policymakers say there are aware of the problem. The EU has tried to encourage alternatives to bank lending through its plan for capital markets union that aims to expand other sources of funding such as debt issuance and increased investment for European businesses.