At the next G20 meeting approaches, Japan are hoping this could be the meeting that starts to make progress on global regulatory fragmentation. As major economies adjust their regulatory approach, this is becoming a major source of risk and expense for financial institutions around the world.
According to a study from the from the International Federation of Accountants and Businesses, the cost of dealing with conflicting regulatory costs has risen to more than $780bn each year. 51% of businesses had been forced to divert money from investment in order to manage risks and regulatory divergence was consuming between 5% and 10% of turnover annually. Three quarters of respondents said it was having a material impact on their financial performance.
Since the financial crisis, countries have been developing their own regulatory responses to combat misconduct. Evolving technologies have also prompted authorities to take measures to ensure customers will be protected in a world of online banking and mobile data. More recently, Brexit has – and continues to – create enormous costs as banks try to identify ways in which they can continue to do business both in the UK and EU. The ten biggest banks in the city have spent £1bn in Brexit preparations.
The problems come because regulations are often crafted with local issues and demands in mind, which means they create different and, at times, conflicting requirements. The EU’s General Data Protection Directive has created problems for firms around the world. Already high profile fines levied at Facebook have demonstrated the challenges for companies which process data belonging to people located in the EU.
The regulations have also sparked a number of similar changes around the world. Most of these take the lead from GDPR, but inevitably differ in a number of important respects. Some changes are small, others are large, but they all add complexity to the task of managing compliance.
There is also disharmony between different regulations. The challenge of complying with GDPR’s right to have your data removed and MIfiDIIs demand that firms keep hold of all data relating to financial deals is one which keeps compliance managers on their toes.
So, what’s to be done?
By chairing this group at the G20 Japan hope to spark discussion on developing more harmony in the global regulatory framework. This, they hope will start the process towards closer regulatory alignment.
A report from the IFAB, meanwhile, made a number of recommendations including cooperation between global regulatory bodies, closer alignment of regulations and definitions, greater clarity of rules and transparency in major organisations.
In the meantime, corporations will be looking at managing their oversight of regulations in different territories. This will mean streamlined solutions for monitoring activities in different locations, ensuring they can maintain compliance to conflicting regulations and demonstrate the measures they have taken if and when questions are asked.
The ball may be rolling, therefore, but there will be many obstacles to increased regulatory harmony. Different countries will have their own agendas and requirements. It will be difficult to solve the issue in one meeting, but it will be possible to take important tentative steps towards