Regulatory challenges of 2012 – part 2: Global regulation

Peter Moore, head of regulation at The IMS Group has outlined a number of regulatory challenges through the coming year.

1. Volatile markets/bad regulation, often ad hoc in nature – with the European sovereign debt crisis barely solved at all as 2011 ends, the risk of knee-jerk, “bad regulation” remains as politicians and policy makers give-in to a “something must be done” approach. The short selling restrictions of the summer of 2011 are the best example of bad regulation stemming from volatile markets in that they contradicted past, informed studies of the need for and consequences of short selling restrictions. This undermined confidence in the lawmakers and there is no guarantee that they won’t make similar mistakes again.

2. Challenging markets/business change budget squeezes – financial services firms are not only dealing with regulatory change but also challenging economic markets and business conditions. Strains on profitability may restrict the regulatory change budget which may inhibit some firms’ ability to respond effectively to regulatory change. Ideally, the regulatory change budget would keep pace with the volume of changes and have increased healthily in recent years. However, compliance budgets, like all budgets, are currently under heavy scrutiny and pressure.

3. The politicians ‘hand-off/the age of the regulator – many regulatory items have now moved from the politicians to regulators whose job it is to develop the detail and implement the relevant provisions. This process is best illustrated by the EU’s legislative process having moved from the Level 1 Directive framework to the Level 2 detail. There is an advantage to this, in that regulators will have more practice experience of the subject matter. However, the downside is that the key bodies – primarily ESMA – may lack the time and resource to give the task the attention it requires. This could impact the quality of the outcome.

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