Ali Wolpert, DTCC Managing Director, Government Relations
As we begin a new decade, geopolitical and economic news continue to highlight the importance of and challenges facing global collaboration – and the financial sector is no different. In fact, the most recent theme for one of the largest financial conferences in the world – Sibos – was “thriving in a hyper-connected world”.
Indeed, national players cooperate and compete across international borders daily. This market fragmentation, while often a driver of growth, can also impact market liquidity and decrease transparency. When it comes to financial regulation, international differences in laws and standards can exacerbate market fragmentation and inhibit the workings of an efficient global financial system.
An important contribution to alleviating the regulatory stumbling blocks created by fragmented markets has been through international standards-setting bodies (ISBs). Made-up of regulators globally, the purpose of an ISB is to establish standards that harmonize rule sets across jurisdictions. Known as deference-based cross-border policies, these standards enable market participants to rely on one set of rules – in their totality – without fear that another jurisdiction will impose additional regulatory obligations that reflect differences in policy priorities, or application of local market-driven policy choices beyond the local market. Currently, both the US and the EU appear committed to pursuing this much sought-after consensus.
The Financial Stability Board (FSB) is an example of an ISB in action. The FSB coordinates the work of international financial regulators, bringing together senior policy makers from the G20 countries plus Hong Kong, Singapore, Spain and Switzerland. It also includes international standard-setters and regional bodies like the European Central Bank and the European Commission. Via the FSB, the main players who set financial stability policies across different sectors of the financial system come together at one table. Earlier in the year, the FSB focused on implementing and evaluating post-financial crisis reforms, as well as addressing emerging vulnerabilities in the global financial system.
Beyond the efforts mentioned above, the FSB and other ISBs can also play a role in facilitating constructive discussions around deference-based policies aimed at reducing cross-border complexity and promoting growth across international financial markets.
ISBs are not the only model for increasing collaboration around regulatory standards. Groups such as the World Economic Forum’s fintech cyber security consortium offer a framework for convening representatives from a variety of institutions and geographic regions in pursuit of a mutually beneficial outcome. Within the US, the Financial Services Sector Coordinating Council facilitates collaboration between government agencies and private sector entities, including trade associations, utilities and major firms in order to “protect the Nation’s critical infrastructure from cyber and physical incidents”. These organizations, which focus on the essential task of protecting the financial system from hackers and other threats, can serve as models for organizing cooperative approaches to solving other problems – such as standardizing financial regulations across international borders.
At events like Sibos convening the global financial industry, strengthening the role of ISBs in the policymaking process should be a high priority for both public and private sector participants. With a geopolitical climate that has made international cooperation more difficult than we have seen in recent history, it is increasingly important that bodies such as ISBs play an active role in drive coordination and harmonization of rules regardless of the political difficulties of the day. Advocating for uniform standards across jurisdictions will not only reduce complexity, improve efficiency and spur growth, but also advance the G20 principles of transparency, integrity and responsibility.
This article was first published in Markets Media.