Global Regulation: Is it Even a Possibility?
There are buzzwords across the financial services industry – cyber-security, cloud computing, SEFs – which have a value in their respective sectors. However, there is one term that seems to be almost ubiquitous and even synonymous with banking and finance – regulation. On a national level, there have been numerous laws passed over the last six years. But what about on a broader level?
In the last six or seven years, regulation and compliance have been one of the leading concerns, if not the top priority, for banks, financial institutions, and all other industry participants. The Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) have flooded the markets with new rules and regulations designed to combat the issues that led to the financial crisis. From frameworks to govern high-frequency trading to rules regulating hedge funds and asset managers, the industry has endured frequent and seismic shifts in its landscape.
However, while many of these changes seem to be moving the marketplace in the right direction, it’s not clear if a more globally centralized regulatory movement will take place.
Let’s take AIFMD as an example. AIFMD (the Alternative Investment Fund Managers Directive) was enacted in July 2013 to regulate alternative investment funds (i.e. hedge funds) and fund managers in the European Union (EU). In October 2013, the European Securities and Markets Authority (ESMA) released a set of “blanket” rules that all 28 EU member states were required to implement. Member states were then encouraged to draft and enforce their own AIFMD policies to reflect their financial standing. For instance, Denmark, Norway, Sweden and Finland may develop rules that focus heavily on pension funds since pension fund investments are prevalent in the Scandinavian states. While AIFMD has provided a higher level of transparency within the EU and those with investments within EU states, it does not govern firms outside of Europe.
In many of the emerging markets, particularly in Asia and South America, financial regulation is only in the fetal stages. Many firms in North America and Europe are moving their alternative investments to Asia, where the markets are far less regulated.
Is global regulation feasible? The concept in and of itself sounds like a great idea to many, but there is a myriad of steps that would need to take place in order to turn this concept into a reality. A global regulatory authority would need to be established. Once that takes place, would this governing body oversee current regulatory bodies such as the CFTC, SEC and ESMA, or would they govern independently?
For now, the segregated regulatory landscape will remain status quo, as governing bodies in North America and Europe remain in the spotlight and continue to monitor transparency. But as emerging markets continue to develop and the industry playing field becomes a bit more balanced across the globe, don’t be surprised to see the concept of global regulation become a real possibility.
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