Bankers call for internationally coordinated sector regulation

In a new report (32-page / 7MB PDF), the British Bankers Association (BBA) calls for "greater regulatory consistency" from G20 leaders, the European Commission and international watchdogs such as the Basel Committee. It also proposes greater oversight from international watchdog the Financial Stability Board (FSB), which it says should "seek out areas where more consistent regulation is needed and identify possible divergence at an early stage".

"The divergence of regulatory approaches in the international financial markets poses challenges for banks and customers," said Sir Nigel Wicks, chair of the BBA. "Higher costs of complying with the different rules make financial products for businesses and retail customers more expensive. Disparate regulatory frameworks also encourage providers to withdraw products and services from some countries, thereby undermining clients' choice."

"So we are asking the G20 to do more to reduce the undesirable consequences of international regulatory divergence. This will help to achieve a stable, equitable and open financial system that supports the development of the global economy in a way that benefits as many people as possible," he said.

The BBA said that it supported the different regulatory initiatives underway in response to the financial crisis of 2008, as well as a "desire and willingness" on the part of policymakers to coordinate their actions for the benefit of cross-border businesses. However the different approaches taken by the UK, US and some European countries to the potential 'ring fencing' of banks' customer-facing activities from their trading arms risked the 'Balkanisation' of financial markets, with nervous lenders limiting their operations outside of national boundaries, the BBA said.

The report also highlighted "material differences" in the way in which Basel III, the Basel Committee on Banking Supervision's third international supervisory and risk management framework, was being introduced by the G20. In the EU, these requirements will be implemented under the recently-approved Capital Requirements Directive (CRD IV); however CRD IV adopts a different definition of capital and allows member states some discretion in how the requirements are implemented.

Although national regulatory regimes allowed regulators to tailor rules to their own markets and minimise the risk of contagion from less well-regulated institutions, the BBA said that this trend could create barriers to entry, increase complexity, reduce competition and incentivise regulatory 'arbitrage'. This occurs when financial service providers are incentivised to locate business in the most favourable regulatory regime. In addition, higher compliance costs could be passed on to business clients and consumers and reduce the type of products and services available in some jurisdictions, it said.

The BBA acknowledged the role played by international bodies in the coordination of financial services regulation, such as the FSB and the Basel Committee. However, it said that these bodies needed to do more to identify and deal with divergence at an early stage. The role of the FSB needed to be strengthened into a "truly global standalone resource" to enable it to do this, the BBA said.

It also called on G20 leaders to consider greater regulatory consistency as a priority. Differences between regulatory regimes, particularly those of the EU and US, should be assessed with reference to the impact on end users, such as banks and their clients, rather than the strict equivalence of the different regimes, it said. The Transatlantic Trade and Investment Partnership (TTIP) should be used to encourage this, the BBA said.