London: Senior bankers have warned of a territorial battle between national and regional regulators that will increase costs for banks and stop capital flowing between subsidiaries in different countries.
A senior International Monetary Fund official told Britain’s top bankers that diverging local regulation was having “unintended consequences” and uncertainty over rules was getting in the way of international reform. Because there are no common standards, banks must comply with regulatory systems in each country they operate in, adding to costs and complexity.
Speaking at the British Bankers’ Association annual conference in London, Jose Vinals said in the longer term it might be necessary to review all existing rules and re-examine their costs and benefits. He also urged politicians to move ahead quickly with regulatory reforms, saying the industry needed certainty to determine which business models made sense.
“What worries me most is the repatriation of regulation and a reversal of globalisation,” said Sir Sherard Cowper-Coles, senior adviser to HSBC’s chairman and chief executive.
However, Marisa Lago, assistant secretary for international markets and development at the US Treasury, said it would be wrong to hold out the hope that there would be “absolute global harmonisation”, in part because of different traditions and legal systems. “Setting the goal of harmonisation sets you up for failure,” she said.
Sir Jon Cunliffe, deputy governor of financial stability at the Bank of England, said: “Financial globalisation has clearly been rolled back since the crisis, some of it because of risk-aversion and partly due to regulation.”
He said the mechanics for international co-operation were in place, but there needed to be a shift of focus from the design of regulation to consistent implementation in different jurisdictions. If officials cannot succeed in this, there could be “regulatory arbitrage and a race to the bottom”, or regulators will ring fence operations and “build walls around institutions”.
Citigroup said this week it was pulling out of consumer banking in 11 countries, including Egypt, Japan and the Czech Republic. HSBC has withdrawn from retail banking in more than a dozen countries, such as Colombia and Pakistan. It paid $1.9 billion (Dh7 billion) in fines for money laundering and sanctions breaches in 2012, prompting a more risk-averse strategy.
“While there may be a public interest benefit in these withdrawals, there may also be cost,” Sir Sherard said, adding that banks such as HSBC were preparing for a clampdown, “even though no regulator is forcing us to do this.”
— Financial Times
