Regulation of the financial services sector is in a state of flux across the globe, as different regions pursue contrasting – and sometimes conflicting – agendas. Yet collaboration and good policy could help achieve greater unity. That’s the message from Chris Cummings, CEO of the UK’s Investment Association.
If we step back and look at regulation from a global perspective, what do you see currently?
The international consensus that we saw after the global financial crisis feels very much under threat. We're concerned about a fragmentation of capital pools and the increasing prudential requirements placed on market participants.
There are very different regulatory standards being applied depending on which jurisdiction you operate in as a company. That adds to cost, and it means that people have to spend a lot more time worrying about regulation than product innovation.
What we see are three emerging blocks: the United States, Europe and Asia.
How has the Trump administration changed financial services regulation in the US?
The US traditionally sought to develop rules and regulations that were then applied internationally. After the global financial crisis, the US was the one of the first jurisdictions to impose tougher regulations, particularly in banking, and that continued under the Obama administration.
Things have changed under the Trump administration. We’re see a rolling back of the desire for new regulations, particularly in asset management. That constant drumbeat of new policy initiatives has definitely slackened off, and what we see is a US administration that is much more concerned about promoting the growth of its companies, and a brake being applied on new regulation.
In contrast, how would you describe the European Union’s approach to regulation?
In the EU there is a desire to create markets through regulation. That means, if the market doesn't exist, then regulate first and then the market will grow. It’s a distinctly different approach to other parts of the world. We’re seeing a continuation of the regulatory initiatives that have been the hallmark of financial services since the financial crisis. Even setting Brexit aside, what we see is a new European Parliament and a new European Commission flagging the intention to review and enhance regulatory measures designed to, in their words, protect European citizens and focus on the single market.
The danger that we see is the barriers to entry for companies that aren't headquartered in the EU. For them, the costs of doing business in the EU will increase. Thinking particularly about asset management, asset managers who create those markets and who recycle wealth are finding their progress being held back.
The third block you referred to was Asia. What does regulation look like there?
In Asia, and most notably China, there is a different approach again. In China there is a focus from banking regulation switching to an environment that's promoting a long-term savings approach and a greater interest in developing capital markets with Chinese characteristics. What we're seeing is continued interest from the Chinese to import best practices from other parts of the world, but to overlay them with the Chinese approach. The markets there look to us like they're growing, with great opportunity, but it's different from doing business in other parts of the world.
From a financial services perspective, the younger population in Asia offers huge market opportunities across nations like Cambodia, Vietnam and Indonesia. Business needs to work with regulators to establish good practice in order to make sure that customers can be best served in those jurisdictions.
It's an extremely complex and challenging outlook currently. Do you see much cause for optimism?
I do. I think there's an opportunity for the international standard setters to work closely with politicians in order to protect the global capital markets. This is a moment where we need regulators who understand markets and who aren't afraid of recognising that the role banks used to play of being the main engine for growth has been overtaken by securities regulators and by capital markets. Collaboration between prudential regulators and market supervisors is going to be really important.
Looking ahead to the Financial Services Council Summit in Australia, what are you looking forward to most?
There are major business issues that we all face in such fast-changing world, where industries are under margin pressure, and where technology is at the forefront. So I’m looking forward to sharing and learning lessons of good practice from other parts of the world.
I’m also looking forward to discussing what others are doing to bolster their reputation in the eyes of the public and politicians, and also how they're going about making sure that the people they're attracting into the industry are not only the best on paper, but also from diverse backgrounds. Diversity of thought and outlook encourages better business outcomes.