National and regional interests have helped to determine the shape of financial regulations in recent years, but politicians and regulators have acknowledged the need to consider the global nature of markets when constructing them. It could be good news for financial technology providers.
Following the financial crisis, G20 leaders convened in 2009 in Pittsburgh where they established a discourse in which national and regional regulators would rebuild markets based on a number of shared principles. The aim was to align financial regulators with one another, in order to allow them to better control systemic risk and remove the possibility of bubbles growing in particular regions that could explode elsewhere.
But of course it hasn’t worked out so smoothly, as national regulators have attempted to rebuild their own markets – never mind the global stage. In the US, the 2010 Dodd Frank Act set out to better control the country’s banking system, while the Securities and Exchange Commission and the Commodity Futures Trading Commission underwent moderate overhauls to allow the agencies to better plug leaks. In Europe, the continent’s largest ever financial regulatory overhaul – the second Markets in Financial Instruments Directive (Mifid II) – went further, handing the European Securities and Markets Authority international sway for third country systems. Indeed, a proposal by the European Commission in June last year suggested the continent’s authorities would subject third-country clearing houses to additional oversight. The proposal was met with mass outcry from CFTC chairman Christopher Giancarlo, his commissioner Brian Quintenz, and commentators across the US who saw the Europeans on their lawns waiting to inspect the country’s CCPs.
And with China and Singapore expected to announce further market reforms over the course of the next few months the possibility that the global financial narrative will become even more segmented, moving further from the Pittsburgh ideals, is likely. That said, the appetite for regulatory equivalence is widespread, and gaining momentum.
At the International Swaps and Derivatives Association (Isda)’s annual general meeting last week recently, various regulators and politicians spoke of the need to support a global framework for financial markets. Kate Swinbourne, minister of the European Parliament and vice chair of the EP’s Economic and Monetary Affairs Committee joined Isda members, the CFTC and others in pushing for global regulatory oversight.
“There is a real impetus to maintain global standards, to maintain a global framework,” she said, at the conference.
Of course much of the talk surrounded Brexit, which still looms as a threat to the idea of regulatory convergence.
“I’m very concerned that there are some big issues out there that may derail some of those global initiatives,” said Swinbourne. “In particular of course the obvious one is Brexit and the future relationship between the UK and the EU could have an impact on some of those global talks because if they don’t come together on a swift and prompt agreement on financial services it could genuinely have an impact on equivalence around the world.”
“And therefore the EU and the UK having the same rules on the day that the UK leaves – they should be able to find an arrangement to allow them both to play a part in those global standards going forward.”
Building new regulatory frameworks following the financial crisis has without doubt been a major challenge for national and regional market regulators, and the idea of creating a global system in which regulations are supportive and reflective of one another even more so. But should regulations come into line, it could present great opportunity for financial technology providers.
From commodities to asset management and the derivatives industry, financial markets have become increasingly global in nature over the past few years. Hedgers, speculative traders, and risk managers, have been looking to capitalise on different risk profiles put forth by a wider selection of instruments in different jurisdictions, to great effect. Indeed, the rise of cryptocurrencies has gone one step further, aiming to remove national boundaries – though of course leading jurisdictional regulators scratching their heads.
The fintech industry has benefited from financial services’ ability to access more platforms and use more tools. From the need to better crunch larger volumes of data to quickly assess currency risk, financial institutions find themselves pushed to remain competitive within global markets.
Of course regulations change regularly, the blueprints for the UK’s new financial markets are in their infancy, and new Asian market infrastructure could go many ways. But with regulators and politicians making the right sounds about global – rather than regional – markets, the future of globalised financial markets and a fintech arena to serve it, remain bright.