Global Financial Regulation Will Get Smarter And Use More Tech

Financial service regulators in the decade ahead will focus on smarter rules instead of just demanding more data, predicted P J Di Giammarino, CEO at JWG, a regulatory think tank in London.

In the aftermath of the global financial crisis, regulators rushed to develop solutions without necessarily having the time to think through what was available, what was useful, what made economic sense and what simple wasn’t feasible.

“There was a big rush post-crisis to get transparency done, and a very difficult and

complicated set of regimes that got put in place globally.”

Firms didn’t have the ability to stand back and plan how they would do it, and there was no clear indication of how serious regulators were, he added. Some of the results have been expensive disappointments.

“Money laundering stats show that despite the fact the industry is spending billions trying to stop it, the bad guys are able to process trillions through the system. Now there is growing recognition that we have better ways to use new technology to solve problems and do it collaboratively” with banks, tech vendors and regulators working together.

“The industry has lacked any kind of adult discussion about how to implement this mountain of regulation we have had in the past decade,” he added.

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“People are tired of getting information they can’t find useful. If you took the number of European regulatory documents that we have tracked over the past two or three years, it would be a 15-story building. The U.S. would be much less, but it is the second biggest and UK is right behind it.”

Those three powerhouses will drive the next wave of rule-making, he added.

“Everyone is concerned about the deltas between them, and how do you get the systems in place that takes care of you everywhere. That usually means you go to the highest standard. (See my story on Northern Trust which finds its global clients often adhere to the most stringent European rules on areas like data and privacy because it’s simpler, and that’s the direction the world is moving anyway.)

Europe has spent two and a half years looking at the value they get from FI’s reporting, Di Giammarino said. “Everyone is careful to say they have the right idea, but the data is just not useful. No one really anticipated how much information there would be and how difficult it would be to match it all up.”

Citi was recently fined £44 million because its liquidity coverage ratio was off by 44%, Di Giammarino said.

“If a global SIFI is off by 47%, how can you possibly say you have control over the system. What Citi was doing probably wasn’t materially different from the way a lot of firms have dealt with information — people didn’t have a lot of time to change accounting systems so they stayed with spreadsheets instead of re-platforming. The spreadsheet doesn’t give you the computational integrity the regulator wants to see. You no longer are able to rely on these very manual controls that count on people to plug numbers in to reports that come out of systems of questionable status.”

JWG has a regtech conference in early February with participants from the Bank of Austria, Bank of England, the European Central Bank and the FCA, plus bankers and tech firms.

“There is a much regulatory change on now as ever and the stakes are high, with 100’s of regulatory initiatives coming our way,” JWG says in its announcement. We want to see how we can get these changes done in a better, faster and smarter way.”

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