In the wallowing wake of 2008, we’ve all heard of the myriad laws, rules and regulations seeking to guard against another such world-wide economic meltdown. Are we better off? Are financial markets and economies safer? Well, uhm, somewhat, but there’s important work ahead and we are positioned to play a key role.
In 2011, the US Financial Crisis Inquiry Commission determined there were two culprits to the calamity: One— asleep at the switch policymakers (legislators, regulators... the whole lot), and; Two—the captains of Wall Street who took advantage of the circumstance. Various efforts have been made to plug some of the holes in financial laws around the world. Some important progress has been made. Formerly unseen (or dark) trading in over-the- counter markets are being brought to light, many trades are being executed on newly-named platforms in the States termed SEFs (swaps execution facilities). The actual trading datum is being stored in SDRs (swaps data repositories). Trades are being cleared to avoid big bets going bad without backing. Controls to avoid firms becoming over- leveraged (think Lehman Brothers and others) are being implemented. Bottom line: it is much less likely that a circumstance like 2008 will reoccur. The work, however, remains unfinished.
In the EU, the European Markets Infrastructure Reform (EMIR) is making marked progress, however best estimates are that it will be nearly complete in 2016. In the States, the Wall Street Reform and Consumer Protection Act (commonly known as Dodd-Frank) is about half finished (the derivative provisions—something your author helped write, about three-four ths finished). Throughout the rest of the world, various regulators with varying degrees of enthusiasm, speed and work bandwidth are efforting onward. That’s important because, in increasingly vibrant global markets operating across borders and without pause, what goes on in New York or London impacts Sydney and Singapore, Shanghai and Sao Paulo. Firms involved in global finance have to keep up with dozens of rules in dozens of jurisdictions. Are the regulators improving the system or creating a regulatory maze that will be impossible to follow?
After many meetings with international regulators (and as the former chair of the US Commodity Futures Trading Commission’s Global Markets Advisor y Committee), it is clear that there is a widely-held opinion that policymakers will seek to harmonise regulations as best they can— ensuring particular sovereign interests, of course. To the extent practicable, particularly in the US and EU, energies are being made to fashion “comprehensive and comparable” rules which would receive mutual recognition (otherwise known as “substituted compliance”) under the principles of international comity. Some others have made noise at times about not being as rigorous, believing (perhaps) that some traders may seek jurisdictions with the thinnest of rulebooks. I don’t see such market migration occurring. Here’s why: First—The Group of Twenty (G-20) Finance Ministers and Central Bank Governors support financial reforms which “… implement global standards consistently in a way that ensures a level playing field and avoids fragmentation of markets, protectionism and regulatory arbitrage.” Plus, contrary to what some might believe, global financial firms aren’t opposed to appropriate rules and regulations which safeguard themselves, their compatriot competitors or the financial system, in general. They just want clear, sensible, rules of the road. They won’t seek out rule regimes as part of some regulatory race to the bottom. They have too much to lose if things go haywire.
Twenty five years ago, in the movie Field of Dreams, Kevin Costner’s character (Ray) hears a voice from his corn field (yeah, his corn field) which whispers, “If you build it, he will come.” In a surreal, Hollywood-only, circumstance, the “build it” was a baseball diamond and the “he” was a disgraced old-time player—“Shoeless” Joe Jackson. Ray built it, and Shoeless Joe and some other players walked out of the cornfield and played baseball. The point, and I do have one for those of you who are questioning, is that the EU and US are building prudential financial rules and regulations that are, by and large, comprehensive and comparable. The two comprise roughly 70 percent of all financial trading in the world. As the regulatory framework is built, the rest of the world will come, too.
Which brings us to the question of who can help guide large and complex financial institutions through the complexities produced by this period of unprecedented global financial regulatory reform. It is clear that the current regime requires vision of regulatory change which goes beyond country borders only firms with a genuinely global platform and the people who know (heck in some cases who wrote the rules) can really advise on the current environment of regulatory reform. We are currently helping many clients ranging from banks and investment funds to exchanges and technology firms engaged in modern markets to get on with the job. There is much more to do than simply inform clients about compliance or assist with transactional deals. Professionals need to understand the direction of global regulatory reform as they move forward, the ability to look around the corner, be nimble and quick, and therefore create a competitive advantage. Our worldwide platform enables us to advise our global clients on the entire panoply of international regulations anything less is creating its own problems not providing solutions.