On October 7, the International Centre for Financial Regulation and Brookings held a joint meeting to improve understanding of the European financial regulatory agenda and the similarities and differences in priorities and legislation with U.S. regulatory initiatives. At the meeting, participants compared EU and U.S. regulatory reforms and their potential impact on the financial system and financial institutions, and the key outcome from research and speaker contributions was the need to take account of the implications of these new regulations for high growth emerging markets.
At the seminar, ahead of the annual IMF/World Bank meetings, it was noted that U.S. and European actions are surprisingly consistent and in line with G20 principles, though differences around accounting rules, hedge funds, rating agencies, cross-border bank resolution and capital rules could make consistent implementation difficult for financial institutions operating in both jurisdictions.
While these jurisdictions cover seventy percent of current global financial transactions, the issue of how to integrate emerging markets into global financial regulatory reform, at a time when the weight of emerging markets financial services has dramatically increased, is still largely unresolved.
The financial infrastructures of these economies are at relatively different stages of development, as are their depth, their supervisory structures and culture, and fortunately their interconnectedness. As a result, they have been less affected by the crisis than the North Atlantic nations, and have had a more rapid recovery.
While this has strong implications for macroeconomic policy and capital flows, it also raises the pressing issue of whether and which of the G20 regulatory objectives are relevant and appropriate to them. Many countries’ regulators are currently working hard to ‘square the circle’ of their domestic objectives and goals of international convergence.