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Regulatory confusion delays Basel II projects

CONTINUING CONFUSION over home/host regulatory issues is adding unwanted complications to Basel II implementation projects globally, according to a leading finance expert.Dr Tom Garside,…

user iconLawyers Weekly • 15 April 2005 • NewLaw
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CONTINUING CONFUSION over home/host regulatory issues is adding unwanted complications to Basel II implementation projects globally, according to a leading finance expert.

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Dr Tom Garside, director of financial services at Mercer Oliver Whyman in London, said on a recent visit to Australia that home/host regulator issues have the potential to hit cross border competition in the global banking industry. “You clearly can get different regulatory attitudes in different countries,” he said. “Some of that is driven by the usual predictable national stereotypes, and some of it is driven by the size of your operations in that jurisdiction. In New York money centre operations, non-US firms have come under a lot more immediate pressure than they have in their own jurisdiction, and that’s causing some problems. The credit angle has a fair amount of consensus from global regulators, but on operational risk, it is much less clear.”

He added that there are concerns that host regulators may hold offshore firms to a higher level of proof than their domestic rivals. “There are competitive issues where a country is holding its institutions to a higher level of proof about whether people are getting a lighter ride from their home supervisor,” Garside said. “Should regulators be getting involved in cross border competition? It is causing a lot of complications.”

While Australia should be relatively immune to these symptoms due to the relative lack of foreign owned activity when compared with the US, Australian banks operating in overseas markets could be affected.

These issues may not be ironed out for some time, however. “This is done through negotiation, there isn’t a deadline as such,” Garside said. “It will have to converge through now and 2007. By some point, perhaps by 2009, then we will have the rules of engagement more figured out.”

One of the main issues, Garside added, is that both regulators and the banking industry are competing for the same resources. Australian Prudential Regulatory Authority chairman Dr John Laker alluded to this late last year, and said that demand for risk management specialists is now building up strongly, in part due to Basel II. “We are keen to attract experienced people from industry, to see life from our side of the fence,” he said. “What doesn’t make it any easier, although it is a tribute to how APRA’s skills have developed, is that our people are themselves being headhunted for roles in industry.”

This pattern is being repeated elsewhere. “People are short of resources and in the UK there has been musical chairs between the Financial Services Authority [APRA’s UK equivalent] and the banks. Everyone is going after the same resources,” Garside said.

Stuart Fagg is the Editor of Risk Management magazine, Lawyers Weekly’s sister publication.

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