Thomson Reuters has released a State of Regulatory Reform 2018 Special Report highlighting a rise in international divergence in regulatory reform and financial firms racing to apply digital technology. On a geographic basis, the report, now in its eighth annual edition, describes major regulations taking effect in the European Union and Asia Pacific, and the pull back of regulation in the US, where President Trump’s administration plans a deregulatory agenda.
Considering go live of the EU’s Markets in Financial Instruments Directive II (MiFID II) on January 3, 2018, the report notes that it will be some while before regulators take any action over non-compliance as ‘a last minute mini-flood of waivers, extensions and consultations was announced to offset many of the looming pressure points’.
Similarly, firms waiting for the European Securities and Markets Authority (ESMA) to use its product-banning powers straight out of the gate must await the outcome of yet another consultation on contracts for difference and binary options to see if ESMA is willing to walk the walk on investor protection. Likewise, the six-month ‘breathing space’ granted at the eleventh hour for issuers who had failed to get a Legal Entity Identifier (LEI) has pushed back any supervisory investigations on transaction reporting until at least Q3 2018.
The report also touches on the EU’s General Data Protection Regulation (GDPR) and discusses Brexit and a world without passporting. Challenges in Europe include digital market abuse emerging from the dark web and the risks of high-end money laundering.
Turning to the US, the report says Trump’s early vow to dismantle financial regulations hindering the economy has been translated into a blueprint for action promising more relaxed banking regulations, including the Volcker rule’s ban on proprietary trading, stress testing and the supervisory process. Regulators are also aiming to ease oversight of capital standards, both among smaller banks and insurers.
Congressional efforts to win a broad repeal of the 2010 Dodd-Frank Act face political obstacles, leaving real change to be delivered by the executive branch, which is wielding bureaucratic tools to carry out its agenda within existing law.
Looking at Asia Pacific, the report notes a shifting enforcement landscape including a Financial Action Task Force (FATF) investigation in Hong Kong, a focus on OTC markets and reform as a result of Basel III implementation.
From a technology perspective, the report says 2018 will be characterised by regulators and the financial services industry racing to keep pace with the rapid development of digital technology. Most urgent will be the stability and money-laundering risks presented by cryptocurrencies, the transformative potential of blockchain, and threats to cyber security.