Lawyers claim "too many regulations coming out"
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Lawyers claim "too many regulations coming out"

Financial market lawyers at Reed Smith criticise the range of financial regulations being proposed or implemented

Lawyers have hit out at the high level of global regulatory changes, claiming they will lead to fragmentation,

protectionism and the exacerbation of the "downward trend in the financial services industry".


“There are too many regulations coming out," says Jacqui Hatfield, partner at Reed Smith. "It is a case of information overload. All participants in the financial services sector have new rules affecting them. It is costly and time-consuming for firms to review the regulations and assess their impact, to consider strategies to deal with them and to lobby where considered necessary."


According to Thomson Reuters' research, regulators around the world have announced 14,215 changes in the 12 months to November, which is up from 12,179 for the same period a year earlier.


The research also calculated that, on average, 60 regulatory changes are announced every working day, which is a 16% increase over last year. 


Lawyers believe the regulatory burden that the financial services industry is facing threatens to exacerbate the general downward trend in the EU and eurozone.


“The sheer volume of regulatory changes in the global financial services industry is having a dramatic effect on the financial institutions in Europe and the United States, and, to a lesser extent, Asia," says Scott Cameron, partner at Reed Smith.

“The regulatory compliance burden threatens to exacerbate the general downward trend in the financial services industry, in particular in the EU where the eurozone crisis coupled with new capital requirements are already threatening the bank’s core business of lending."


In September, the directors at the Institute of International Finance (IIF), including Deutsche Bank’s Josef Ackermann, said that new regulations will be a drag on global economic growth for five years as bank-lending rates rise, as well as holding back economic growth until 2016.


According to the IIF study, titled The cumulative impact on the global economy of changes in the financial regulatory framework, it is estimated that banks in the leading industrial economies will require additional capital of $1.3 trillion by 2015. This could push bank-lending rates up by more than 3.5 percentage points on average for the next five years.


“Too many regulations will lead to fragmentation and potential protectionism, particular globally," says Hatfield. "It is difficult to get everyone to agree and to implement detailed rules in a uniform and timely manner. It will be easier and quicker to agree a set of global, high-level, harmonised, uniform standards, which can be adapted to each jurisdiction's needs.” 


Cameron adds: “After the original credit crises in 2007, the tide of regulation started to come in to stop the perceived risk-taking at the banks at the cost of the taxpayers. At some point, however, governments and financial services regulators throughout the United States and Europe will need to step back and make a thorough assessment of the combined regulatory burden being faced by the banks."


Despite the criticism about the number and level of global regulatory changes being released, Cameron and Hatfield believe there are cores issues that should be addressed.


“Concentration on good corporate governance and on a set of global, high-level, harmonised, uniform standards relating to, amongst other things, risk management, would be preferable," says Hatfield. "It does not matter what regulations exist – they won't be effective unless there is good corporate governance."

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