The World Payments Report, which was published by BNP Paribas and Capgemini in September, surveys banks on their reactions to the implementation of new regulation. While the regional regulations understandably have a higher impact in their home markets, global rules seem to be having an unbalanced impact around the world.
The WPR unsurprisingly showed that the Single Euro Payments Area (Sepa) was having a moderate impact on Europe, but was not an issue in the US or Asia. Equally, Payment Services Directive II (PSD2), implemented by the European Commission, is having a significant impact in Europe, but not being felt in other regions.
The US, however, is taking a far tougher approach towards payments security and technology than Europe and Asia.
For example, the New York State Department for Financial Services is implementing cybersecurity regulations that will require institutions to develop a programme to address 12 aspects cyber threat covering data security and management, identity management and disaster recovery plans.
Emerging markets are starting to come under additional regulatory pressures, with many looking to implement rules to promote innovation and competition. These include new regulation in Thailand for a national e-payment system, which is due to be implemented next year.
Regional nuances affect the implementation of global regulations, with the maturity of each country’s payments systems and its rate of technology adoption proving to be important factors in the speed of implementation.
Regulatory authorities should not be too heavy-handed in their approach.
Jan Dirk van Beusekom, executive director for BNP Paribas, says: “Supervision by the central authority or regulatory body is essential for successful implementation of regulations, while at the same time, too much scrutiny could hinder competition and innovation in the industry.”
“Central banks may in some rare occasions have their own interpretation of the rules and will decide whether they can give any leeway," he says. "There may be some change, but overall in Europe it will all be the same.”
“Within Europe, with a regulation like the EMIR [European Market Infrastructure Regulation] qualifications on hedging, Germany's BaFin has been more pragmatic in its implementation of what is required. Some regulators are not happy, but they have to comply. Countries are not exempt from regulations.”
Which type of regulations are prioritized varies regionally too. The WPR defines regulations as being either prescriptive or transformational; either implemented to promote compliance or developed to push innovation. In the US and in Europe, the regulators are focused on prescriptive regulations around security and risk, while leaving innovation to the markets. In Asia-Pacific, there is a more balanced focus, pushing also for innovation.
The varying strategies comes down to what the regulators are trying to achieve. European regulators have taken the approach of increasing competition, as seen with PSD2, which allows for third parties to gain access to accounts and make payments.
In the Euromoney Cash Management Survey 2016, these trends towards regional variations are replicated.
Financial institutions (FIs) and non-FIs were questioned as part of the survey on which regulatory requirements have had the biggest impact on their choice of cash management provider during the past year. The impact of Basel III, international sanctions and know your customer were among the top three sanctions for both sets of results.
While region-specific regulations will hit locally first and hardest, over time there will be a ripple effect.
The diverse approaches to interpreting regulations is creating fragmentations. Working out how to implement rules so they do not overlap with existing regulations adds further complexity.
Jeroen Holscher, head of the global payments practice at Capgemini, cautions that the lack of understanding of regulations can hold up the process.
“As key regulatory and industry initiatives (KRIIs) proliferate regionally and globally, an inability to anticipate the requirements of regulations also poses a risk for banks and financial institutions," he says. "Overlapping KRII objectives are also a matter of concern for the industry stakeholders.”
He cites the lack of understanding on Basel III intraday liquidity and the overlap with immediate payments initiatives resulted in delays to migrating to the Target2 XML payment standard.
The involvement of different groups with conflicting interests can also slow down the process.
Says Holscher: “A lack of common understanding among industry stakeholders of regulatory objectives opens up the possibility of multiple interpretations of regulations, and financial institutions that operate across different countries need a common understanding of how to comply with particular KRIIs.”
Even if a two-tier approach to certain regulations is now apparent, over time it will balance, says EACT's Servat, adding: “Ultimately, between the G20 countries there is a willingness post-financial crisis to remove risk from the system. The implementation is different from region to region, but at a high level they want to achieve the same thing.”