The Atlantic Council on The Danger of Divergence : Transatlantic Financial Reform & the G20 Agenda
On Tuesday, the Atlantic Council, TheCityUK, and Thomson Reuters held an event, Dangers of Divergence: Transatlantic Financial Reform & the G20 Agenda, where panelists, including European and U.S. officials, discussed ongoing transatlantic financial reform efforts and the potential dangers associated with regulatory divergence between the U.S. and EU on cross-border regulatory issues including over-the-counter (OTC) derivatives reforms, Basel III implementation, the Federal Reserve’s foreign banking organizations (FBO) proposal , and resolution authority.
The event came less than 24 hours after the Atlantic Council released its second Dangers of Divergence report which examined EU-U.S. cooperation on financial regulation, the “salient differences” in regulatory approaches, and offered suggestions on how to improve coordination between the two economic powerhouses.
In introducing the report, Deirdre Stanley, Executive Vice President and General Counsel at Thomson Reuters stated that while the G20 moved quickly on financial reform, transforming globally agreed upon standards to national legislation and rules has not been as straightforward as hoped. The opportunity for regulatory arbitrage is the “single largest reason” why a more global process of implementing reforms needs to be considered, especially since a rising Asian economy could exacerbate the risks of regulatory divergence, she added.
Gary Campkin, Director of International Strategy at TheCityUK, stated that the current system of transatlantic cooperation is not working as effectively as it could as existing mechanisms deal with divergences only after they occur, rather than working to anticipate divergences beforehand. In addition, proposed arrangements under TTIP for regulatory coherence should extend to financial services as “it would be perverse to exclude one sector,” he said. As repeated often by European panelists and speakers at the event, the idea would not be to weaken the Dodd-Frank Act or impinge upon regulators independence, but rather seek to establish a framework for dialogue that would be carried out not by trade negotiators themselves, but by regulators and other experts in the financial services field.
Chris Brummer, Fellow on Global Finance and Growth at the Atlantic Council and Professor of Law at Georgetown University, discussed how regulatory reform has followed along a path of “least resistance” as more difficult issues, such as OTC derivatives, accounting treatment, banking structure, and cross-border resolution, are saved for last. Recommendations to correct the divergence, as explained further in the report, include reenergizing global cross-border regulatory bodies by encouraging the IOSCO, the FSB and the Basel Committee to increase cooperation in finalizing and enforcing regulations, better coordination across international regulatory bodies through the G20, heighten political engagement in cross-border issues, establishment of rigorous timelines and the empowerment of regulators to get the job done by increasing their funding.
Keynote Speakers
Sen. Christopher Murphy (D-Conn.), one of the co-chairs of the report, stated that the U.S. and Europe cannot afford to follow separate paths, “lest we be left behind.” Not surprisingly, Murphy agreed with the Administration’s firm stance that the TTIP agreement should not include provisions that would water-down financial regulation. However, Murphy stated that that the current conversation is “bigger than Dodd-Frank” itself and that “we do ourselves a disservice when we must rid ourselves of regulatory coordination out of fear of watering down financial regulation.” Murphy noted that resolution authority “remains a question we’re still struggling to resolve” as overlapping lines of jurisdiction still aren’t clear. In concluding his remarks, Murphy called for a recommitment to multilateral forums and advocated for high-level political engagement “to make these international bodies credible.” He added, “summits every 3-to-4 years won’t get the job done,” and regular communication is needed.
EU Ambassador Vale de Almeida said it is “not enough” to rely and invest only in multilateral settings to address financial services related issues. Rather, talks should be done at a bilateral level, especially since Europe and the U.S. account for two-thirds of the global financial services sector. TTIP, “is more than a trade deal,” Almeida stated, and while there are differences between the U.S. and EU regulatory frameworks, “they are equally robust.” There is no race to the bottom and no potential for deregulation, Almeida remarked. “On the contrary, it is a race to the top” as the EU wants to improve the effectiveness of the frameworks, which will have an impact at the international level if the EU and US “cooperate better,” he said. “TTIP has the potential to provide that framework.”
Two Panels
EU Panelists: Sven Gentner, Counselor for Economic and Financial Affairs at the Delegation of the European Union to the United States; Francois Rivasseau serves as the deputy head of the EU delegation to the United States.
U.S. Panelists included: Robert Peterson, Assistant Director in the Office of International Affairs at the Securities Exchange Commission; Mark Sobel, Deputy Assistant Secretary for International Monetary and Financial Policy at the US Treasury Department.
Sobel Comments
On global regulatory cooperation and the report’s suggestion that it be reenergized, Sobel believed “some of the arguments are overdone,” and noted that from start to present the G20, finance ministers, national authorities, central bankers and others have been actively participating. He also noted that the FSB has more than 40 subcommittees working “very hard” across all aspects of financial regulation. Movement from design to implementation is tough work, Sobel said, but work is ongoing, the G20 is actively involved, and “we need the whole globe to be actively involved.” Sobel, as well as other participants, noted that the European Union is taking a more piecemeal approach in drafting, passing, and ultimately implementing legislation. Trying to assess comparability is difficult at this point, he said.
On the Federal Reserve’s FBO proposal, Sobel said “we’re going to do what we think is right for the U.S. market” and that “we’re doing this for the health of our market.”
On divergence, Sobel questioned the reports findings and indicated that the U.S. and Europe are roughly 95 percent in agreement on regulatory objectives and that the transatlantic partners are “working hard together.” While cooperation is strong, difficulties arise in the details, he added.
On TTIP, Sobel would only comment that the Administration has made it clear from the start that they are committed to advancing a strong financial regulatory agenda through appropriate international bodies. “No one should question our lack of willpower to get the job done,” Sobel said, before adding that Treasury Secretary Lew is pushing for the completion of core financial regulatory reforms in 2014 and that this will be a major focus of his at the next G20 meeting.
Response
Gentner and Rivasseau were quick to point out that while the two trading powers are 95 percent in agreement on financial regulatory objectives, implementation is different and much more difficult. Both officials stressed the need for higher levels of political engagement from the executive branch and Congress, and both officials reflected on the recent European Commission document released on Monday that contained the EU’s proposal to establish within the TTIP framework, “a transparent, accountable, and rule-based process which would commit the two parties to work together towards strengthening financial stability.”
Like Almeida, both officials repeated that this proposal was not an attempt to water-down financial regulation. It is an “unrealistic expectation,” Rivasseau said, to think that the U.S. and EU will rollback their regulatory agendas.
Rivasseau discussed how the proposal, if under the TTIP mandate, would complement, not replace the G20’s work, and merely provide for a separate channel for negotiations that would allow for more in-depth work on financial services regulation.
Gentner also argued that there needs to be a structure to allow U.S. and EU regulators the ability to detect potential divergences early on and address them early “to avoid any last-minute drama.” If the U.S. and EU cannot come to agreement and lead globally “I’m quite worried about what will happen in the future,” he said. If the right mechanisms are established, the EU and U.S. will be able to shape regulation globally, “which will be beneficial for the world economy.”
In addition, Gentner’s biggest concern with the FBO proposal is that this would ultimately impede the flow of capital and negatively impact market efficiency.
Peterson mentioned his concern with the report’s call for more rigorous timelines set at the international level, suggesting that imposing requirements on countries come to agreement by a certain date “assumes agreement is possible and assumes all the world players are at the table.” Peterson said he was “suspicious” that working at the multilateral level ultimately works better, especially since significant actors such as Congress and the courts are not present at the discussions. Putting down an arbitrary deadline and asking countries to come to an agreement by the specified date “runs the risk of forcing regulators to regulate in haste,” he said.
That being said, Peterson mentioned that discussions already exist and are ongoing between U.S. regulators and their European counterparts through the FSB, for instance. In fact, the SEC conducts its own bilateral dialogue with European regulatory officials. “The ability to share our views is not lacking,” he stated. Rather, “It’s coming to an agreement on certain critical issues that’s the problem.” Adding another layer of discussion in the trade arena to something that’s already being discussed is unlikely to speed up the resolution of complex financial regulatory issues, he added.
For more on the event, please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:International/Trade,Hearing Summaries Agency:Special Event,Publish Year:2014
On Tuesday, the Atlantic Council, TheCityUK, and Thomson Reuters held an event, Dangers of Divergence: Transatlantic Financial Reform & the G20 Agenda, where panelists, including European and U.S. officials, discussed ongoing transatlantic financial reform efforts and the potential dangers associated with regulatory divergence between the U.S. and EU on cross-border regulatory issues including over-the-counter (OTC) derivatives reforms, Basel III implementation, the Federal Reserve’s foreign banking organizations (FBO) proposal , and resolution authority.
The event came less than 24 hours after the Atlantic Council released its second Dangers of Divergence report which examined EU-U.S. cooperation on financial regulation, the “salient differences” in regulatory approaches, and offered suggestions on how to improve coordination between the two economic powerhouses.
In introducing the report, Deirdre Stanley, Executive Vice President and General Counsel at Thomson Reuters stated that while the G20 moved quickly on financial reform, transforming globally agreed upon standards to national legislation and rules has not been as straightforward as hoped. The opportunity for regulatory arbitrage is the “single largest reason” why a more global process of implementing reforms needs to be considered, especially since a rising Asian economy could exacerbate the risks of regulatory divergence, she added.
Gary Campkin, Director of International Strategy at TheCityUK, stated that the current system of transatlantic cooperation is not working as effectively as it could as existing mechanisms deal with divergences only after they occur, rather than working to anticipate divergences beforehand. In addition, proposed arrangements under TTIP for regulatory coherence should extend to financial services as “it would be perverse to exclude one sector,” he said. As repeated often by European panelists and speakers at the event, the idea would not be to weaken the Dodd-Frank Act or impinge upon regulators independence, but rather seek to establish a framework for dialogue that would be carried out not by trade negotiators themselves, but by regulators and other experts in the financial services field.
Chris Brummer, Fellow on Global Finance and Growth at the Atlantic Council and Professor of Law at Georgetown University, discussed how regulatory reform has followed along a path of “least resistance” as more difficult issues, such as OTC derivatives, accounting treatment, banking structure, and cross-border resolution, are saved for last. Recommendations to correct the divergence, as explained further in the report, include reenergizing global cross-border regulatory bodies by encouraging the IOSCO, the FSB and the Basel Committee to increase cooperation in finalizing and enforcing regulations, better coordination across international regulatory bodies through the G20, heighten political engagement in cross-border issues, establishment of rigorous timelines and the empowerment of regulators to get the job done by increasing their funding.
Keynote Speakers
Sen. Christopher Murphy (D-Conn.), one of the co-chairs of the report, stated that the U.S. and Europe cannot afford to follow separate paths, “lest we be left behind.” Not surprisingly, Murphy agreed with the Administration’s firm stance that the TTIP agreement should not include provisions that would water-down financial regulation. However, Murphy stated that that the current conversation is “bigger than Dodd-Frank” itself and that “we do ourselves a disservice when we must rid ourselves of regulatory coordination out of fear of watering down financial regulation.” Murphy noted that resolution authority “remains a question we’re still struggling to resolve” as overlapping lines of jurisdiction still aren’t clear. In concluding his remarks, Murphy called for a recommitment to multilateral forums and advocated for high-level political engagement “to make these international bodies credible.” He added, “summits every 3-to-4 years won’t get the job done,” and regular communication is needed.
EU Ambassador Vale de Almeida said it is “not enough” to rely and invest only in multilateral settings to address financial services related issues. Rather, talks should be done at a bilateral level, especially since Europe and the U.S. account for two-thirds of the global financial services sector. TTIP, “is more than a trade deal,” Almeida stated, and while there are differences between the U.S. and EU regulatory frameworks, “they are equally robust.” There is no race to the bottom and no potential for deregulation, Almeida remarked. “On the contrary, it is a race to the top” as the EU wants to improve the effectiveness of the frameworks, which will have an impact at the international level if the EU and US “cooperate better,” he said. “TTIP has the potential to provide that framework.”
Two Panels
EU Panelists: Sven Gentner, Counselor for Economic and Financial Affairs at the Delegation of the European Union to the United States; Francois Rivasseau serves as the deputy head of the EU delegation to the United States.
U.S. Panelists included: Robert Peterson, Assistant Director in the Office of International Affairs at the Securities Exchange Commission; Mark Sobel, Deputy Assistant Secretary for International Monetary and Financial Policy at the US Treasury Department.
Sobel Comments
On global regulatory cooperation and the report’s suggestion that it be reenergized, Sobel believed “some of the arguments are overdone,” and noted that from start to present the G20, finance ministers, national authorities, central bankers and others have been actively participating. He also noted that the FSB has more than 40 subcommittees working “very hard” across all aspects of financial regulation. Movement from design to implementation is tough work, Sobel said, but work is ongoing, the G20 is actively involved, and “we need the whole globe to be actively involved.” Sobel, as well as other participants, noted that the European Union is taking a more piecemeal approach in drafting, passing, and ultimately implementing legislation. Trying to assess comparability is difficult at this point, he said.
On the Federal Reserve’s FBO proposal, Sobel said “we’re going to do what we think is right for the U.S. market” and that “we’re doing this for the health of our market.”
On divergence, Sobel questioned the reports findings and indicated that the U.S. and Europe are roughly 95 percent in agreement on regulatory objectives and that the transatlantic partners are “working hard together.” While cooperation is strong, difficulties arise in the details, he added.
On TTIP, Sobel would only comment that the Administration has made it clear from the start that they are committed to advancing a strong financial regulatory agenda through appropriate international bodies. “No one should question our lack of willpower to get the job done,” Sobel said, before adding that Treasury Secretary Lew is pushing for the completion of core financial regulatory reforms in 2014 and that this will be a major focus of his at the next G20 meeting.
Response
Gentner and Rivasseau were quick to point out that while the two trading powers are 95 percent in agreement on financial regulatory objectives, implementation is different and much more difficult. Both officials stressed the need for higher levels of political engagement from the executive branch and Congress, and both officials reflected on the recent European Commission document released on Monday that contained the EU’s proposal to establish within the TTIP framework, “a transparent, accountable, and rule-based process which would commit the two parties to work together towards strengthening financial stability.”
Like Almeida, both officials repeated that this proposal was not an attempt to water-down financial regulation. It is an “unrealistic expectation,” Rivasseau said, to think that the U.S. and EU will rollback their regulatory agendas.
Rivasseau discussed how the proposal, if under the TTIP mandate, would complement, not replace the G20’s work, and merely provide for a separate channel for negotiations that would allow for more in-depth work on financial services regulation.
Gentner also argued that there needs to be a structure to allow U.S. and EU regulators the ability to detect potential divergences early on and address them early “to avoid any last-minute drama.” If the U.S. and EU cannot come to agreement and lead globally “I’m quite worried about what will happen in the future,” he said. If the right mechanisms are established, the EU and U.S. will be able to shape regulation globally, “which will be beneficial for the world economy.”
In addition, Gentner’s biggest concern with the FBO proposal is that this would ultimately impede the flow of capital and negatively impact market efficiency.
Peterson mentioned his concern with the report’s call for more rigorous timelines set at the international level, suggesting that imposing requirements on countries come to agreement by a certain date “assumes agreement is possible and assumes all the world players are at the table.” Peterson said he was “suspicious” that working at the multilateral level ultimately works better, especially since significant actors such as Congress and the courts are not present at the discussions. Putting down an arbitrary deadline and asking countries to come to an agreement by the specified date “runs the risk of forcing regulators to regulate in haste,” he said.
That being said, Peterson mentioned that discussions already exist and are ongoing between U.S. regulators and their European counterparts through the FSB, for instance. In fact, the SEC conducts its own bilateral dialogue with European regulatory officials. “The ability to share our views is not lacking,” he stated. Rather, “It’s coming to an agreement on certain critical issues that’s the problem.” Adding another layer of discussion in the trade arena to something that’s already being discussed is unlikely to speed up the resolution of complex financial regulatory issues, he added.
For more on the event, please click here.