The United States leads the global economy in financial services: the U.S. is home to six of the world’s top fifty financial centers with New York holding the number one spot. U.S capital markets are also the world’s largest, accounting for 41 percent of global equity and 40 percent of global fixed income markets.

The U.S. banking sector is one of the world’s largest, most competitive and best capitalized, serving as a source-of-strength for consumers, businesses, and capital market participants. Because capital markets are fundamental to investment, job creation and prosperity, they are essential to the recovery from the COVID-19 crisis for every sector of the U.S. economy.

Financial services are also a large export industry for the U.S. – worth around $135bn per annum – and important to the economic benefits of trade agreements. Trade agreements should be comprehensive, broaden market access for financial services firms, and address issues specific to today’s economy in digital trade to enhance U.S. economic competitiveness in the 21st century.

Ensuring a strong and competitive U.S. financial services sector will therefore be critical to the Biden administration’s efforts to forge a sustainable economic recovery over the coming months and years. To do so, the new administration will need to prioritize the following items in its cross-border financial services agenda.

Cross-Border Regulatory Coordination

The financial services industry is perhaps the most globally integrated of all service industries, yet is still typically subject to regulation at the national level. At times, these two forces conflict with one another, with cross-border investment and activities by financial institutions hampered by regulations that are inconsistent between different jurisdictions.

That is why at the 2009 Pittsburgh Summit, G20 Leaders recognized the importance of individual authorities implementing “…global standards consistently in a way that ensures a level playing field and avoids fragmentation of markets, protectionism, and regulatory arbitrage.”

While there are well-developed mechanisms both at the multilateral and bilateral level to promote cross-border regulatory cooperation (e.g., the Basel Committee on Banking Supervision, the Financial Stability Board and International Organization of Securities Commissions), cooperation between financial regulators can be strengthened and improved.

One study estimated that existing regulatory inconsistencies cost the global economy $780bn per year. Moreover, some forms of fragmentation, such as capital and liquidity ring-fencing, may undermine global financial stability (see, for example, this study).

U.S. regulators should continue to take the lead in strengthening regulatory cooperation with their global counterparts and avoid pursuing policies (such as the “gold-plating” of internationally agreed capital and liquidity standards) that could lead to fragmentation and financial instability.

The still evolving areas where global coordination and consistency will be important include the implementation of the Basel III capital reforms and guidelines around operational resiliency.

Sustainable Finance is also an emerging area where policymakers in different jurisdictions will need robust dialogues with one another including, for example, on the development of common approaches to climate risk disclosures and stress testing.

U.S./UK Trade and Regulatory Cooperation

With the United Kingdom officially having transitioned out of the European Union, the U.S. and UK have begun to re-define their bilateral relationship. This is happening on two fronts – trade negotiations and regulatory cooperation. Given the similarities of these two economies in terms of, for example, being home to the world’s preeminent financial centers and having broadly similar regulatory philosophies, the potential to spur increased transatlantic investment and sustainable growth is significant.

A future UK-U.S. trade agreement offers an unprecedented opportunity for putting financial services at the heart of a new, 21st century economic relationship; maximizing opportunities for exports and cross-border investment in financial services will yield significant and widespread benefits for both countries’ economies.

The UK and U.S. have already established a Financial and Regulatory Working Group (FRWG) to coordinate on regulatory matters. SIFMA believes this redefining of the UK-U.S. relationship presents a unique, unrealized opportunity to establish a new, best standard in cross-border regulatory coordination and supervisory cooperation.

Through the British American Finance Alliance (BAFA), a coalition of 21 British and American trade associations and industry bodies representing both financial and professional services and co-chaired by SIFMA, we have set out in detail how we believe that gold standard can be realized.

Data

In the 21st century, the ability to transfer data across borders and locate servers wherever needed is crucial for U.S. financial services firms operating on a cross-border basis. It is estimated that cross-border data flows increased global GDP by 10 percent alone in the decade up to 2014.

Yet, despite this fundamental feature of modern commerce, many markets in recent years have designed and implemented data localization policies hindering the free flow of data. These policies impose economic costs both on the industry and on the GDP of countries implementing such regulations.

The United States, Mexico, Canada Agreement (USMCA) was the first trade agreement that included a prohibition on forced data localization, conditional on regulators retaining access to that data wherever it be stored; this landmark achievement built on work began during the second Obama administration and continued by the Trump administration.

The U.S. Japan Digital Trade Agreement of October 2019 also ensured that data can be transferred across borders, by all suppliers, including financial service suppliers while the U.S. and Singapore put forth a shared understanding on data transfers in 2020.

For the Biden administration, future trade and investment agreements – and possibly other forms of bilateral and multilateral understandings – must build on this bipartisan foundation and protect financial services from policies that constrain the free flow of data or necessitate locating servers in particular jurisdictions. That should include ensuring the WTO Joint Statement Initiative (JSI) negotiations on digital trade also discipline unnecessary or discriminatory data localization mandates and data transfer restrictions.

U.S./China Relations

The United States already exports over $4bn worth of financial services to China per year with another $3bn supplied by U.S. subsidiaries and affiliates based in China. This is a strong foundation for future growth.

In January 2020, the United States and China reached their Phase One trade agreement, which cemented landmark commitments by China to open its financial system to full and fair foreign competition for the first time. This has been a long-standing goal of the U.S. financial industry, and SIFMA has partnered with administrations of both political parties over many years to help realize this objective.

Moving forward, it will be crucial that China fully delivers on its commitments and that there be processes for robust and regular monitoring and enforcement.

In addition to SIFMA’s championing of U.S. competitive interests in China, our CEO Ken Bentsen also chairs the Engage China Coalition, a group of ten financial services trade associations with an interest in establishing a level-playing field in China. Engage China looks forward to working with the new administration to promote a U.S./China relationship that maximizes the benefits to the U.S. economy.

Conclusion

Governments around the world are eager to develop policies that will spur innovation and investment, as well as generate a sustainable, equitable recovery from the COVID-19 crisis. Financial services are a crucial component in that vision; the international, cross-border nature of an industry such as financial services should be recognized in shaping policy development.

Strengthening the competitiveness of U.S. financial services through policies on regulatory cooperation, data and our relationships with major trade and investment partners will help accelerate the rate of recovery and help establish a stronger foundation for our economic future.

Peter Matheson is Managing Director of International Policy & Advocacy at SIFMA.