LONDON Jan 9 Banks were pleased this week by
news that Europe would impose less-restrictive rules on trading
than the United States, but the announcement proves that global
regulations are likely to remain inconsistent despite pledges to
At the height of the financial crisis in 2009, world leaders
pledged at a G20 summit to coordinate rulemaking. But with a
torrent of regulation since then, countries have adopted their
own approaches from caps on bankers' bonuses to capital rules.
Banks say that increases their compliance costs more than
necessary, and could even make regulation easier to skirt.
"It does illustrate the problem in terms of coordination,"
said Thomas Huertas, a regulatory partner at EY accountants and
former senior UK banking supervisor.
The latest example of poor coordination was this week's leak
of EU plans from the bloc's financial services chief Michel
Barnier to stop banks from making bets with their own money,
known as proprietary trading.
The principle, known in the United States as the Volcker
rule after a former federal reserve chairman who advocated it,
is designed to protect the financial system from trades like
JPMorgan Chase & Co's $6 billion "London Whale" loss in 2012.
The U.S. version, finalised last month, defines proprietary
trading broadly, forcing banks to spin off such operations. The
EU plans define it far more narrowly, giving supervisors and
banks potentially more leeway.
Adding to the confusion and the cost of compliance, the
three biggest EU economies, Germany, France and Britain, are
writing their own separate rules.
"The differing approaches raise the question of whether a
single banking model and the associated economies of scale will
be possible in the future," said Alexandria Carr, a financial
lawyer at Mayer Brown in London.
The EU plans go less far than many had predicted in
requiring funds traded on behalf of a bank's clients to be kept
separate from other operations.
Banking regulators should consider "segregation" - a step
less formal than full separation - of customer trading.
Countries drawing up their own rules, such as Germany, Britain
and France, could be exempt from the EU rules.
That news pleased banks.
"If borne out this would potentially be the beginnings of a
good start to the New Year," said Paul Chisnall, executive
director at the British Bankers' Association.
France and Germany in particular will not accept their
universal banks like Deutsche Bank and BNP Paribas being split
up. Carsten Schneider, a senior politician from Germany's SDP
party in the new coalition government, said that as outlined so
far, the EU plans would be a big step backwards.
Global banks complain of the extra cost of complying with
differing regulations in each of the countries where they do
business. Morgan Stanley says divergence among new rules costs
the world's biggest banks $15 billion a year in total.
Regulators on both sides of the Atlantic complain about
rules that have effect outside of their borders.
The EU and United States are at loggerheads over the foreign
reach of American rules to make derivatives safer.
Europe has criticised U.S. plans for forcing the U.S. arms
of foreign banks to operate as subsidiaries, which would require
them to hold a separate buffer of capital in the United States
as well as back in their home country, adding to costs.
Europe meanwhile is implementing the new Basel III global
bank capital rules differently. It is introducing the world's
toughest rules on banker bonuses, which will impact both the
European operations of U.S. and Asian banks and the American and
Asian operations of European banks.
The United States has declined to adopt a G20 pledge for a
single set of global accounting rules, and U.S. regulators are
questioning the need for a common global capital rule for
insurers as proposed by the G20.
"The damaging aspect of these discussions has been the
attempt to enforce coordination by extra-territorial application
of a country's laws, and in a sense saying 'convergence is a
good thing but our view is everyone should do it the same way as
we do it'," EY's Huertas said.
The G20's Financial Stability Board headed by Bank of
England Governor Mark Carney, is putting pressure on regulators
to mesh their rules, but with mixed success.
The G20 summit in Australia this year will finalise rules
for "shadow banks" like money market funds. But the EU and
United States are already taking different approaches.
(Reporting by Huw Jones; Editing by Peter Graff)