This week I had the pleasure of welcoming to the office Daniel Godfrey, who will be taking over the helm at the IMA next month. Last week saw a reminder of the agenda that he will face.
This came at the annual conference of the International Investment Funds Association, the banner under which the IMA comes together with sister associations across the globe to discuss regulatory challenges.
One major takeaway for the conference was just how universally the need to rebuild investor trust is seen as a key issue for the industry. A decade of poor stock market returns, combined with ageing populations across the globe, is sparking debate everywhere about how to foster long term saving.
The second major theme – one that featured also in the IMA’s latest industry survey – was just how global the regulatory policymaking process has become. Financial regulation was once a national concern, though over the last decade in Europe it has been increasingly determined at EU level. But one lasting legacy of the credit crisis has been a decisive shift in focus to global bodies such as the G20, the Financial Stability Board and the International Organisation of Securities Commissions.
It does not work perfectly, of course. For example:
- While there is agreement that more derivative transactions should be cleared centrally rather than over-the-counter, the US rules introduced in the Dodd-Frank Act differ in some important respects from the corresponding European legislation.
- There are different approaches to the structure of banking: in the US, the Volcker Rule effectively aims to split investment from retail banking; in the UK the Vickers Commission introduces a “ring fence” around retail banking; and on the continent a recent report by an EU Expert Group recommends something slightly different again. Meanwhile Asia went through its banking crisis a decade ago, and some reforms followed that, but further changes are possible.
- The approach to hedge fund regulation is markedly different on the two sides of the Atlantic.
But whatever the differences of detail (and these can create real problems for firms operating and investing internationally) the direction of travel is clear. It is towards regulating the global financial sector on a more integrated basis.
The consequence will be that the competitiveness of international financial centres – like London – will be much more about their attractiveness as a place to do business than about the level and style of regulation. And that can only be good for London. Getting from here to there is likely to be painful and stressful, but the result will hopefully be worth it.
Richard Saunders is chief executive of the Investment Management Association