The future of global regulation: convergence or divergence?
01 December 2020 UK
Image: Zamrznuti tonovi/Adobe Stock
Convergence and having the same common goal is extremely important within the financial services industry, according to panellists at the Depository Trust & Clearing Corporation (DTCC) Forum webinar on challenges and priorities in global post-trade.
Panellists likened convergence to a car journey, explaining that there will be lots of different cars with different requirements or issues but the end destination is the same.
This similarity was pinpointed after moderator Andrew Douglas, managing director, government relations, Europe Middle East Africa & Asia at DTCC, asked the panel what their definitions of convergence were.
Dawn DeBerry Stump, commissioner at Commodity Futures Trading Commission (CFTC), explained: “My definition of convergence is moving towards one another to achieve a common result and we have to keep a focus on that common result.”
DeBerry noted: “It is easy to sometimes wander away from that common result. The common result is usually a macro consideration such as increasing central clearing or creating a safer clearing environment.”
“Our focus at CFTC is ensuring we are compliant. Going in different directions can result in compliance obstacles. So we need to readdress those compliance conflicts. We need to look at it as a roadmap. We have different requirements regarding how to get there. We might get there at different times and take a few wrong turns along the way but we must learn from any mistakes.”
From the point of view of Fabrizio Planta, head of markets and data reporting department at the
European and Securities Market Authority (ESMA), convergence means applying the same rules in a consistent manner.
“This is one of our main objectives at ESMA. A key starting point to achieve this is to develop international standards.”
“Central security depository (CSD) settlement needs more attention in particular in light of the COVID-19 outbreak. It is important to look at those measures as well as how we want to start a process of convergence in the level of common plans we can establish.”
In terms of lessons that have been learned over the past year, Stump noted: “We made tremendous progress with regard to swap data reporting and spent a lot of time with ESMA to apply CSDs in a way that is coordinated.”
The panellists noted how, in light of the financial crisis, regulatory reporting was intended, across jurisdictions, to allow for the ability of regulators to communicate and determine what is going on in the midst of any crisis.
“We [CFTC] worked hard with ESMA to try and align our goals so we can communicate in a way that makes our jobs as well as the regulator’s jobs easier. The need to communicate based on the same infrastructures and the same data is very important and we worked particularly hard with ESMA on swap data reporting.”
The panel agreed that communication channels are much better established now compared to 10 years ago.
While the adoption of common standards would be music to everyone's ears, the moderator asked the panel if divergence is necessarily a bad thing.
Douglas asked if regulators are keen on competition and whether this competition between regulation is a good thing.
However, ESMA’s Planta replied: “I do not think it is a good thing. In fact, it is something we should avoid. Markets are global and we need to make them safer and efficient.”
Weighing on this, Stump said: “I think we have learned in the US from having gone our own way initially and suffered from ‘first mover’ disadvantage on a couple of occasions. Keeping a focus on the results has prompted us to ensure convergence is attainable.”
Tara Rice, head of secretariat, committee on payments and market infrastructures at the Bank for International Settlements (BIS), affirmed that while variation practices are acceptable, they should be limited.
According to Rice, we need to all be aware it is a process, it is not one step and we’re done. We all need to strive to improve and maintain communication.
“When we see potential gaps in our standards we then think about whether we can provide guidance or make revisions. We do not see them as static — they are flexible,” she added.
Panellists likened convergence to a car journey, explaining that there will be lots of different cars with different requirements or issues but the end destination is the same.
This similarity was pinpointed after moderator Andrew Douglas, managing director, government relations, Europe Middle East Africa & Asia at DTCC, asked the panel what their definitions of convergence were.
Dawn DeBerry Stump, commissioner at Commodity Futures Trading Commission (CFTC), explained: “My definition of convergence is moving towards one another to achieve a common result and we have to keep a focus on that common result.”
DeBerry noted: “It is easy to sometimes wander away from that common result. The common result is usually a macro consideration such as increasing central clearing or creating a safer clearing environment.”
“Our focus at CFTC is ensuring we are compliant. Going in different directions can result in compliance obstacles. So we need to readdress those compliance conflicts. We need to look at it as a roadmap. We have different requirements regarding how to get there. We might get there at different times and take a few wrong turns along the way but we must learn from any mistakes.”
From the point of view of Fabrizio Planta, head of markets and data reporting department at the
European and Securities Market Authority (ESMA), convergence means applying the same rules in a consistent manner.
“This is one of our main objectives at ESMA. A key starting point to achieve this is to develop international standards.”
“Central security depository (CSD) settlement needs more attention in particular in light of the COVID-19 outbreak. It is important to look at those measures as well as how we want to start a process of convergence in the level of common plans we can establish.”
In terms of lessons that have been learned over the past year, Stump noted: “We made tremendous progress with regard to swap data reporting and spent a lot of time with ESMA to apply CSDs in a way that is coordinated.”
The panellists noted how, in light of the financial crisis, regulatory reporting was intended, across jurisdictions, to allow for the ability of regulators to communicate and determine what is going on in the midst of any crisis.
“We [CFTC] worked hard with ESMA to try and align our goals so we can communicate in a way that makes our jobs as well as the regulator’s jobs easier. The need to communicate based on the same infrastructures and the same data is very important and we worked particularly hard with ESMA on swap data reporting.”
The panel agreed that communication channels are much better established now compared to 10 years ago.
While the adoption of common standards would be music to everyone's ears, the moderator asked the panel if divergence is necessarily a bad thing.
Douglas asked if regulators are keen on competition and whether this competition between regulation is a good thing.
However, ESMA’s Planta replied: “I do not think it is a good thing. In fact, it is something we should avoid. Markets are global and we need to make them safer and efficient.”
Weighing on this, Stump said: “I think we have learned in the US from having gone our own way initially and suffered from ‘first mover’ disadvantage on a couple of occasions. Keeping a focus on the results has prompted us to ensure convergence is attainable.”
Tara Rice, head of secretariat, committee on payments and market infrastructures at the Bank for International Settlements (BIS), affirmed that while variation practices are acceptable, they should be limited.
According to Rice, we need to all be aware it is a process, it is not one step and we’re done. We all need to strive to improve and maintain communication.
“When we see potential gaps in our standards we then think about whether we can provide guidance or make revisions. We do not see them as static — they are flexible,” she added.
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