IFAC blasts $780bn cost of uneven rules

12 Apr 18

Fragmentation in global financial regulation costs more than $780bn a year, a survey by the International Federation of Accountants (IFAC) has found.

Its report, Regulatory Divergence: Costs, Risks, Impacts: An International Financial Sector Study, published jointly with Business at OECD, said concern about regulatory divergence centred on inconsistencies between jurisdictions.

This is costing financial institutions between 5-10% of annual turnover.

Questions were put to more than 250 regulatory and compliance leaders at global financial institutions, with 51% of respondents saying they had directed resources from risk management due to the costs of diverging regulations.

IFAC said the $780bn total had been “conservatively inferred by the findings”.

Chief executive Fayezul Choudhury said: “There is clear evidence that reforms implemented since the last financial crisis have resulted in fragmentation that consumes valuable resources, including those that could otherwise be focused on de- escalating the risk of the next crisis.”

He added that inconsistent rules put small- and medium-sized institutions at a competitive disadvantage, which “should serve as a wake-up call for policy makers”.

The impact of divergence was felt most strongly in the capital markets sector, where 92% of respondents said this caused them “material” or “very material” costs, followed by banking (76%) and professional services (66%).

Marcos Bonturi, the OECD’s director for public governance, said: “The survey highlights the need for increased international regulatory cooperation to reduce the regulatory divergences which are costly on business.”

Business at OECD is an advisory body to the organisation.

The report recommends enhancing cooperation among regulators, more alignment, and ensuring transparency in international rule-setting.

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