The pace of regulatory change has continued to accelerate since the financial crisis, weighing on markets, banks, firms and advisors.
So it’s time for regulators to review whether they’ve made the right calls.
In his most recent industry letter, the IIAC’s Ian Russell predicts, “Recent developments in global capital markets suggest securities reform may now have reached its high water mark, [meaning] the pace of rulemaking will slow and, in some cases, reverse direction.”
He concedes that even though “banking and securities regulators have been in overdrive” since the crisis, that was because they were “focused on building a more resilient financial system through capital and liquidity protections, greater transparency and better rules for market conduct.”
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However, says Russell, “The urgency and extent of reform, particularly in the early years, laid the ground for excessive and unintended consequences. There is a growing consensus that the pendulum has swung too far. [As such], regulators in many jurisdictions are taking stock of the impact of reform on markets and on the economy. The weakened liquidity in markets, and pernicious slow economic growth, have added urgency to these investigative efforts.”
What does this mean for you?
Russell says, “We expect that an ongoing review of the reform impact and rising compliance costs for the financial sector will slow the rulemaking process, roll back certain rules, and increase reliance on industry best standards and tougher enforcement.”
Events like President-elect Donald Trump’s win of the U.S. election and his intentions for Dodd-Frank legislation are likely to have the greatest global impact, but Canadian regulators will be watching developments in the U.S., Europe and England, says Russell.
As a result, he predicts “the pace of [domestic] rulemaking is likely to be more measured in the next few years, with the likelihood of some retrenchment in the proposed rules.” In particular, “Canadian securities regulators have committed to a comprehensive post-implementation review of the CRM1 and CRM2 rules, [given] these rules were imposed without formal cost-benefit analysis.”
Adjusting to CRM-related reforms has been tough, so further tweaks may not seem like good news. The key is to keep an eye on regulatory news around the globe and, says Russell, to recognize that any additional changes will come slowly.