UK's critique fails to address basic infrastructure challenges for banks and regulators.

The UK's House of Commons Treasury Committee this week published its response to the European Commission's financial services "Omnibus" Directive, which is being pushed by the Swedish Presidency for agreement by 2 December 2009.  Following three weeks of consideration, the Committee has focused its attention on points of law and the agreement process.  This means that the political urgency to create more powerful tools to supervise banks internationally has yet again failed to consider the practical implications of regulatory implementation and could put the G20's objectives at risk.

PJ Di Giammarino, CEO of JWG, comments: "Another chance to have a meaningful debate about the impractical requirements of a 93-point action plan has been missed.  There are some real, substantive issues with the current regulatory approach that have not been addressed by this Committee.  We are concerned that, unless the basic infrastructure issues are discussed in Brussels this year, the regulators and the banks will find themselves in a position where, rather than fighting financial fires, they will be fuelling an inferno of bad data in 2010."

JWG's letter to the Committee, released today, highlights the dangers of this current regulatory 'race to the top' which is failing to address the enormous data quality challenges inherent in controlling such a fast moving marketplace. 

Di Giammarino continues: "There must be a clear consensus in Europe of what information is necessary and sufficient for successful oversight, plus agreement of what 'good quality data looks like' and how it should best be transmitted.  Without this common understanding, we are in jeopardy of creating an even bigger conflagration.  We are in danger of assessing risks based on bad data, which could well magnify and distort the issues we aspire to extinguish, at great cost to the economy.

"Individually, each member State needs to be able to make sense of the information it has asked for and then share understanding across jurisdictions which have different languages, laws, tax codes, cultures and business systems.  With the current approach, it is difficult see how such highly complex and technically challenging set of problems will be overcome to create an integrated picture of risk in the timeframes prescribed.

Di Giammarino concludes: "In short, resources are being wasted as firms, regulators and policy makers devote man years to solving these problems in silos.  The traditional methods of agreeing detailed standards are being overridden in a race to meet unrealistic timelines.  Until politicians and regulators understand that missing standards are inhibiting both the banks' and the regulators' ability to do their jobs, many of the G20's aspirations will be difficult to realise.  We recognise that these are challenging times but feel that all parties would benefit from structured dialogue on these issues."

According to analysis from the European Commission, there are in excess of 50 missing technical standards that are required to effectively share the information required for existing EU financial services regulations.  Next week JWG will release research entitled 'The G20's roadmap to macro prudential oversight' which identifies the major strategic questions and tactical challenges of any regulatory strategy.  At the extreme, overcoming the practical hurdles to building a macro prudential system could require a fundamental restructuring of how the industry's information assets are developed, maintained, owned and paid for.

For more information see www.jwg-it.eu.

About JWG: JWG seeks to be recognised by regulators, financial institutions and technology firms as the independent analysts to help determine how the right regulations can be implemented in the right way.  JWG is unique.  Its status as an independent think-tank permits collaboration with regulatory and industry bodies, financial institutions and technology firms without serving the interests of any constituent over another.