With the collapse of Northern Rock in the UK and Bear Stearns in the US, the spotlight is on how regulatory bodies deal with the credit crisis.
A host of Clifford Chance partners from around the globe descended on New York earlier this month to offer their perspective.
The firm’s belief, outlined at a briefing hosted by Clifford Chance in its New York office on 14 March, is that collaboration between bodies such as the US Securities and Exchange Commission (SEC) and the UK’s Financial Services Authority (FSA) to provide a more harmonised approach to financial regulation could be the best way forward in light of Western economic instability.
One after another the speakers claimed that a common ground between regulatory bodies such as the FSA and the SEC could help global economies recover more quickly after turmoil in the credit markets took hold at the beginning of last summer.
Clifford Chance London-based partner Carlos Conceicao said: “In the UK the FSA has moved to a more principles-based system, which consists of 11 principles underpinned by much guidance. The FSA has promoted this approach as enabling a dialogue between regulator and regulated as to how best to meet regulatory outcomes. This is quite different to the approach of the SEC, which has traditionally focused more on the use of enforcement.”
While credit markets are facing the harsh reality of an economic downturn, harmonisation could be crucial for the health of global investment banks, Conceicao claimed.
Conceicao was joined at the conference by global head of Clifford Chance’s regulatory and white-collar practice Jim Carroll, Paris-based counsel Michel Petite, New York partner and co-head of the Americas securities and litigation practice George Schieren, and Frankfurt-based head of the German financial institutions group Daniela Weber-Rey.
With EU, UK and US financial institutions operating under different regulatory regimes, the impact of the credit crunch has been felt to varying degrees in each jurisdiction.
Weber-Rey said: “A benefit to EU regulation is that any new laws and amendments to member state regulation need the consent of a majority, and sometimes all, member states. This leads to a more considerate development of European law and avoids laws in reaction to one-time situations.
“I think the European regulatory regime is robust and will assist Europe to survive the credit crunch better than other jurisdictions.”
Weber-Rey added that the influx of investment from emerging markets via sovereign wealth funds in the Middle East and Asia represents a new kind of investment and a different
kind of global economy.
“These funds are cash-rich and have been investing heavily
into the Western world,” she added. “It’s important that all
regulatory bodies consider this development.”