US, UK Regulators Closest to Cross-Border Harmony

The US and the UK cooperate the most on securities regulation, according to John Jay, a senior analyst at Aite Group, speaking in reference to July 6 remarks made by US Securities and Exchange Commission (SEC) commissioner Elisse Walter, who expressed the need for more regulatory cooperation between nations.

"When they craft legislation, standards or guidelines, the US writes that with an eye toward the UK and the UK does the same with the US," says Jay.

He attributes the similarities to the amount of business firms in the two nations transact with one another. "For the two most active trading blocks, the US and the UK, it would be somewhat foolish to be on different pages, simply because the resident institutions share so many transactions," he says. "It is in their best interests, when these governing agencies try to harmonize the regulations and standards, that there is an appreciation of that."

Walter notes that an International Organization of Securities Commissions (IOSCO) task force emphasizes that regulators should share information on a daily basis, including observations about firms regulated under dual jurisdictions, to improve agencies' ability to obtain relevant regulatory information.

The SEC has memoranda of understanding (MoUs) with the UK Financial Services Authority (FSA) as well as regulators from Germany, Australia and the Canadian provinces of Ontario and Quebec for the purposes of sharing information, Walter notes.

For regulators, monitoring risk in real time across jurisdictions will be the biggest hurdle of any effort to advance greater cross-border regulatory cooperation, according to Jay. "Because of different time zones, infrastructure, reporting cycles and complexities within the companies, I don't think real-time will occur with a snap of the finger—even if you legislate it," he says. "It will most likely require some phase-in time."

The vast size of the largest financial firms could, counter-intuitively, make cross-border regulatory cooperation easier, according to Jay. "The really big players, fortunately, tend to number only a few," he says. "HSBC, JPMorgan, Bank of America and Citi are so gargantuan, but because they are so big, there are only a few of them you need to keep a close eye on. To the extent we accept the presumption that there are 25 truly global or important financial institutions around the world, we can get a decent handle on what might or might not happen depending on these companies. You don't have to keep your eyes on 10,000 of them. You probably need to keep a close look at the top 25 or maybe the top 100."