The report, by capital markets consultancy GreySpark Partners entitled ‘Global Regulatory Landscape 2013: Five Key Regulatory Initiatives Impacting Global Wholesale Finance’, provides a comparative analysis of regulations, both current and emerging, in nine territories: Australia, Brazil, Canada, the EU, Hong Kong, India, Japan, Singapore and the US. Regulatory activities in these territories were chosen for their relevance to the global financial regulatory landscape. Within these territories, there are five systemically important regulatory mandates that are explored in the report: financial transactions tax, the US Foreign Account Tax Compliance Act (FATCA), the EU’s Markets in Financial Instruments Directive and European Market Infrastructure Regulation, the US’s Dodd-Frank Act (DFA) and the Basel III accords.

Regulators have sought to determine all potential opportunities for regulatory avoidance and have included measures to close these loopholes. The most prominent regulatory actions are those that require intergovernmental cooperation to ensure compliance; the wide uptake of intergovernmental agreements (IGAs) highlights the desire for cooperation. It is increasingly apparent that regulatory avoidance can only take place beyond the jurisdiction of the US, the EU and the G20 in areas where there is a distinct lack of legal and regulatory momentum makes for an unattractive business and trading environment, thus discouraging moving trading activity to such regions.

Source & Copyright©2013 -  GreySpark Partners

Report’s main findings are:

• Regulatory avoidance: It is increasingly apparent that regulatory avoidance can only take place beyond the jurisdiction of the US, the EU and the Group of 20 (G20) in areas where there is a distinct lack of legal and regulatory maturity. This makes for an unattractive business and trading environment, thus discouraging moving trading activity to such regions. FATCA is likely to generate the strongest degree of international cooperation as IGAs are signed by jurisdictions seeking reciprocal information from the US.
• Substituted compliance: There is a great and costly challenge to integrate many complex legal and regulatory infrastructures. Substituted compliance, whereby local regulations are substituted with similar, foreign regulations, due to their relative comparability to the US Commodity Futures Trading Commission’s (CFTC) rules on cross border swap trading, exists in a variety of forms across several jurisdictions, though there is little evidence of directly comparable regulations between many territories. GreySpark does not view substituted compliance as a necessary condition for effective global regulation.
• Interoperability: The report’s findings show that while cooperation can exist, regulatory interoperability across jurisdictions, pursuing a variety of regulatory agendas, is a myth. There is a great and costly challenge to integrate many complex legal and regulatory infrastructures. Without a single, truly global regulatory body with the authority to sanction deviants there is no likelihood of seamless information exchange or the need for overseas counterparties to conform to absolutely standardised compliance requirements.
• Regulatory exemptions: Exemptions to regulations offer compliance relief to entities and transactions under certain conditions. For example, in both the EU and the US, regulators appear to agree on the exemption of legitimate hedgers and certain end-users from bilateral clearing mandates. However, they differ in the detail. Under the DFA, exemptions are in place for non-financial entities that use derivatives to hedge commercial risk while, for EMIR, end-users are only exempt provided that their positions are legitimate hedges and fall below a certain threshold. The extent of exemptions across the regulations explored is not far-reaching enough to have a powerful market impact.

Conclusion
Not surprisingly, GreySpark conclude that: collectively, these regulatory changes create an environment characterised by uncertainty, mismatched objectives and extensive opportunities to misinterpret requirements. As a result of these concerns, three scenarios are points of interest for both regulators and market participants: regulatory avoidance, substituted compliance and regulatory exemptions. (Report available from GreySpark for £1,100.)

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The conclusion that FATCA will generate the greatest level of international co-operation underlines how important it is to be FATCA ready by 1 July 2014. There will be no escape from FATCA, unlike some of the other regulations.