The Financial and Regulatory Working Group (FRWG) presents a unique, unrealized opportunity to establish a new gold standard in cross-border regulatory coordination and supervisory cooperation between the United Kingdom (UK) and the United States (U.S.). In this paper, the British American Finance Alliance (BAFA) looks to help policymakers establish a new, robust mechanism through which coordination and cooperation can take place.
Our interest in regulatory cooperation is grounded in a desire to see improved and more consistent regulatory outcomes. More compatible regulatory outcomes, in turn, provide a strong basis for cross-border investment, growth and job creation across the entire economy – agriculture, manufacturing and services. We believe the model for regulatory cooperation set out in our paper will provide a robust foundation for stronger economic outcomes.
The COVID-19 crisis strengthens the case and opportunity for greater UK-U.S. regulatory cooperation. Minimizing market fragmentation as global economies re-open for business will be central. UK-U.S. regulatory dialogue will be an important element. COVID-19 has highlighted the importance of sound regulatory practices in key policy areas such as prudential standards. Greater systematic cooperation in these areas will ensure a more robust global recovery.
Most barriers preventing cross-border trade and investment in financial and professional services in the 21st century are regulatory in nature. For a rapidly evolving and heavily regulated industry such as financial services, regulation – and the mechanism through which the UK and U.S. discuss it - is therefore an essential component in the re-defining of the UK-U.S. relationship.
BAFA recognizes there has been a long-standing debate – in which most of our members have participated over many years – regarding what is the appropriate relationship between regulatory cooperation and trade agreements. BAFA believes that a ‘first best’ solution would be for a UK-U.S. trade agreement to include provisions establishing a framework for continuing the existing UK-U.S. financial regulatory working group. However, the organization and governance of the regulatory cooperation group – as well as its areas of substantive focus - should be established outside of the trade text, in a separate understanding, possibly building on how the FRWG already operates.
The FRWG can play a key role in promoting effective and pragmatic solutions to regulatory challenges on a number of priority topics. Some of these are ‘live’ issues that countries are wrestling with now. But a truly robust regulatory cooperation mechanism should be built to process future or fast evolving issues such as technology.
While there are positive features in existing cross-border regulatory mechanisms between the UK and U.S., more should be done to achieve a truly ‘gold standard’ arrangement. Presently, the existing FRWG mechanism tends to be fluid without a clear process. There are merits to having flexibility but there is a risk that processes lack predictability and transparency. In this paper, BAFA sets out several features that the FRWG should explicitly adopt:
- Successful regulatory cooperation requires robust stakeholder engagement including with industry groups. The FRWG should therefore promote open and direct engagement with industry to facilitate identifying and addressing cross-border issues early in the process. The formalization of procedures related to both the FRWG itself and its dialogue with BAFA will serve to enhance the efficiency of the process and signal an enduring commitment to regulatory cooperation and industry engagement.
- The regulatory cooperation process should be dynamic and underpinned by regular, formal meetings.
- The titles of core members involved in the dialogue and the departments and agencies they represent for their jurisdiction.
- The FRWG should commit to sharing more detailed meeting outcomes, helping establish a virtuous and more continuous process.
We believe the model for regulatory cooperation set out in our paper will provide a robust foundation towards stronger regulatory coherence and better economic outcomes. We hope policymakers on both sides of the Atlantic will engage with us to discuss translating this vision into a practicable reality.
