IFAC: Regulatory Divergence Drains $780B from Global Economy

Chris Gaetano
Published Date:
Apr 12, 2018

A report from the International Federation of Accountants says that regulatory divergence—inconsistencies in regulation between different jurisdictions—saps about $780 billion from the global economy a year, and represents a "moderate to substantial barrier" to the growth of international financial institutions. The IFAC came to this conclusion after speaking with 251 respondents composed of compliance/risk management officers, senior executives and board members from companies ranging from $10 million to $1 billion or more in size in 16 different countries. Sectors represented include capital markets, banking (deposit taking and lending), asset management, insurance, and professional services. 

The most common costs cited included having to hire and train more people to deal with different regulatory regimes, developing and implementing new systems, restructuring compliance departments to deal with new divergences, and hiring external consultants. All these things combined to sap roughly 5-10 percent of annual turnover in international financial institutions. Particularly difficult to deal with were regulatory divergence regarding competition laws and capital markets, especially for smaller organizations. Most respondents, 73 percent, said that these costs have increased over the past five years, and 63 percent said they expect further increases over the next five. Many of the costs already incurred, according to the study, came from the differing responses to the 2008 financial crisis; over the next five years, respondents expect costs to come from Brexit and protectionist trade politics. 

In order to deal with these costs, 51 percent of respondents said that their institution took resources primarily from risk management, though innovation, lending activities, corporate social responsibility, product development and brand development were impacted as well. Beyond direct monetary costs, the study also cited time and attention from senior management as another stress point, as they have to think more about dealing with different, sometimes contradictory, regulations than about, say, addressing emerging risks. 

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