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European Financial Services Round Table

Wednesday, February 16, 2011
Risks of divergences in regulatory reforms in G20 jurisdictions - EFR Letter ahead of G20 Finance Ministers meeting on 18/19 February 2011 in Paris
We, the Chairmen and CEOs of 19 large European financial services companies operating on a global scale that meet together as the European Financial Services Round Table (EFR), continue to follow with deep interest the crucial work of the G20 Leaders and finance ministers to reform the global architecture of financial regulation. We strongly endorse a key point emphasized by the Seoul Declaration in which G20 Leaders have communicated their commitment 'to take action at the national and international level to raise standards, and ensure that our national authorities implement global standards developed to date, consistently, in a way that ensures a level playing field, a race to the top and avoids fragmentation of markets, protectionism and regulatory arbitrage.' We strongly share with G20 Leaders and finance ministers the view that fundamental reform of financial regulation must be harmonized and coordinated internationally across jurisdictions to the extent necessary in order for it to achieve fully the twin goals of strengthening global financial stability and reducing the incidence of disruptive crises. Nevertheless, at the present time there are strong pressures that have the potential to undermine the needed international harmonization of financial regulatory reform. As you know these pressures stem from many factors, including differences in the robustness of financial institutions in key jurisdictions, variations in the pace of macroeconomic recovery from the crisis in different economies and also, perhaps, domestic pressures that may lead to uncoordinated national policy initiatives which diverge from the global solutions espoused by the G20 and in some cases also have extraterritorial impacts. In particular, the EFR notes with concern that there are inconsistencies and uncoordinated national policy actions in the design and implementation of regulatory reforms across jurisdictions that are not consistent with the G20's goal of harmonized financial regulatory reform. These uncoordinated national initiatives risk creating inappropriate incentives for regulatory arbitrage in which risky financial activities may migrate to jurisdictions where they are permitted to take place with less regulation and more opacity. Obviously it is a concern that such uncoordinated national measures and the associated regulatory arbitrage could lead to an unlevel international competitive playing field. But more importantly, the lack of harmonization of key financial regulatory reforms could, by creating these opportunities for regulatory arbitrage, undermine the G20's primary goal of strengthening global financial stability.