The law of unintended consequences is, perhaps, nowhere more applicable than in regulation. And the law can be seen fully at work in the EU’s Packaged Retail and Insurance-based Investment Products (PRIIPS) Regulation, which came into force on January 1. The Regulation was created to enhance EU markets, by helping investors better understand the key features, risk, rewards and costs of different PRIIPs by using Key Information Documents (KID). However, if comments by Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), are anything to go by, there is evidence that the Regulation is also causing an exodus of US firms from Europe, as organizations look to avoid having to comply with the law.
When it comes to financial sector regulations, it seems that, if the EU sneezes, the US catches a cold. Another case in point is the EU’s Benchmarks Regulation (BMR), which has brought in a more stringent oversight regime for the administration, contribution to, and use of benchmarks in financial instruments and contracts. US firms are affected by the Regulation every bit as much as their EU peers: US administrators must be able to prove equivalence with the Regulation if their benchmarks are to be authorized for use in the EU, while benchmark Users in the US are at equal risk of seeing key benchmarks withdrawn from the market or replaced.
In what is a highly globalized financial sector, it is only natural that regional regulations will have an impact beyond their localities. However, this should not, in RIMES’ opinion, be a driver for market retreat. While the regulations coming from then EU are at first sight onerous, many of the more taxing elements can be overcome through Cloud-based managed services. Such services enable firms to adapt their compliance functions rapidly, and without accruing excessive cost.
Take the PRIIPs Regulation as an example. Cloud-based compliance tools can deliver pre-built and pre-tested tools for sourcing, quality-controlling and distributing PRIIPs data. This means that firms can achieve compliance with the Regulation immediately and with ease. Similarly, new RegTech services, such as our own RegFocus BMR Control, provide benchmark Users everything they need to achieve compliance with BMR, including benchmark inventory management, enrichment and control.
The days when regulatory compliance automatically required complex, costly and disruptive systems upgrades are behind us. Thanks to the Cloud, firms are better able to react to change and move with the flows and eddies of regulatory upheaval. There’s a real danger that firms in the US are doing themselves a disservice by retreating from the EU rather than tackling the compliance challenge head on.
PRIIPs, BMR and other regulatory topics will be discussed at RIMES’ upcoming RegTech Market Surveillance Conference, which will take place in New York on June 13. To register, email firstname.lastname@example.org.
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