The Regulation of Regulations: are we on the way to regulation beyond borders?

By Anastasia Dokuchaeva, Head of Partnerships at ClauseMatch
on 20th Feb, 2020
In spite of the threat of competition, the last decade has shown an interesting trend in the regulation of cross-border issues, often begun as unilateral action with extra-territorial effects.

From the Bribery Act to GDPR, and recently the technology taxes proposed by certain European nations, there have been examples of bold proposals by regulators to solve persisting issues.

This venture-type approach to regulation has its upsides.


Firstly, it can establish a global standard for solving global problems. The GDPR has since been emulated in form and approach by the state of California and further developments in the United States will likely follow or build on this starting point. Secondly, it can prompt dialogue between nations at the highest levels and focus minds to achieve the same outcomes, as has happened with proposed technology taxes.

For people working in compliance, implementation of major industry changes has to be carefully managed in this era of unprecedented regulatory upheaval in terms of the scale of affected businesses. The danger is that the regulatory machines churn out rules at a volume that the industry is not able to realistically follow. This can lead to unfairness and distorted competition as well, such as legal action contemplated by compliant firms against the Financial Conduct Authority for failure to enforce the MIFID II rules against firms in manifest breach. When law abiding businesses consider legal action against the regulators themselves it is clear that something has gone amiss.

One tool the regulators have used somewhat effectively is the stage of consultation prior to action, which ideally prevents bad approaches from being implemented. But this too has draw-backs: industries are rarely in favour of increasing compliance costs and it is difficult to assess how effective a regulation can be in advance.

Furthermore, where rules are extraterritorial in nature consultation may not be suitable. In fact, more could be done by regulators to assess the effectiveness of rules and regulations during and post-implementation and where changes are clearly not working in favour, more willingness to admit the wrong path has been taken. Just recently, proposed changes by the UK's FCA at fixing the broken banking overdraft market have appeared to result in unattractive options for consumers across the retail banking market.

So, if regulators are to continue to be bold in approach to solving global problems their focus should be on successful implementation of regulatory change. But achieving national successful with regulatory outcomes and solving global problems need not be mutually exclusive. This existence of forums such as Davos reminds us that there are baseline problems that are universal in nature that can be solved in a collaborative fashion.

Further points to have on the radar are:

• Collaborative Technology

• Reg Change Management - top wish list from banks

• Digital Regulation

• Standardisation of content and approaches


What's the reason for having multiple approaches and not aligning the efforts if we all want to reach one single outcome?

The FCA in the UK, the Abu Dhabi Global Markets in the Middle East, FINRA in the US, they are all speaking about the same things trying to reach the same outcome. Many regulators across the world now understand that they are trying to prevent and fight the same problems. Everyone as a regulator is pursuing one goal, one single outcome. It is useless to write regulations on your own not considering what other regulators are doing altogether.

Let's take the General Data Protection Regulation as an example. GDPR in the UK and Europe, Data protection in Abu Dhabi, Singapore Data privacy regulation. They are talking about the same things aiming at reaching one outcome. However, in reality, different countries still practice varying approaches to fighting with serious problems such as for instance, terrorism financing, which should have a single approach and united efforts.

Obviously, this doesn't lead to achieving the desired outcome. We need to create regulations that strategically aim at achieving this in an organised collaborative effort. The more people on board, the better, as there will be more chances that this will lead to the right outcome. And in the long run, everyone wins.

Single approach for single outcome

We are all fighting with the same problems and for the same rights. That's why we need to work on the regulations jointly and cover as much as possible. And consequently, on local level, as a compliance officer, why would you need to write different local policies when it's possible to concentrate on the overarching regulation and create standards directly from it?

The movement to best approach global problems has been ongoing for a long time. G20 can be seen as the best example of creating regulation beyond borders to date. Leaders of the strongest financial and business systems of the world gather and discuss global issues making agreements between countries regarding the approach in order to achieve the desired outcome. This is a great example of how regulation should step by step aim at becoming global.

This year, at the 50th annual Davos, cyber threats and climate emergencies were on top of the agenda, among other global problems faced by humanity. Just like cybersecurity, certain areas of regulatory activity, such as data protection, anti-money laundering, have one trait in common: national regulators are required to address activities that happen across jurisdictions. Human trafficking, drug trafficking, and data exporting are by nature multi-jurisdiction problems and as such, they are global issues.

More than ten years after the financial crisis major financial regulators are still working to improve transparency and accountability within the financial system, often with differing approaches, but collectively with a view to preventing the re-occurrence of the global financial meltdown. However, the divergence in transatlantic rules is symptomatic of the counterargument to regulation - economic competitiveness. With the imminent occurrence of Brexit, the consistency of standards will naturally be the focal point of talks, with the fear of a regulatory race to the bottom in the minds of European regulators.

Regulators are always seeking to find a balance between controlling everything to avoid major fails but at the same to be lenient with the relaxed ecosystem where a business is not pressed and can function. As taxation, regulations are all limiting businesses to grow. Thus, in some countries, it is very tricky to start and lead a business, especially a small one as simple accounting is going to press you a lot. The idea of creating aligned global regulation is also pursuing the goal of putting everyone in equal conditions providing similar ground to every business around the world.

The role of technology

What's the use of writing 5 different texts if the guidance is global? How can we come closer to the stage when all the regulations are interconnected and aligned? Even if the laws are being written in different countries, the concepts are almost the same, with nearly identical sets of paragraphs. In the context of getting closer to the creation of global regulation, technology can now play a crucial role.

The first thing is the analysis of these data arrays, applying the advanced NLP algorithms. Whether the regulations are written in a standard format or there is a deviation from the initial concept. Duplication vs contradiction. It can analyse these massive amounts of text, to find out where there are gaps in every country that make that exact piece of regulation ineffective. The same algorithms can be applied to the internal policies, procedures, controls at organisations.

For example, human trafficking is very common in many countries in Asia due to a very weak legal base and regulation. So, where in the world are there strong laws in this sphere? It is possible to analyse this with regulatory technology, and we will find out that in Singapore the legal base is strong. What has Singapore done and what does this regulation lack to fight this problem effectively?

Are we going to see single global regulation in the next decade?

Most likely, this is not the perspective for the nearest future. Too many steps need to be taken for this to become a reality. However, technology can provide a bridge to align what the regulators are doing and help compliance professionals have a global oversight of the rules to be able to work with internal policies in the best possible way.

Technology will help to analyse local legislation, local handbooks and clarify where the gaps and inconsistencies are. It will ensure that the regulation is aligned which is a huge step toward regulation beyond borders.

This article was first published at Thompson Reuters.
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