Twenty five years ago, when I first started looking at financial fraud, one of the largest problems facing regulators was that of jurisdiction. Getting information regarding off-shore bank accounts being one of the best examples of this. Despite the time that has elapsed and the brain power and effort that has been thrown at the problem, the situation appears to have intensified rather than resolved itself and regulators generally have themselves to blame.
My frustrations with this situation are manifold. Firstly in this same time period the ‘rogues’ (as I prefer to call the criminal underworld) have recognised and utilised the borderless potential of the virtual world in stark contrast to the regulatory obsession with physical location, particularly when drafting up legislation.
Yes, there have been numerous Memoranda of Understanding (MoU) drawn up but regulators have not taken the virtual leap on the legislative plane. Yes, the European Union did go some way to ironing out some wrinkles but just when things were almost looking up then we slid back into Brexit and different national interpretations of the same legislation. One example being the approach to research being promulgated by MiFID2. The Financial Conduct Authority (FCA) set a much stricter tone to the legislation in the United Kingdom verses the softer approach taken by the Autorité des Marchés Financiers (AMF) in France. Why could this not have been aligned earlier?
The central point here is, that within the same timeframe the rogues have finetuned their use of the information superhighway that is available to all of us, a crippling amount of regulatory brainpower has been tied up on compounding the problems of jurisdiction. The ripple effect down the line being further wastages of time, effort and brainpower trying to understand differences and complexity where it should be used to simplify and streamline.
Within the anti-complexity argument, I would suggest that the vast majority of MiFID2, MAR and MAD requirements are redundant. A number of commentators are suggesting that the amount of reporting required is restricting liquidity and crippling the industry and that it is disproportionately onerous to the smaller firms. Perversely it is also creating an incredible burden on the groups that are trying to enforce it.
It is one thing that regulators are being accused of strangling their own raison d’être but it is just befuddling that they appear to be strangling themselves in the process. The regulatory predilection for martyrdom should be balanced with a pragmatism concerning how best to utilise their own resources and those of investors and the markets themselves. I firmly believe that the vast majority of reporting would be superfluous if proper investor education and market supervision were adequately supported.
Quite frankly I blame the legislators. I contributed to and sat in on a good few policy discussions in my early years and one of the most enlightening involved the identity requirements for the establishment of an online trading account. We blithely rattled off the usual list of passports and utility bills being shown in the original form, content in the knowledge that we were protecting the investor specifically and you know, saving the world in general as usual. Then my boss at the time decided to test it out for herself and she came back quick smart, armed with the feedback from the street that this approach just wasn’t workable in the modern world. That was twenty years ago yet we as an international community don’t seem to have assimilated this knowledge. We absolutely have the knowledge and the technology to create a better and more streamlined approach. We just need to take the leap.