Despite the work that banks currently have underway from building regulatory infrastructure and processes to sustaining and streamlining them, one potential headwind is the threat of regulatory divergence in substance and timing across jurisdictions. For banks with a global presence, divergence adds to uncertainty and complexity, fosters an unlevel playing field, and hampers the ability to plan and optimize resources. Successfully navigating the many challenges of regulatory divergence requires a deliberate disciplined approach that recognizes the regional tailoring of regulatory and compliance initiatives, and that regulatory strategy and business strategy should converge.
The growing divergence in regulatory standards is a reversal of previous post-crisis trends. For example, since 2009, banking regulators around the world have been committed to strengthening the capital, liquidity, and leverage standards for banks. Those efforts embedded an equally strong commitment to address the unevenness and complexity of the global capital framework for internationally-active banks. Regulatory convergence initiatives, such as Basel III and the Financial Stability Board’s (FSB) work on resolution regimes, set the tone for an increasingly consistent banking rulebook across most jurisdictions.