The importance of regulatory coherence to the UK as an international financial centre
Global regulatory coherence is crucial for maintaining financial stability, market efficiency, and supporting a connected economy. As a global financial hub, the UK has a major stake in the coherence of the global regulatory environment.
However, against a new age of geopolitical and economic competition, there is a concerning trend towards fragmentation on major issues of importance for the financial and related professional services industry. Equally, the pace of technological change is leading markets to seek first-mover regulatory advantages, which are leaving global standard setters struggling to keep pace.
Mapping global coherence and fragmentation
The International Regulatory Strategy Group (IRSG) has developed a ‘Global Regulatory Coherence Dashboard’ to map the extent of global alignment or divergence in financial regulations across key policy areas affecting UK-based financial and related professional services. The dashboard highlights both priority areas where the UK can continue to show its global leadership in promoting regulatory coherence as well as areas of fragmentation or divergence where greater attention or new approaches are required.
The Dashboard identifies key areas for the UK to work with international standard setters and other jurisdictions on regulatory coherence through global frameworks and provides recommendations for government and policymakers. It outlines the complexities associated with regulatory fragmentation in emerging areas such as digital assets and AI, as well as issues related to inconsistent approaches to cross-border data flows.
Priority areas for collaboration include:
- Sustainable finance: The International Sustainability Standard Board’s (ISSB) standards on sustainability disclosures offer a pathway to transparent, high-quality, and comparable sustainability-related financial disclosures worldwide. The UK must work with the ISSB and other stakeholders to ensure consistent adoption.
- Operational resilience: UK regulators are well-positioned to advocate for international interoperability of operational resilience frameworks which is crucial for maintaining a robust and resilient financial system.
Areas where for more immediate action or innovative strategies are needed include:
- Digital assets: To maximise its influence on digital assets regulation, the UK should demonstrate leadership in distributed ledger technology (DLT) and securities tokenisation as well as establishing its stablecoin and cryptoassets regime. The UK should work with international bodies to establish common / interoperable pathways to digital securities issuance, custody and transfer.
- AI: The UK should maintain its technology-neutral approach and support the development of common voluntary guidance and technical standards for AI governance. This can help inform interoperability of existing domestic regulatory regimes and facilitate the cross-border adoption of AI solutions.
- Data: In the absence of a global agreement on data flows, the UK should continue to use adequacy and bilateral arrangements to support free data flows with key markets. However, the UK should continue to work towards multi- or pluri-lateral approaches of mutual recognition based on independent standards.
Coherence has historically been achieved when international standards are widely recognised, there is global consensus on regulatory objectives, global frameworks are mature, and implementation is effectively monitored by global standard setters. In the context of a more complex global environment, it is vital that the UK and other global stakeholders continue to support and promote global coherence wherever possible, but also stand ready to adopt new and complementary approaches where necessary.