Lack of trust among regulators has added to financial risk

A lack of co-ordination among global financial regulators has added complexity and risk to the global financial market in the wake of the financial crisis.

Speakers at the Australian Securities and Investments Commission's annual forum yesterday said regulators had shown a lack of trust in each other and this had made post-crisis regulatory changes more difficult than they otherwise would have been.

ANZ deputy chief executive Graham Hodges said: "The financial crisis made regulators look inwards. They had to protect their jurisdictions and this involved requiring banks to relocate business units so they would fall within their jurisdictions.

"That was a natural response to the crisis but it increased the complexity of organisations, such as ours, that work across borders."

Hodges said increasing complexity in this way had added to risk - the opposite of what the regulators were setting out to achieve.

"It was inadvertent but it is still on the table," he said.

"What we need to do is better understand each other markets."

Deloitte partner Kevin Nixon said: "We see regulators in the US forcing institutions to set up all their business domestically so they [the regulators] can more easily take action when they need to.

"They don't trust the regulators in other jurisdictions."

Paul Tucker, a senior fellow at Harvard Kennedy School and former deputy governor of the Bank of England, said there was a problem of political leadership.

"More and more responsibility has been delegated to regulators. That is fine as long as the focus is right," Tucker said.

"Politicians have to frame the big issues. That is not easy to do and it gets harder as you delegate more."

Former chairman of the Australian Prudential Regulation Authority, John Laker, disagreed, saying there was a very strong political imperative from the G20 for Basel III.

"What is important in making change is that global reform needs to be thoroughly consulted," Laker said.