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G20: Politicians create policy trap by ignoring feasibility of new rules

G20: Politicians create policy trap by ignoring feasibility of new rules



London 27 September 2009. Financial Services regulation occupied less than twenty percent of the G20 leaders’ statement, but the urgency to create more powerful tools to supervise the banks was clear.  The world has now committed to have compensation, capital, liquidity and intensive supervision rules in place by the end of next year and to adopt an upgraded Basel II rulebook by 2011.


PJ Di Giammarino, CEO of JWG, comments: “Despite calls from industry trade associations for the G20 to conduct a cumulative impact assessment before agreeing a path forward, the world’s politicians have asked the newly minted Financial Stability Board (FSB) to get on with a regulatory ‘race to the top’, which pits rule makers against each other and the banks, in a bid to build a macro view of systemic risk.”


In order for the regulators to set appropriate policies the FSB will need to define detailed technical policies and procedure manuals that do not yet exist. According to analysis from the European Commission, released last week, there are already over 50 missing technical standards that need to be created for 12 regulations created before the crisis.


Di Giammarino continues: “There is no ‘silver bullet’. Nobody owns the entire picture of a market, counterparty, customer or instrument today, so why do the G20 think we can just hit a button and get a meaningful set of systemic risk results? If it were that easy, we wouldn't be in this mess in the first place.


“This might sound like a technology problem, but it is actually an enormous legal, commercial and policy challenge. The crisis was caused by the right people not having the right information at the right time. The regulators are subsequently mandating detailed information requirements for ambiguous concepts that will have slightly different meanings for each segment of the market. Whilst the industry is already engaging in the discussion of how to align its view point the complexity, speed and technical difficulty of creating an integrated picture of risk is mind boggling.


“It is hard to take the scale and pace of these proposals seriously. There are trillions of pieces of data flying about without any mechanism to bring them together. Creating quality data sets across different segments of the industry, markets they participate in and customers they serve, whilst developing technology to integrate the information within a time frame this short is impossible with the current focus. In short, we believe that regulators, data organisations, vendors and standards bodies don't have the appropriate people and resources to do the detailed policy and standards work that is required to solve the problem.


“JWG has found that hundreds of man days from real experts in the leading banks are required to get this right. For each new piece of regulation, practitioners need to make sense of what the policy makers are asking, find practical solutions to detailed issues and explain it to many different regulators in language they understand. This is a tricky business. Many smaller firms simply don’t have the resources to do this.


“Regulators, like the UK’s Financial Services Authority which is busy defining its view of the data sets behind closed doors, will wind up with real problems when it can’t make sense of, or process, the liquidity or customer information it has asked for. There is a real risk that if they get this wrong, not only will the world be awash with faulty data, macro prudential oversight will be branded a failure and no alternative cures for the diseases the G20 thought it was eradicating will be found.


Di Giammarino concludes: “The G20 has just set a real data trap for 2011 – who will be to blame when we fail to hit the deadlines with controls that meet the political objectives? Likewise, when the true cost to the real economy of these initiatives is finally revealed, how is the taxpayer going to react?”



About JWG Group Limited

JWG seeks to be recognised by regulators, financial institutions and technology firms as the independent analysts of choice to help them determine how the right regulations can be implemented in the right way. Founded in 2006 to initially work on MiFID, JWG launched the customer data management group and the liquidity risk action network in 2008. For more information, see

For immediate release

PJ Di Giammarino,, +44 (0) 7811 430 503

Louisa Excell,, +44 (0) 7976 233 051

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