It is inevitable that the banking laws of each country will be violated at some point, so their regulators should work together honestly to deal with the violations and move on.
When it comes to fending off worldwide financial scandals, the world needs its financial market regulators to co-operate with each other as much as possible – so many, governance watchers are dismayed by reports in the Wall Street Journal of possible sniping between US and UK regulators.
The WSJ reported that the New York State Department of Financial Services’ allegations that the UK’s Standard Chartered bank violated US money-laundering laws now has the US Treasury Department and the Bank of England at odds. Instead of working together to avoid another financial crisis by streamlining regulations between the two countries, we have one of the two premiere financial governing bodies publicly embarrassing the other. Embarrassing the regulator you are going into battle with against rogue traders, embezzlers, terrorists and plain old crooks isn’t a very good strategy for safeguarding the financial markets. These two regulatory powerhouses need to get on the same page – now.
It is inevitable that the banking laws of each country will be violated at some point, so their regulators should work together honestly to deal with the violations and move on. They should also understand that in this new transparent world, things can no longer be done behind closed doors – so if there is a violation, it must be rooted out. Because these violations will become public, there will be some discomfort dealing with them. However, both the Treasury Department and the Bank of England must understand that the larger goal is safeguarding the markets. If regulators can’t show by example that they are willing to undergo their own examination criteria, and understand that it is for the greater good, they will be destroying their reputations as upholders of justice.
Regarding the current allegations against Standard Chartered, today’s $340 million settlement indicates that all involved realized a quick, drama-free end to the situation was the best solution. As there was disagreement about whether laws were violated, however, perhaps there could be some simplification of the money-laundering rules; if so, both sides should get together and just do it. Make the regulations clearer so everyone will know what’s allowable and what’s not.
If they are not already doing so, both regulators should also run joint drills and simulations of laws being violated at different levels and of markets being disrupted by bogus trading to determine the best way to handle problems before they occur. Perhaps they can come to some agreement about expectations of each other in crisis situations and devise a protocol for operations and actions in awkward circumstances. They should challenge each other to come up with some procedural options for multiple worst-case scenarios and find a way to minimize the effects of public disagreements.
Of course, publicly, both regulators say their relationship with one another is strong. Let’s hope that’s true. Coming off of the mortgage-banking debacle and the Libor scandal the last thing we need is for US and UK regulators to be a little bit ticked off at each other. We need them working together in lock-step to safeguard the financial markets. We need them thinking hard about how they will handle the next crisis – not bickering with each other. Where will the governance of world financial markets be if these two premiere governing bodies can’t work together?
