Are banks prepared for global regulation ?

Banking is commonly perceived as a global industry, able to move money easily and quickly around the world. But the reality is quite different. Regulations tend to be local, with different jurisdictions demanding differing things – which means that banking has remained largely local, too.

A bank in Stockholm today is governed by different sets of rules than banks in Shanghai or S?o Paulo. Local rules largely determine each bank’s business model, its revenue structure and the kinds of products and services it can offer.

But new technologies transforming the banking industry – from blockchain to AI – are not easily regulated at the local level. This means that regulation is about to go global, and with it banking.

The global sweep

This is already beginning to happen. Europe was the first off the block in standardising data protection with the General Data Protection Regulation (GDPR). This came into force in 2018, setting a gold standard in its field, and is now having a knock-on effect on regulation in other jurisdictions.

At the start of this year, California adopted the California Consumer Privacy Act (CCPA), with rules very similar to GDPR in terms of data ownership and protection. This in turn is now expected to affect data privacy across the whole of the US, not just the Golden State. Other countries adopting similar regulation include Brazil, Australia, Japan, South Korea and Thailand. Standardisation of data-protection rules looks to be the new norm globally.

Similarly, we’ve witnessed a coordinated response by central banks to Facebook’s fledgling Libra cryptocurrency. In an unprecedented move, officials from 26 central banks met Libra representatives last autumn to grill them about the project. “Strong concerns” were voiced afterwards, including how Libra might bypass regulations such as Know Your Customer (KYC) and the Bank Secrecy Act, and how it might create liquidity or systemic risks within the banking sector.

This shift towards a more homogenous approach to regulation reflects the need for a globally aligned landscape in the face of dynamic new technologies that effectively know no borders.