G20 Global Accord Around Regulation Somewhat Toothless, but It's a Start

It appears that in some regards, Accenture's predictions for the outcome of this week's meeting of the G20 nations in London was spot on-there will be no global super regulator.A general statement, perhaps, but generalities seemed to be the outcome of the London meeting. The Group of 20 did agree that hedge funds and rating agencies need to be regulated, and that there should be some kind of crackdown on tax havens. According to an opinion piece in The Wall Street Journal, most of the group's commitments "will have to be implemented not by a single unit called the G-20 but by 20 or more separate, sovereign nations." Coming to such an accord tends to take awhile, says the writer. "The Europeans have been working for years to create a standard system of banking supervision. They're still working on it."

MIT professor of economics Simon Johnson was quite blunt when speaking to The New York Times, saying, "The regulatory part was close to a zero."

Instead, say some critics, the meeting was more about propping up the economies of developing markets rather than addressing the problems in the richer nations that spurred the financial crisis. Billions were pledged to shore up global trade and subsidize developing economies. The leaders promised an injection of $1.1 trillion, of which the International Monetary Fund would be a prime recipient.

According to the Times, the concept of a global regulator was replaced with a plan to create a new Financial Stability Board to monitor the financial system for signs of risks. The regulators would not have cross-border authority. "Instead, the leaders agreed to more closely coordinate their regulation of 'systemically important' financial institutions. They did not, however, agree on a mechanism to resolve cross-border disputes that might arise in the winding down of insolvent banks," said the Times article.

The IMF would also play a more prominent role in acting as an early warning system for financial risk and as a watchdog to ensure the G20 are keeping their promises around regulation and fiscal stimulus.

The G20 further agreed to global rules governing salary and bonuses for bankers, and reinforced their resolve against protectionism and countries that engage in such practices.

Still, there are some who liked what they saw. Steve Bartlett, president of the Financial Services Roundtable issued a statement in which he said, "The G20 Leaders Statement supporting an open world economy based on market principles, effective regulation and strong financial institutions is fully consistent with the Roundtable's own plan to restore consumer and investor confidence in our financial services firms and markets."

The specifics still need to be hashed out at a future date. The outcome is certainly a first step, but also shows the world still operates along national lines: differences around stimulus injections between the U.S./U.K. and France/Germany; arguments about tax havens sanctions, with China a vocal opponent; the Sino/Russo call for a new world currency to replace the dollar. And surely there are fears in some quarters about the integrity of those operating the IMF and World Bank, organizations that will have even more funds with which to tinker.

But again, it was an important first step. What exactly banks will need to do to ramp up their technology around risk management is another question to be answered. Perhaps the measures agreed to by the G20 will accelerate the push for more global standards in risk management technology. Also, if there is going to be regulation around how bank executives are paid, there might be a surge in technologies designed to measure performance. Either way, the banks will certainly have their work cut out for them. But there's always opportunity in a situation like this. Perhaps there will be efficiency plays that can be gained by moving to more standardized risk platforms and performance management technology. There will always be some banks that will jump on situations like this to stand out from the rest of the crowd.