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Speaking to a Chatham House conference, Bank of England Deputy Governor Financial Stability, Jon Cunliffe, warned that although considerable progress has been made in making the financial system safer, there is still further work to be done. Whilst areas such as international capital and liquidity standards have seen impressive reforms, the accusation of “too big to fail” still hangs over the industry.
Calling for regulatory standards to be made the top priority at the G20 summit in November, Jon Cunliffe also highlights two further areas which need to be addressed to ensure the reform programme is a success. The first of these is the need to be continually aware of the challenges of ‘coherence.’ With multiple regulatory reforms there is a danger that some may result in conflicting requirements so it is up to the international committees to “be alive to the risks of unintended consequences.”
The second challenge is to foster ‘mutual trust’ between international regulators. Jon Cunliffe warns that “Without mutual trust, the danger is either: slipping back into weak regulation and supervision and regulatory arbitrage, risking further crises; or fragmentation of the international financial sector.” In creating mutual trust Mr Cunliffe suggests that the key is to concentrate on the outcomes rather than a line by line comparison of the various rulebooks.
Despite the work still to be done Mr Cunliffe believes that the international regulatory reform effort has already made the system safer and hopes that future historians will “find that the world has done a great deal better this time around in managing a very deep and searing economic and financial crisis.”