The cumulative impact of regulation and managing regional fragmentation

The cumulative impact of regulation and managing regional fragmentation

City of London one of the leading centres of global finance. This view includes Tower 42, Gherkin,Willis Building, Stock Exchange Tower, Lloyd`s of London and Canary Wharf at the background.

By Sue Kean, Chief Risk Officer, Old Mutual plc and Ebbe Negenman, Chief Risk Officer, Aegon Bank. 

Ahead of our flagship conference: 7th Annual Risk EMEA, we held an in depth interview with keynote speakers Sue Kean and Ebbe Negenman into the possible implications of the industry moving away from global harmony, the price of compliance, managing regulation across multiple jurisdictions and what the future looks like.

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Why is this a key talking point in the industry right now?

This is a topic which is very relevant for me at Old Mutual and has been one of the factors which lead us to conclude on the strategic rationale for a separation of the businesses. Regulation, particularly post the financial crisis, has highlighted the potential for conflicting objectives of group vs local regulation. This has been particularly pronounced in retail financial services where the business is shaped by local laws and regulation and groups are often structured as subsidiaries rather than branches. In times of extreme crisis, the local regulators and board need comfort that the local business can if necessary be isolated from wider group contagion risks. The disadvantage is that this has given rise to greater fragmentation of governance and capital and has limited the ability of some group structures to access diversification benefits. “Fungibility” is a word which spell checker still doesn’t recognise but is used extensively in regulatory capital debates. The position is further complicated when the local businesses are large or systemically important in the domestic market, but group supervision rests in a different country where the head office is based. This was a very relevant factor for us at Old Mutual given the profile of our businesses in the South African economy but with a head office in London.