As the takeaways from the recent G7 summit emerge, we look towards the coming G20 and the running theme of sustainable economic growth and strengthening a global recovery from the aftermath of the financial crisis. While much progress has been made in the form of regulatory frameworks such as Basel III, many still feel that the difficulty of implementing a detailed and comprehensive set of regulations will further hinder the speed of an economic recovery. However, while it may be argued that the financial sector is languishing, no one can deny the emergence of transformational new technology powered by the internet. Driving this emergence of modern web-based technologies are the core concepts of standardisation and collaboration.
The financial system is a complex network of inter-connected players, each with their own objectives but with a common reliance on the strength of the network as a whole. This is not unlike the internet, once referred to as the ‘information superhighway’. So what can the financial system learn from the governance of the world wide web? While it may seem like the internet has no master, the foundations for the internet were laid in the late 80s and early 90s through a set of fundamental standards and are still governed by a few key organisations. Key to this governance process has been the adoption of basic HTML formats and standards for sending and receiving data. Furthermore, the quasi-governmental or non-profit organisations that manage, govern and update these standards do so in a collaborative way in the realisation that an open and unified global framework is in everybody’s best interests.
While the internet has the luxury of modernity, the financial systems of each country, with the weight of history, are each still unique. With each nation tied to its own regulator, we end up with a wide variety of formats and standards. This is why sending a financial transaction from London to Singapore is much more difficult than sending an email. As financial transactions are now solely rows in databases, I believe what is missing are similarly global standards.
At Suade, we are working with key industry players to bridge the regulatory gap through modern technology by establishing standards for data and regulatory code. A unified and global regulatory framework, led by the G20, is now under way with Basel III, but there is still a need for greater collaboration and the adoption of fundamental standards. Benchmark global data formats for core financial products like loans and mortgages would allow for a more robust, sustainable and transparent financial system that is easier to navigate and regulate. Simplifying the system in this manner would allow for increased competition, greater distribution of risk and a more efficient financial system as the foundation for a strong and sustainable economic recovery.
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