Trésorier/Treasurer magazine - N°85 - April/May/June 2014 - (Page 5)
EDITORIAL
Interference on the G20 line?
This wall of new regulations threatens to generate a real and
profound risk of interference, inconsistencies and counter-productive effects. This ragbag of measures, sometimes
contradictory and conflicting, may clash and collide with
each other, creating unforeseen problems with baleful
financial consequences and a pernicious effect on the real
economy. In the science of optics, Thomas Young talked of
constructive or destructive types of interference. The danger
is in the second type of interference, which is to be feared.
These types of interference could even have a domino effect
that would be worse still. Surely no one would say that the
regulators have got their act together. There are a number of
divergences in the measures taken, both in substance and in
form, and also in the timing of implementation.
The constructive types of interference have an impact that is
perhaps even worse, because they add to the waves to
amplify the overall wave effect. The impact can then hit
the affected entities harder, having an adverse effect on
their business, most especially on financial institutions.
Like stones thrown into the water of a lake by children,
regulations can cause ripples in the water that intersect
and cancel each other out, or at other times amplify each
other. The risk is that of missing the target (destructive
types of interference) or amplifying the unintended impact
(constructive types of interference). Do we need to reread
the writings of an 18th century scientist to understand this
risk of a cumulative effect or a cascade effect? For example,
surely the new credit rating criteria proposed by S&P for
corporates, EMIR, CRD IV, FTT and IFRS 13, when combined
and put alongside each other, are about to make profound
changes to hedging strategies by increasing the price of
When things have gone adrift, there is always a risk that the
correction process will go too far. As with the pendulum effect, there is a danger of over-correcting a problem that you
are trying to avoid by going the same distance in the opposite direction. Divergences at continental or national level,
the lack of any long-term vision, the plethora of regulators
and supervisors, the lack of coordination and harmonisation all threaten to create frictions, superimposed layers,
inefficiencies and to have counter-productive effects. They
sometimes threaten to contribute to making our businesses
and our work more complex. If a solution boils down to
making the situation more complex and not necessarily
safer, is it really desirable? The superimposition of measures,
often disjointed measures, by bodies that are competent
but sometimes understaffed, can lead to a tsunami effect.
Which of the regulators can claim to have estimated the
final financial impact of any of them? The reform of money
market funds may perhaps have unsuspected effects for a
whole industry which, if it partially disappears, will have an
adverse effect on all types of short-term paper issued (for
example ECP EMTN, etc). World finance has become a sort
,
of grand financial laboratory, in which the researchers (the
regulators) are testing new types of alchemy or a universal financial panacea by mixing everything together all at
once, without the scientific approach of changing only one
variable at a time, and without even any predetermined experimentation plan. Let us hope that the result and mixture
it produces will not be too explosive.
There was certainly a need to put right a situation that was
unacceptable, to avert systemic risk. However, the way
it has been done, the length of time taken and the lack of
consultation all add an extra layer of complexity and bring
with them the risk of interference of both types. Surely the
G20 should have set itself time limits and co-ordinated the
respective efforts with a true vision of the edifice it intended
to build before it started on the foundations? If you want a
solid and robust building, it would seem to us that cleverer preparation and tighter control of the work would be
helpful if you expected to finish it on time. «More than five
years, and that is all we end up with», is what some treasurers are thinking. «Big deal!». We might say that financial
regulation has bitten off more than it can chew.
/ MAY / JUN 2014
hedging (for longer term hedging especially)? At the end of
the day, it is often the end user - the corporate - that pays
the additional cost generated much further up the line by all
the regulatory requirements. The impact may therefore be
direct or indirect, but it is always real.
LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE - N°85 - APR
Over five years after the start of
the crisis, there are still a large
number of new financial regulations to come which, from
2014, will hit everyone - finance companies, insurance
companies, investment funds and the «real economy».
2014 will be the year of the new post-G20 regulations.
Nobody would dare deny that there was a need to react and
legislate. But on the other hand, many people dispute some
of the measures and disagree with the «traditional» practice, when all is said and done, of hitting everyone without
exception. But this edifice of regulations seems to be a sort
of concoction of pieces plonked one on top of the other,
with no logic or real coherent vision, like Numerobis' Palace
in Asterix and Cleopatra. In putting regulations together
like this, the risk is that we end up with a shaky and fragile
regulatory edifice. Several architects, major international
regulators, are once again busy at work on the regulatory
framework and on worldwide financial controls, without
following any plans or having a vision of what the whole
thing will look like when it is finished.
François Masquelier, Chairman of ATEL
5
Table des matières de la publication Trésorier/Treasurer magazine - N°85 - April/May/June 2014
Couverture
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EDITORIAL
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INTERVIEW L’impact du nouveau référenteil COSO sur les trésoriers
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THE FINANCIAL RISK OBSERVATORY - The World around us
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