Little chance of global currency market regulation | Law

Little chance of global currency market regulation

Professor Justin O’Brien comments on whether a more global approach to regulation of currency markets is warranted in The Australian Financial Review.

Professor Justin O’Brien, who is the director of University Of NSW’s Centre for Law, Markets and Regulation, says despite evidence a global approach to regulating financial markets may have benefits, there is little appetite for such a move right now.

As to why there is not already a supranational regulator for currency markets, O’Brien says it’s the same reason why there’s no international regulator for sharemarkets. Despite financial markets being global, they are regulated on a national basis.

“The implications of traders operating in one jurisdiction and trading in another have been highlighted by the Financial Stability Board,” says O’Brien, who adds that it’s also a focus of a review currently being undertaken by the assistant governor of the Reserve Bank of Australia, Guy Debelle. In addition, it’s a problem that’s also being examined by the International Organisation of Securities Commissions.

Although there might be a need for a global approach to regulation of currency markets, the practicalities of achieving this are immense. The task would need to start with a harmonisation of governance standards across the world, a process which always raises the issue of national sovereignty and a potential dumbing-down of standards in some countries.

Yet O’Brien says at a technical level at least it would be possible to regulate currency markets on a global basis. “It’s theoretically possible, but it’s a question of a common agreement among regulators about how to appropriately tackle the issue and we’re nowhere near that.” He says markets are waiting for the ­outcome of litigation into alleged manipulation of currency markets, especially in the US, before making recommendations about how policing of this massive market should change.

And the fact that “no major US bank has been caught yet . . . although it’s highly likely to happen” also means we have not reached a tipping point at which the community expects there to be a cohesive, global approach to regulation, O’Brien says. However, O’Brien says it’s an issue that should be tackled as it appears the failure of internal controls at the highest levels of financial institutions suggests cartels that manipulated FX markets have been allowed to operate.

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Director - Centre for Law, Markets & Regulation,