Blog: Ukraine war has accelerated financial services regulation – International Financial Law Review

The war in Ukraine has shifted the dynamic of politics in Europe and the US, however it has accelerated rather than changed the direction of financial services regulation, according to market participants at the International Securities Lending Association’s (ISLA) Annual Securities Finance and Collateral Management Conference.

 The Ukraine war, along with Brexit, the pandemic and accelerated interest in climate change have shifted priorities in political approaches and the work of financial services industry.

“The Ukraine conflict has had no real game-changing impact on financial services policy yet,” said Bertie Huet, senior partner at FleishmanHillard Brussels. “It’s been more of an accelerator of existing trends.”

Examples of this include the review of the capital requirements framework with the EU’s focus on not overburdening banks to ensure resilience of the economy, the renewed focus on anti-money laundering regulation enforcement, and the need for further integration of capital markets in Europe. These have taken renewed urgency since the Russian invasion, but none are new and have been underway since the pandemic, he added.

However, in the sustainable finance space, some regulatory developments have not been accelerated but, instead, slowed due to new questions surrounding the dependence on Russia’s energy which has encouraged a more favourable view on nuclear energy sources.

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Real impact

A greater concern in financial regulation is understanding the shifting dynamics in politics as a result of the war and how that could impact regulatory decisions going forwards.

Changes such as the increased alignment of Europe with the US, Hungary’s refusal to veto Russian energy and the potential inclusion of more Eastern countries in the EU were sparked by the Ukraine war as well as other politically important events, such as Brexit, the pandemic and the accelerated interest in climate change.

However, for those acting in financial regulation, an important impact is the changing political dynamics that have emerged from the war, Huet added. “There’s an opportunity here for firms to take advantage of the EU being closer to the US and within Europe to take account of the shifting spheres of influence,” he said.

See also: Almost half of Russian GDRs allowed to continue

While policy aims have remained steady during the way, the conditions in which firms are operating have changed entirely by high inflation, negative interest rates and a potential recession.

“The story really starts with energy prices which have risen considerably and look like they’re going to stay that way for some time,” said James Smith, developed markets economist at ING. “The change in energy due to the war is a big deal and the risks are even higher if we get more sanctions coming through and prices rise further.”

Regulatory environment

For the securities lending market, developments in the ESG and fintech regulatory environment in the EU and UK have been particularly prominent.

“The big picture is that there’s a lot going on in the regulatory space, but there are no big-ticket items as developments such as the UK Securities Financing Transactions Regulation (SFTR) review are not here yet,” said Laura Douglas, senior associate at Clifford Chance. “Instead, the landscape is a lot of little things which, each on their own, are easy to deal with but when you look at the whole picture, the challenge is really in keeping on top of all the moving parts.”

Questions over the European Central Securities Depositories Regulation (CSDR) have now begun to settle while the UK SFTR is not expected until later in the year.

This sentiment was reflected in a poll of the audience members at the conference on the regulatory developments which have most impacted their work. The CSDR came in top at 50%, while Basel updates and Uncleared Margin Rules were less of a concern with 25% of the votes respectively.

See also: Solvency II update could boost bond investment


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