Global Regulators Back Off Shadow Banking Rules

WASHINGTON — U.S. regulators have already signaled they will take a lighter touch in overseeing large asset managers, but now the industry has won a similar victory on the international stage. Greg Medcraft, who heads the International Organization of Securities Commissions, said this week that global regulators have moved too fast and too aggressively in targeting firms in the so-called “shadow banking” sector. His comments echo the group’s decision earlier this month to table a framework — developed along with the Financial Stability Board — for identifying which asset managers are “systemically important.” Karen Shaw Petrou, managing partner with Federal Financial Analytics, said in a June 19 client memo that IOSCO’s decision to table the designation methodology may be the first time the financial services sector has successfully defeated a major policy reform since the 2008 crisis. It also demonstrates the growing unpopularity of firm-by-firm designations for nonbank companies, she said. “As the designation-criteria exercises in both the U.S. and global venues have demonstrated, even if institutions can’t beat designation, the complexity of the process and the time it takes are totally self-defeating,” Petrou said.