IFAC estimates fragmented regulations cost $780B

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The International Federation of Accountants is challenging the fragmented state of financial regulations around the world, claiming it is dampening economic growth.

In partnership with a group called Business at OECD, IFAC surveyed more than 250 regulatory and compliance leaders from major global financial institutions for a new report on regulatory divergence that it released Wednesday.

The report estimates that regulatory divergence, which refers to inconsistencies in regulation between different jurisdictions, costs financial institutions between 5 to 10 percent of their annual revenue turnover. Fifty-one percent of the survey respondents said resources have been directed away from risk management due to the costs associated with diverging regulation. The report estimates a $780 billion price tag based on the findings, with smaller institutions (those with annual turnover less than $100 million) twice as likely as larger ones to experience significant costs as a result of regulatory divergence.

Of all types of regulation, financial reporting and auditing rules were seen to be the most consistent, with 45 percent of the respondents finding consistency there, compared with corporate governance (37 percent), market-based regulation (31 percent) and competition law (29 percent).

“There is clear evidence that reforms implemented since the last financial crisis have resulted in fragmentation that consumes valuable resources, including those that could otherwise be focused on de-escalating the risk of the next crisis,” said IFAC CEO Fayezul Choudhury in a statement. “In particular, the competitive disadvantage for small and medium-sized institutions should serve as a wakeup call for policy makers.”

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