Increasingly strict, region-specific regulation is making it increasingly complex, not to mention costly, for transaction bankers to operate on a global scale.
“There’s too much regulation,” transaction bankers moan, “we won’t be able to do business any more”. It is a familiar chorus, and one heard across the financial sector. But this is a business segment that feels particularly hard done by, given that it provides support for the movement of trade, fiscal flows, commercial paper and other such tangible staples of the real economy.
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At particular risk is the 'global' prefix often applied to the units responsible for these services. Transaction banking on a truly world-straddling scale naturally requires dealing with numerous local idiosyncrasies and requirements, some of which differ quite drastically. Coping with these, however, is becoming ever more costly and complex, to a degree that may become prohibitive for many.
Take the Single European Payments Area, for example. The scheme, which became mired in a saga of debate and delays bordering on the farcical, finally has a scheduled end date. However, there are many uncertainties as to exactly how implementation should be achieved, and more seriously, doubts as to its ultimate efficacy. What is assured, however, is the strain it will place on banking budgets; the estimated industry implementation cost stands at €8bn to €10bn.
In the US, the Dodd-Frank Act will impose some deep-seated changes to the process of US-originated electronic fund transfers, with the upshot that the provision of cross-border services will become significantly more demanding and complex.
Similarly, compliance with anti-money laundering rules already costs the industry billions of dollars each year and steep annual increases show little sign of abating. Meanwhile, the need to abide by regionally imposed injunctions – such as a ban on dealing with Iranian banks, for example – may please one power block but incur the displeasure of others.
As real as they are, these concerns are unlikely to provoke an outpouring of public sympathy, or reversal of legislation designed to prevent a repeat performance of the financial crisis or standardise markets. Ultimately, the demands of international operations will inevitably lead some banks to reconsider the feasibility, and appeal of becoming, or continuing to act as, a truly global supplier of transaction services.
