Canadian Lawyer InHouse

"tsunami of regulation" arising out of regulators' concerns about the stability of the global financial system. The cost of compliance is not cheap. For example, Wrobel estimates individual Canadian banks will have to spend $100 million each to comply with the U.S. government's introduction of the Foreign Account Tax Compliance Act, which focuses on reporting requirements by foreign financial institutions. FATCA is not even part of Basel III. Some say it's not really the quantity of new regulations that presents compliance challenges for in-house lawyers; rather, it's the complexity involved in implementing them. Take, for example, the Basel III proposal to establish a central clearing of over-the-counter derivatives, which are traded through a dealer network instead of a centralized exchange. "Commercial law issues around making that work are pretty significant, especially when you are looking at a cross-border scenario," says Hamilton. "People are burning a lot more neurons thinking about not just the 10,000-foot view as to how that is supposed to work, but the ThomsonReuters_IH_Oct_13.indd 1 34 • o c t ob er 2013 down-in-the-weeds view of how these things are supposed to work. It's actually trying to understand how you reduce nice, highly stated principles into a practise that you have a pretty high level of confidence will actually work under stress." These deliberations only serve to illustrate how various jurisdictions are taking different approaches to Basel III compliance. "There's been a fragmentation of approach, particularly by the Americans and the Europeans," says Graham. "Because they have all faced extraordinary shocks to their system, the regulators in each of those jurisdictions have each been subject to intense scrutiny and criticism. They have all pulled their horns in and started to develop their own domestic solutions." That makes it tricky for Canadian financial firms to accommodate the various approaches. What's more, some countries are closer to meeting the 2019 Basel III capital targets than others. "We are compliant with the rules as they will be in 2019, so we're already compliant with the ultimate goal," Wrobel says of Canada's banks. "We've reached the goal line. Others are still at the 40-yard line." INHOUSE But being fully compliant with Basel III's enhanced standards earlier than others may mean Canadian banks are carrying additional capital costs than their international banking competitors. This could adversely affect a Canadian bank's bottom line, thereby creating a competitive imbalance between Canadian and international banks. Some say this is more of a business issue than a legal issue, but it has been pointed out that global systemic imbalance is exactly what the Basel regulatory framework intends to avoid. All of these discussions surrounding Basel III show the importance of lawyers in interpreting the new rules. "Good regulatory practice very much involves talking to the regulators, and talking to the people who are actually responsible for either the drafting or the interpretation of the rules — particularly in the capital area," says Graham. "There is a very close partnership between the people who are giving [legal] advice and the [regulators] who have given the guidance to be sure that the rules are interpreted in a manner that is consistent with the intention of the regulators." IH 13-08-29 1:30 PM

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