Last updated: June 8, 2011 3:37 pm

Wheatley attacks Geithner on regulation

Tim Geithner, the US Treasury secretary, was talking “nonsense” when he warned that the world must follow America’s lead on financial regulation, said a senior European regulator and departing head of Hong Kong’s market watchdog.

Martin Wheatley, who has a reputation as one of the world’s most influential regulators, said in an interview with the Financial Times on Wednesday that US officials were wrong to worry that Asian financial centres would seek to attract business through soft regulation.

“To suggest that the US sets a gold standard that other markets should follow is nonsense,” said Mr Wheatley, speaking on the last day of his six-year stint as head of Hong Kong’s Securities and Futures Commission.

“The truth is, the US is not the global standard setter. The global standard setters are Basel, the Financial Stability Board and Iosco [the International Organisation of Securities Commissions]: they are the bodies through which differences should be worked out.”

Mr Geithner said, in a speech on Monday, that the UK had set a “tragic” example through light touch regulation and warned that it was essential for Asian jurisdictions to fall into line with the US on derivatives regulation.

Mr Wheatley said: “People in glass houses should not throw stones. The US has had lots and lots of gaps in its regulatory structure, many of which are still not addressed.”

He is due to start as head of the Consumer Protection and Markets Authority, the UK’s new financial products watchdog, in September.

Mr Wheatley has gained a reputation for tough but measured enforcement in Hong Kong.

At the heart of US worries is a fear that differences in the regulation of derivatives across the world could lead to “regulatory arbitrage”, in which financial institutions seek to do business in the most lenient jurisdictions. But while US officials have warned that Hong Kong and Singapore may seek to take advantage, both jurisdictions are following globally agreed guidelines in areas such as the clearing of over-the-counter derivatives transactions through central clearing houses.

Mr Wheatley said: “The truth is, both Hong Kong and Singapore are putting global regulatory standards in place in exactly the same way as other markets. The fact that business is coming here is not a question of regulatory arbitrage: it’s a question of growth and opportunity.”

In the US, bankers and politicians are worried that the Dodd-Frank legislation is poised to impose a code of conduct on US banks that will put them at a disadvantage to foreign rivals.

In particular, the rules will force US banks to demand collateral from parties to uncleared derivatives contracts – wherever the business is done. There are no such proposals in Asia, so US banks would be at a disadvantage there.

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