Written by Kevin Okell on Friday 3 November 2017
Three years ago I wrote a couple of blogs focused on the emerging theme of globalisation in regulation and the technology response that would eventually be required to deal with it. My basic observation was that as digital commerce began to cross borders, so regulation of that commerce would need to take on a supra-national character. Financial Services, I suggested, would be especially prone to this development given the ease with which its products could be transported over the Internet.
Back in 2014 I suggested that FATCA was an early example of this new kind of regulation and that EU changes to VAT on the supply of digital services scheduled for January 2015 and based on delivery location were just the next logical step. My assessment of Financial Services technology (then and now) was that all the major product administration systems reflected national silos of regulation in the way they were built and deployed with specific rulesets aimed at distinct tax and regulatory regimes. Sure it is possible (albeit difficult) to localise those systems for a new jurisdiction but the approach is invariably to clone and modify configuration at the product level to come up with another distinct ruleset. Eventually, I argued, we would need systems which could apply their rules, much more flexibly, on a per transaction basis to reflect particular characteristics not just of the product but of the customer – such as their location or nationality.
What I missed in all my pontification about globalisation was the significance of a parallel, and opposite, trend towards regionalism in politics. We’d already witnessed the disintegration of the USSR and then Yugoslavia into more than 20 distinct states during the 1990s and the debate on Scottish Independence was in full swing when I wrote my blogs. But in 2014 the UK Independence Party seemed like an eccentric protest movement and it never occurred to me that xenophobic nationalism could have any impact on my global regulation topic.
Three years on I realise that Brexit (like the election of Donald Trump) is actually a backlash against globalisation and the increasingly centralised rule-making I was commenting on. However misguided or parochial I personally believe these events to be, there can be no doubt that they will have a very significant impact on my global regulation predictions. In the long-term, it seems to me that the globalisation of commerce and communication we now take for granted thanks to the Internet is simply incompatible with parochial politics and protectionism. But, setting aside, that contentious debate for now, the short –term fallout from the Great Repeal Bill looks set to illustrate my original points very nicely.
The looming challenge of trying to unravel the European aspects of our UK Financial Services regulation in order to repeal them looks very complex indeed. Assuming our legislators ever manage to achieve it, the difficulties this will then pose IT suppliers to our industry look very familiar. Systems which once sought to implement harmonised rules across multiple markets will now need to differentiate the treatment of particular transactions based on location or the nationality of a customer. Ironically, the push to isolate ourselves from Europe will actually accelerate some of the technology challenges of globalisation I thought were a decade away.
Spaghetti systems could take on a whole new meaning!