Basel Committee May Rethink Regulatory Complexity

On Monday, the Basel Committee released a discussion paper dealing with the simplicity of the regulatory systems, leading some to take it as a sign that the committee may advocate simpler regulations in the future. In the paper, they discuss several current aspects of regulation such as risk sensitivity, complexity, and international equivalence.

Since the financial crisis of 2008, international regulatory bodies have become very active, trying to diagnose and address the issues that led to the crash. However, some have criticized these institutions for perhaps worsening issues, rather than diagnosing the potential issues in the economy.

The Basel Committee has recently made several recommendations for countries’ regulatory policies, including recent strategies on mitigating risk through controlling more capital in day to day business. The committee has focused primarily on risk-based systems of regulation, and these types of systems have inherent complexity, but certain members of the committee have acknowledged the issue. In fact, in 2012 the committee also started a sub committee called the Task Force on Simplicity and Comparability dedicated to assessing the impact of the policies.

The purpose of the paper, which was published yesterday on the Basel Committee website, was not to make recommendations, but elicit responses. It is currently open for comment until October 11th.