No free riders so far in re-regulation drive

By Huw Jones

LONDON (Reuters) - Fear of failing to tackle the financial crisis and top level political commitment keep countries singing from the same regulatory hymn sheet for now, but the real test of will has not yet come.

In the past, countries have been tempted to drag their feet or simply ignore any globally agreed rules, for example the United States on Basel II bank regulation, creating a patchwork of rules that can lead to unfair advantages.

The worst financial crisis since the Great Depression has so far built enough head of steam to drive through a global deal on re-regulating markets under the wings of the G20 group of leading industrialized and emerging market nations.

The deal, thrashed out earlier this month, is specific about the need to avoid regulatory arbitrage or when one country opts for a lighter touch in a bid to lure more business.

The G20 nations, particularly the United States and the 27-nation European Union with leading economies such as Germany, France and Britain, are still at the stage of drafting and adopting new rules.

"Taking forward regulatory proposals in one area which creates opportunities for regulatory arbitrage is not going to be effective in addressing the risks we are trying to address," Hector Sants, chief executive of Britain's Financial Services Authority, said at the Reuters Global Financial Regulation Summit.

"It's too early to say whether these clear and vital aspirations are going to be consistently delivered. There is always the risk they won't," Sants said.

The G20 agreed to turn the Financial Stability Forum, an informal grouping of rich industrial nations, into the Financial Stability Board with all countries in the G20 as members.