Regulatory fragmentation costs more than 600 billion euros annually

According to a new study, regulatory divergences cost companies up to ten percent of their annual revenue. Above all, small and medium-sized enterprises are affected to a large extent. Moreover, the industry has to bear the costs for Brexit and protectionist measures. Thus, regulatory cooperation needs a simple set up of international rules and has to ensure convergence in the implementation.

The extensive study, published by “Business at OECD“ (Business and Industrial Advisory Committee, BIAC) and the International Federation of Accountants, gives cause for concern in all countries: about three quarters of all companies had to manage cost increases in the last five years resulting in decreasing investments and innovations. Especially further education and external consulting in order to cope with regulatory requirements contributed to rising costs. Regulation fragmentation does not only concern the financial industry, but also manufacturers and services.

Differences in competition law, consumer protection and financial regulations are the main drivers for increasing costs. Although convergence has been observable during the last years, inconsistencies regarding supervision and implementation as well as divergent national definitions are still the main problems.

Solutions can only be found on the international level - through better cooperation and transparency across the countries. Global and multilateral approaches are more efficient than national efforts. In this context, BDI considers the study a wake-up call and pleads for international standards. Further fragmentation through trade protectionism generates high costs that have to be averted.

Institutions setting international standards such as the World Trade Organization (WTO) play an important role in ensuring regulatory convergence. The financial deregulation in the U.S. that has often been discussed would only have short-term positive effects; in the medium and long term, it would rather imply higher costs for both sides of the Atlantic due to regulatory divergence and financial instability. The same applies to new tariffs and other trade barriers.