BRICS+ Versus G-7: The Compliance Question
Will growing clout translate into a new world order and turn the industrialized world into a retired set of legacy has-beens? No one knows, but there are deep implications for bank control frameworks.
Even the most ardent of post-war liberal internationalists probably gets that something doesn’t feel quite right as the UN-IMF-World Bank-WTO complex sputters along in exhausted fits and starts.
Part of the reason is a given – age, size, and bureaucratic lethargy. We are nearing a century since the start of the Second World War even though many experts in the West still talk as if it was yesterday. Beyond that, they also seem to live in a three-decade-old economic microcosm in which GATT still exists and where worldwide deregulation and harmonization are gospel.
But there is something else staring them squarely in the face and right now. The new kids on the block called BRICS+.
Investment Idea
Born in the 2000s as an investment idea, and acronym for Brazil, Russia, India, China, and South Africa, when their economies were growing at unheard-of rates, it has since morphed into an intergovernmental organization.
A chart published by Visual Capitalist on Tuesday shows that their combined economic might is drawing increasingly close to the size of the G-7 in economic terms.
New Members and Partners
As of this year, they are expected to comprise 29 percent of the world economy in terms of GDP, against the G-7’s 45 percent.
Moreover, the plus sign hints at the fact that they added five new members last year and eight new partner countries, with plans afoot to get new countries to join the list, such as Vietnam, in 2025.
Overtaken in 2024
But some statistics go even further than that. Statista, for example, indicates that GDP in the BRICS zone overtook the G-7 on a purchasing power basis in 2018, while in 2024 that gap had widened to 35 percent against the latter’s 30 percent.
But when it comes to anything intergovernmental, it is not just about business and there has been a great deal of hand-wringing and skepticism about cohesion and governance related to the new bloc, as a Britannica encyclopedia entry indicates.
Fanciful Sunset
Besides that, commentators have been split along very predictable lines, with not a great deal of evenhandedness about the whole thing.
As an example, India-based NDTV’s Kishore Mahbubani unabashedly called the G-7 a «sunset organization» and BRICS a «sunrise organization» in November, while a «Forbes» contribution by Harry G. Broadman early in 2024 decried any «aspiration» by the new bloc to dethrone the economic stalwarts as «fanciful».
Between Extremes
Given that, the truth is likely be lie in the middle of the two extremes. But regardless of the eventual governance, institutions, and cooperation mechanisms, it is a new geopolitical divide, and it will likely turn into a more or less running inflection point for international banking - and one that just keeps on giving.
The impact might end up being as large as digitalization and GenAI, the industry’s two current buzzwords, although much of it will be first felt in the risk and control areas, particularly compliance.
Expensive Rollbacks
If the early 2000s was dominated by efforts to separate regulatory compliance from legal and make financial crime its own thing, the 2010s saw most global banks trying to impose centralized, uniform processes and rules created in their home countries systematically across the world.
It was backed by an inherent, patronizing view by management and compliance experts that all countries were eventually headed in the same direction as the West, and it ended in a rain of highly audited tears, and expensive framework rollbacks in many jurisdictions, thanks to a set of unimpressed regulators such as the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS).
No Common Denominators
Now, whatever the case is, this new world is likely to be a very multi-polar one for the foreseeable future, and there aren’t going to be all that many common denominators.
Your standard international Western bank is going to have to have a knapsack holding a very diverse and modular set of tools, processes, and specialists.
Administrative Perfection
To generalize, they will still have to comply with the SEC’s follow-my-rules-or-else, along with the polished, administrative perfection of EU’s MiFID II, with a bit of the UK’s PRA and FCA mixed in.
But that will increasingly be joined by China’s very detailed data, banking, and market regulations as well as the hot and cold approach by RBI and SEBI in India - cold usually means they don’t see a problem so leave them alone while the hot feels never-ending ocean boiling when they do.
Untold Costs
That will all be fleshed out by the continued toughness of the likes of the MAS and HKMA in financial hubs such as Singapore and Hong Kong.
It is all going to cost an untold amount of money to keep such an apparatus up and there is going to be a constant temptation by executives, strategy teams, project managers, and IT, to rationalize the whole thing down to a coherent, compatible, and consistent process.
Deregulation Won’t Stop It
Not only are there going to be very few linkages or so-called synergies between jurisdictions, but it also renders any discussion about Basel III and future capital requirements, along with the prospect of Trump 2.0 bank deregulation, as a moot point for most global institutions.
Because even if a major G-7 economy takes a step back from the regulatory paradigm they have boxed themselves into, we are way beyond a world in which anyone is going to copy what they are doing, particularly given the newfound economic clout of BRICS+ members.
