The financial crisis highlighted the need for coordinated standards across the global investment industry, experts in the industry said on Thursday.

At a CFA Institute event in Toronto, speakers explored the impact of the financial crisis on theory and practice in the global investment industry. Ralph Layman, president and chief investment officer of public equities at GE Asset Management, said a key lesson to emerge from the crisis is the need for common standards.

Going into the crisis, Layman explained, a major problem was that industry players could avoid strict regulations by operating in jurisdictions with fewer restrictions.

“What people did, and what institutions did, was shop for the easiest regulators,” he explained: “those that required the least amount of capital, those that had the least amount of restrictions, those that required the least amount of transparency and reporting.”

To prevent this from happening, Layman said regulatory standards must become universal. He said the fragmented regulatory framework in the United States is particularly problematic.

The CFA Institute, which has members around the world, has also expressed support for global standards. The Institute is launching an updated Global Body of Investment Knowledge to reflect the ever-changing and increasingly global financial market. In developing the new body of knowledge, it has held consultation meetings in cities around the world to gather regional input.

The CFA curriculum has likewise shifted to a more global focus. For instance, candidates primarily learn the International Financial Reporting Standards rather than the U.S. Generally Accepted Accounting Principles that they formerly learned. This reflects the “globalization of the designation,” said Andrew Abouchar, founder and partner of Tech Capital Partners and a member of the CFA Institute’s Education Advisory Committee.

Beyond universal standards, the financial crisis also revealed the need for a variety of other regulatory reforms, Layman said.

“What we need,” he said, “is a system that’s transparent, that provides confidence, that has mechanisms in place to deal with adverse market conditions.”

But he warned policymakers to avoid rushing to implement regulatory reforms, since they could end up going too far.

“There is a big risk of over-regulation,” he said.

Policymakers around the world should learn lessons from jurisdictions that effectively weathered the crisis, Layman said. For instance, he noted that major banks in Spain fared well throughout the crisis thanks to loan provisioning methods that provided them with an extra cushion.

“They’ve been able to weather the storm much better than many others have been,” Layman said. He noted that now, regulators in other jurisdictions are considering applying similar provisioning standards as they emerge from the crisis.

IE