Financial regulation “failing to increase stability” warns new global research study from Duff & Phelps
Financial regulation has done little or nothing to improve stability in the financial services market, according to senior financial services professionals polled by valuation and corporate finance advisor Duff & Phelps. The survey of nearly 200 professionals commissioned by Duff & Phelps shows that 35% of respondents believe recent regulation has had little or no impact on financial stability, with 17% stating that regulation has actually made the financial services world less stable.
Kinetic Partners, now the Compliance and Regulatory Consulting Division of Duff & Phelps, began publishing the Global Regulatory Outlook report in 2012. The fifth annual Global Regulatory Outlook report also found that, a decade on from the financial crisis of 2007/8, just 10% of senior executives surveyed say they believe changes to regulation have fully addressed the risk of a future crash.
55% of respondents agree that the risk has been partly addressed by new regulations but 33% don’t believe the regulatory framework has adequately created safeguards to prevent a future crisis. With President Trump committed to reviewing Dodd-Frank and the future regulatory framework of the London market uncertain due to Brexit, financial regulation may be about shift once more for banks and fund managers.
Julian Korek, Global Head of Compliance and Regulatory Consulting at Duff & Phelps, comments on the findings:
“More needs to be done to build stability in financial services and ensure the system is resilient in the future, for both banks and the alternative investment industry. Even now, a decade on, most people in the financial services sector are not confident that the risks that caused the crisis have really been managed. The major regulatory bodies have been very clear about future areas of focus and concern, but the fact that so many still think there is potential for another crash is worrying – even without Trump or Brexit potentially taking the market down a quite different regulatory path.”
Despite these challenges, the survey revealed that the industry believes financial regulation is having a positive effect on the investment community – only 6% believe financial regulation has reduced investor confidence, whilst 42% believe regulations have helped cement investor confidence.
However, only 23% of the executives surveyed believe that regulators have created effective global regulatory frameworks, although 57% do believe that regulators are better at collaborating and coordinating across borders.
Effective cross-broader collaboration will be particularly essential for fund managers post-Brexit, especially for those based in non-EU jurisdictions looking to be assessed as equivalent under the Alternative Investment Fund Managers Directive (AIFMD). The European Commission is currently reviewing recommendations issued by the European Securities and Markets Authority on the application of the (AIFMD) marketing passport for non-EU markets, meaning the future of the financial passport is still unclear.
Not surprisingly then, the 2017 Global Regulatory Outlook report shows most firms (62%) agree that Brexit will have an impact on their compliance arrangements, though it is not clear whether this will be felt in the short or long term. More than a third (35%) believe that Brexit will have a short-term impact on compliance arrangements, whilst a quarter (27%) expect the impact to be felt in over 18 months.
Julian Korek explains:
“Recent political turmoil coupled with skepticism regarding the efficacy of financial regulations means uncertainty reigns in most financial compliance departments today. Although the UK is expected to be in a good position in terms of third-country equivalence, firms are looking for further stability from regulators. Fund managers and bankers clearly lack confidence in the current regulatory regime, which may provide a level of support for those governments seeking to make significant changes.
“That said, regulators have gone some way to help rebuild trust in financial services. Firms therefore have an important role when it comes to maintaining investor confidence in the sector and ensuring transparency is evident in all their operations and governance going forward.”
Summary of key findings
- 35% of respondents believe recent regulation has had little or no impact on financial stability ◦17% believe regulation has actually made the financial services world less stable
- Only 10% of financial services executives believe changes to regulation have fully developed safeguards to prevent another financial crash
- Just 6% believe financial regulation has reduced investor confidence, whilst 42% believe regulations have helped cement investor confidence
- 62% agree that Brexit will have an impact on their compliance arrangements ◦35% believe that Brexit will have a short term impact on compliance arrangements, whilst 27% expect the impact to be felt in over 18 months.
- Just 23% of the executives believe that regulators have created effective global regulatory frameworks
- 57% believe that regulators are getting better at collaborating and coordinating across borders
About Duff & Phelps
Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, disputes and investigations, M&A, real estate, restructuring, and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.
M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in the United Kingdom and across Europe are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. In Germany M&A advisory and capital raising services are also provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.
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