97% of Firms Don’t Think Enough has Been Done to Prevent a Future Crash

Just 3% of financial services professionals polled globally believe that the regulatory changes implemented since 2008 have done enough to prevent a future crash, according to a survey commissioned by global professional services firm Kinetic Partners. Furthermore, just 12% of respondents believe that regulators fully understand how the financial crisis was allowed to happen in the first place.

These findings, compiled on behalf of Kinetic Partners’ 2014 Global Regulatory Outlook report, were nearly identical at the most senior levels, with only 4% of “c-suite” executives polled believing that regulation had adequately mitigated the risk of another crash, and 39% of this group saying it had been only partly addressed.

The survey also revealed that more than half (52%) of those polled who work for banks, asset managers and hedge funds globally, and 61% of those based in the US, feel that changes to regulation had not created adequate safeguards to prevent a future crash. A further 41% of respondents said that the risks had been only partly addressed.

Andrew Shrimpton, Global Head of Regulatory Compliance at Kinetic Partners, said: “Five years on from the trauma of 2008, there appears to be very little confidence that any real lessons have been learnt. That should not only worry regulators, but should also prompt financial services firms to examine their own risk management and controls and ask how well they have mitigated the risks of another crisis.”

Kinetic Partners’ 2014 Global Regulatory Outlook report also revealed that very few people believe that regulators have a handle on the causes of the financial crisis even now. Of over 300 finance professionals surveyed on whether regulators fully understood how the crisis was allowed to happen, just 35 said they did. Of the remainder, more than one-third (38%) said they did not, and nearly half (47%) said that regulators partly understood the causes.

Douglas Shulman, Kinetic Partners’ Director of Regulatory Compliance in New York, said: “Regulatory examinations have become more detailed, and honed, in an attempt to address risks across the industry.  There is a focus on stress-testing the compliance policies, procedures and control infrastructure at firms.   Additionally, regulators will want to see that senior management understands the core risks of their firms – and principals of firms should expect to have their knowledge of such risks tested during exams. Ultimately, firms are being challenged to prove that they are taking ownership of the end-to-end risk and compliance processes.”

Andrew Shrimpton concluded: “Without agreement over the causes of the crisis, it’s not surprising that firms doubt the effectiveness of recent regulation. There is still a lot of scope for collaboration between firms and regulators to establish an effective framework – not least because political pressures are never far away when discussing financial regulation. No one should expect the pace of change to slow up.”

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