Regulators’ plans may not stabilise financial services industry and won’t rebuild reputation

A new research study released today by Kinetic Partners, the global professional services firm, warns that half (52%) of industry bosses think that current regulation will have little or no impact on making the financial services world more stable and three quarters (73%) suggest it will have little or no improvement to the reputation of the industry. The research study reflects the views of senior executives within the banking, asset management and hedge fund industries, and includes contributions from Howard Davies and Howard Flight.

Julian Korek, Founding Member of Kinetic Partners and one of the authors of the study, said:

“The global financial services industry remains in a turbulent state and it should be of deep concern to both the industry and the various country regulators that industry confidence levels in the regulatory plans to fix the industry’s woes are so low. So much effort been expended in laying out the regulatory path – and yet so few are convinced it’s heading in the right direction, especially those at the very top. It’s an issue for all of us in the industry – not just the regulator – if people are cynical about the impact of regulation. Clarity, understanding and consistency is needed so firms can buy in to new regulation.”

Of the 88 chief executives and directors of financial services companies interviewed for the study, only 36% of respondents believe that current regulatory plans will make the financial world more stable (52% believe it will have little or no effect on stability and 11% felt it would make it less stable). Perhaps even more worryingly, nearly three quarters of those surveyed (73%) don’t think regulation has any impact on the reputation of the industry.

Other significant findings of the study include:

  • 55% said clarity is the single most important factor in delivering an effective regulatory framework, while 30% believe that single global regulatory standards are the key;
  • 82% said that the solution lies within existing regulation. Their argument is that by using regulation more effectively, it would strengthen accountability and rebuild trust in the industry;
  • CEOs and their heads of compliance are not aligned. Just 16% of the CEOs surveyed by Kinetic Partners thought new regulation would make the financial world more stable – whereas nearly half (47%) of the compliance heads thought it would do so.

Julian Korek explained:

“Clearly, regulation is something the industry accepts, but to be this far down the road of regulatory reform in financial services and to be seeing lack of commitment on this scale has to be a real concern to everyone with a vested interest in a stable, solid global financial system. The industry is seeking clarity of regulation above all else – and the significant minority of 30% who are calling for global standards cannot be ignored. It is of paramount importance that the industry has an appropriate and adequate voice in commenting and fine-tuning regulatory proposals rather than feeling it is ‘safer’ to keep their heads under the parapet. If not, business will reach outside of their current markets to other jurisdictions that provide clearer frameworks.

For the UK, given that the financial services industry continues to play a major role in the economy, perhaps now is the time to consider appointing a Minister with specific responsibility for Financial Services to promote the sector within the UK and across other jurisdictions?”

Howard Flight, concluded:

“Regulation will not restore the industry’s reputation overnight. But an understanding of how regulators envisage the shift from regulation driving stability in the short-term to slowly building the reputation of the industry in the longer term would be more likely to win hearts and minds across the industry.”

For more information please contact Julian Korek.

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