Brussels, Westminster, the City – The three lingos
Financial services providers’ concerns about the cost of regulation need to be matched with efforts to build trust through better communication with policymakers and regulators if the UK economy is to stay competitive in future.
A significant period of change is underway in the UK financial services industry, with new regulation directed from Europe and drafted within the UK itself set to radically alter its landscape.
The mere mention of that regulation makes the eyes of private bankers and asset managers start to roll. They perceive it as unfair to have complex rules levelled at the industry, increasing the time spent on, and cost of, compliance, at a time when business activity has not regained normal levels, and client demands are growing.
But the industry does not help itself. It needs to acknowledge the mistakes of the past and work to regain trust, said Andrew Gray, UK financial services consulting leader at PwC.
Hector Sants, head of the UK Financial Services Authority, echoed that sentiment at a Mansion House keynote address recently. “It is those who manage the financial institutions, who make the judgements, who should be held responsible for them and for restoring the trust between the financial sector and the public,” he said.
Financial services providers say privately that regulators and policymakers are wrong to draw up electorate-pleasing measures in a bid to show they are addressing the mistakes of the past. Tim May, recently appointed head of the Association of Private Client Investment Managers and Stockbrokers (APCIMS), said policymakers need to avoid “politically driven” decision-making, and focus on what is reasonable.
Given the sheer level of regulation expected, these concerns are understandable. From Europe, the Alternative Investment Fund Managers Directive (AIFMD) will increase the cost of compliance for hedge fund managers, Packaged Retail Investment Products (PRIPs) will affect investment trusts, Basle III will increase banks’ capital ratio requirements, while Solvency II rules will place demands upon insurers and reinsurers.
The European Market Infrastructure Regulation (EMIR) – an over-the-counter derivatives directive – will also require asset managers and real estate funds to put aside capital for counterparties.
In addition, the FSA will implement the framework outlined in the Retail Distribution Review (RDR), impacting service providers not only in retail. It has signalled it will look closer at retail products provided by banks and asset managers, increasing compliance in future.
Additionally, the FSA does not make policy emanating from Europe any easier, said Gray at PwC. It implements directives quicker than other EU states, and the level of demonstrable compliance required has increased, while penalties for failing to comply have become tougher.