Banks Cite Regulation and Political Interference as Top Risks
Regulation, followed by political interference, top the list of risks for the banking industry both globally and in the UK, according to the
‘Banking Banana Skins 2014 survey’
released by the London-based Centre for the Study of Financial Innovation (CSFI).
The 2012 edition of the biennial survey, produced by the CSFI in association with PwC, named credit risk as the leading threat to UK banks but this year it fell to 12th place.
The 2014 poll is based on responses from more than 650 bankers, banking regulators and close observers of the banking industry in 59 countries. Of these, 186 were based in the UK. It suggests that for both groups of respondents the weight of new regulation is becoming excessive and could dampen economic recovery and growth.
“The regulatory response to the banking crisis is still in full swing as shown by the focus on banker pay, conduct in the banking and insurance sector and ongoing London interbank offered rate [Libor] and foreign exchange [forex] investigations,” said Kevin Burrowes, PwC’s UK financial services leader.
“This has clearly influenced the latest survey results, which cite regulation and political interference as the top two concerns. This could be interpreted as a return to normality as regulation has always had a high ranking, reflecting natural tension between the regulator and the regulated.
“UK, European Union [EU] and other global policymakers need to strike the right balance between regulation that limits the likelihood and impact of any future crises, while allowing both the financial services sector and the wider economy to prosper. A better financial services sector, rather than a smaller – or even just safer – financial services sector, should be the aim.”
Survey respondents were asked how well prepared they thought banks were to deal with the risks they had identified on a scale of 1-5 where 1=poorly and 5=well.
The UK scored 2.70, indicating a considerably lower level of perceived preparedness than the world average of 3.04, and with only the US showing a lower score (2.48) out of 22 rankings.
PwC commented that this is partly because the banks face a huge task in this area, and partly because a growing area of risk – principally regulation – is outside their control.
PwC’s UK financial services risk and regulation leader, Julie Coates, added: “While many see financial regulation as a problem and hindrance, banks should also see it as an opportunity to both rebuild trust and play a real part in ensuring we have a healthy and sustainable UK financial services industry.
“We are seeing financial services organisations not only complying with current regulation, but also preparing to comply with the wave of future regulation put in place to reduce the risks of future crises. Banks in particular, but increasingly insurers as well, are also investing heavily in improving internal culture and ways to ensure that the customer’s interests lie at the heart of decisions.”
By world region, the responses show concern about regulation and politics to be strongest in Europe and North America. The top concerns in the Asia Pacific (APAC) region focus more on the macro-economy and the risk of sharp changes in interest rates.
David Lascelles, the survey’s editor, concluded: “Although there are encouraging signs in this survey, respondents’ concerns around overregulation need to be taken seriously. It would be ironic if new banking rules ended up snuffing out the recovery.”