Industry SectorsFinancial ServicesRegulation of little benefit to financial stability, finds study

Regulation of little benefit to financial stability, finds study

A poll of financial professionals finds one in six believes that regulation has even made the financial services world less stable.

Financial regulation has done little or nothing to improve stability in the financial services market, claim senior financial services professionals polled by valuation and corporate finance advisor Duff & Phelps.

The firm commissioned a survey of nearly 200 professionals, which found 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, has published the Global Regulatory Outlook report since 2012. Its fifth edition finds that, a decade on from the financial crisis of 2007-08, only 10% of senior executives surveyed say they believe changes to regulation have fully addressed the risk of a future crash.

Fifty-five percent 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,” the report suggests.

Commenting on the findings, Julian Korek, global head of compliance and regulatory consulting at Duff & Phelps, said: “More needs to be done to build stability in financial services and ensure the system is resilient in 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 – 42% believe financial regulations have helped cement investor confidence and only 6% think their effect has been negative.

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 essential for fund managers in particular post-Brexit, especially for those based in non-European Union (EU) jurisdictions looking to be assessed as equivalent under the Alternative Investment Fund Managers Directive (AIFMD).

The European Commission (EC) is currently reviewing recommendations issued by the European Securities and Markets Authority (ESMA) on the application of the Alternative Investment Fund Managers Directive (AIFMD) marketing passport for non-EU markets, meaning the future of the financial passport is still unclear.

As such, the 2017 Global Regulatory Outlook report shows that 62% of firms agree Brexit will have an impact on their compliance arrangements, though it is unclear whether this will be felt in the short or long term. Just over a third (35%) believe that Brexit will have a short-term impact on compliance arrangements, while 27% expect the impact to be felt in over 18 months.

“Recent political turmoil coupled with scepticism regarding the efficacy of financial regulations means uncertainty reigns in most financial compliance departments today,” said Korek. “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 forwards.”

 

Related Articles

The Treasury Challenge of a Post-Merger Integration

EEA The Treasury Challenge of a Post-Merger Integration

3m BELLIN
PSD2: dull name, but seismic effect

Clearing & Settlement PSD2: dull name, but seismic effect

3m Alex Kwiatkowski
2017's most read: Correspondent banking: still in rude health?

Bank Relationships 2017's most read: Correspondent banking: still in rude health?

4m Henry Balani
2017's most read: The future of cash management: the single multi-currency virtual account

Accounts Payable 2017's most read: The future of cash management: the single multi-currency virtual account

4m Matthew Fuellhart
2017's most read: Open API: unlocking innovative new services in banking

Automation 2017's most read: Open API: unlocking innovative new services in banking

4m Lu Zurawski
Many bank roles to be automated but 98% positive about robotics at work

Automation Many bank roles to be automated but 98% positive about robotics at work

7m Victoria Beckett
The future of banking: it’s all about sharing

Automation The future of banking: it’s all about sharing

8m Edward Berks
Falcon Private Bank expands virtual currency services

Financial Services Falcon Private Bank expands virtual currency services

8m GTNews