Tue, Dec 16, 2014

Has Regulation Failed to Ensure Industry Stability?

Recent regulation has done little or nothing to improve stability in the financial services industry, according to a majority of global professionals polled. The survey of nearly 300 professionals commissioned by global professional services firm Kinetic Partners, shows that 47% of respondents – and 48% of C-suite executives – believe recent regulation has had little or no impact on financial stability, with 11% stating that regulation has made the financial services world less stable.

The survey for Kinetic Partners’ 2015 Global Regulatory Outlook report also found that, six years on from the financial crisis of 2008, just 2% of senior executives surveyed, and 6% of respondents overall, say they believe changes to regulation have fully addressed the risk of another crash. Half of c-suite respondents (50%) agree that the risk has been only partly addressed by new safeguards. This contrasts, however, with the number of senior managers saying regulations have promoted stability, which is 39%, up from 30% last year.

Julian Korek, CEO and Founding Partner of Kinetic Partners comments on the findings:

“More needs to be done to build stability in financial services and ensure the system is resilient in future. While attitudes to regulation have softened over the past two years, it appears that confidence is limited among financial services firms that the lessons of the crisis have really been learned. 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.”

The survey also revealed that, while a minority supported making senior management criminally responsible for deficiencies in compliance programs, c-suite survey respondents were still more likely to say that criminal sanctions would have a longer-term negative impact on the industry (41%) or make no difference (17%) than who support the approach (23%).

Furthermore, fewer than one in ten believes that more fines on firms (6%) or individuals (7%) would strengthen accountability and rebuild trust in the industry, and just one percent favored new regulation. Instead, greater transparency in governance and management functions (25%), better use of existing regulations (26%), and improvements in public education about the financial world (36%) were held to be the keys to accomplishing this goal.

AnnMarie Croswell, Partner within Kinetic Partners’ Regulatory Compliance team in Hong Kong, explains:

“Regulators alone cannot rebuild trust and ensure stability in financial services. It could be that politicians and governments have a responsibility to improve levels of financial education in their jurisdictions, but it is clear firms also have an important role here when it comes in winning back public confidence in the sector and ensuring transparency in their operations and governance to maintain it.

Croswell continues:

“Firms must continue to assess their governance and management functions, not just for the sake of compliance, but also with consideration to how they look to clients and to the public. Any concerns therein could be perceived as genuine weaknesses and translate to business loss.”

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