Tue, Mar 5, 2013

Stumbling Blocks

The business leaders that participated in our study welcome regulation, understand the need for it, and want to work with lawmakers in this area. However, they still have strong reservations around the  core challenges involved in building next-generation regulation into effective business processes. These reservations centered around five key things:

1. A perceived lack of clarity
Our survey revealed that clarity is a top issue for better regulation, with more than half (55%) of the executives surveyed for our GRO report saying that this is the key issue missing from current regulation plans. Worryingly, not a single regulator currently has clarity listed as a key aim.

2. Relationships and trust
It is clearly in the best interests of all concerned if firms feel able to critique proposed regulations openly. As such, regulators should actively encourage this engagement in order to ensure that new regulations are effective, consumers are protected, and the industry remains competitive. Respondents to GRO survey claimed that a growing number of finance firms are unwilling to engage with regulators about regulations they have issues with as they “don’t want to upset them”.

3. Culture
In a world where regulation is becoming more global and some regulators are merging and working more closely together, how can culture be defined? There is already a great deal of diversity between different regulators, leading to significant differences in interpretation in different countries or regions. As a result, nearly 80% of those surveyed said that regulation has had little impact on the stability of the global financial system, and 77% thought that global regulations may stall new product innovation or development.

4. Performance versus risk
Strong business performance is clearly important for CEOs and the board, but management needs to have a sound understanding of risk and compliance in order to be truly effective. Too much focus on risk and regulation could end up reducing choice for customers, for example. Already, some UK banks seem to be withdrawing from the pension and personal financial products market in response to regulator pressure to ‘take the risk out of investing’, which could reduce opportunities for consumers.

5. Internationalism and extra-territorialism
The financial services sector is currently seeing a significant drive towards more global agreements, working groups, standards and co-operation. Whilst our survey reveals that many firms see this as a key ingredient in helping to drive more effective regulation, it remains to be seen what impact this might have for regulators, the regulated and industry bodies.

One assertion that can certainly be made from these findings is that for regulation to work on a truly global scale there must be more interaction between regulators and industry bodies, which themselves, as typically national or regional institutions, need to develop a more global perspective.