- New report presented to G20 proposes four areas to boost growth and jobs
- Warns the regulatory reform agenda has passed the tipping point, where financial safety is now being pursued at a social and economic cost
- Proposals include measures to encourage insurers and long-term investors to lend to infrastructure and small businesses
A new KPMG report has called for the G20 to focus on the role the financial services industry can play creating jobs and stimulating economic growth.
The report, Brisbane G20 summit: A new agenda for financial services, highlights that growth strategies already agreed by G20, such as increasing investment in infrastructure, can be accelerated by the financial sector. For example adjusting the capital and liquidity rules on banks undertaking long term financing should boost investment.
The report also warns that the financial regulatory reform agenda has gone too far, resulting in unintended consequences. As a result of the reforms being implemented inconsistently across different jurisdictions, this has led to higher regulatory costs, greater uncertainty and reduced availability of financial products to help fuel economic growth.
The report was presented to the G20 heads of summit ahead of their meeting in Brisbane on the 16th and 17th November. It calls for
- Re-evaluating the cost-benefit analysis of some regulatory reforms based on the evidence of their outcomes
- Prioritising future reforms, and giving greater certainty on the timing for implementation
- Agreeing to reduce inconsistencies between national regulations which add cost and slow growth
Jeremy Anderson, global head of financial services at KPMG, commented, “The G20 must decide whether to focus on dealing with the crisis of yesterday or on building growth and jobs for tomorrow. We need a new relationship between the financial services sector and regulators which delivers increased stability while stimulating economic growth.
“At the same time banks in particular, must intensify their efforts to introduce culture and behavioural change, so regulators can more comfortably step back. We must break out of this unproductive environment in which regulators believe they need to tackle everything because part of the sector cannot be trusted to play their part in improving standards.”
“We also still see too much evidence of localisation and inconsistent application of regulatory reforms across jurisdictions leading to higher costs and reduced availability of the financial services needed to promote recovery and growth.”
The report proposes four actions required to refine the agenda:
- Reducing regulatory disincentives to encourage banks to lend to small businesses, infrastructure and trade finance – for example adjusting regulation to treat high quality securitisation of bank lending as covered bonds in capital and liquidity requirements.
- Encourage insurers and other long-term investors to lend to infrastructure and small businesses – creating a regulatory regime and tax environment that encourages insurers to lend to long term capital projects.
- Encourage asset managers to invest more in infrastructure – develop the framework for European Long-term Investment Funds (ELTIFs) to allow investment in long term illiquid assets such as infrastructure projects and real estate.
- Develop new, dynamic, capital markets – other countries should apply lessons learned from the US to develop an equity culture, deeper and more liquid capital markets underpinned by regulatory and tax regimes which incentivise investment.
Jeremy Anderson concluded, “The discussions and decisions taking place in Brisbane have the potential to accelerate the global economic recovery by stimulating investment which in turn will create significant number of new jobs.
“We urge the G20 to help maximise the contribution of the financial services sector to the global economic recovery.”