NEW REGULATORY REGIME DAMAGING THE UK’S POSITION AS A LEADING FINANCIAL CENTRE

  • 79% of financial services firms in the UK say regulation is damaging their competitiveness
  • 47% of respondents suggest the new regulatory bodies (FCA and PRA) do not have enough commercial understanding of the financial services environment
  • 64% of UK financial services companies are considering operating overseas because of heightened regulatory scrutiny

More than three-quarters (79%) of financial services firms in the UK feel regulation is severely hampering their ability to behave competitively in the market, according to research released by BDO, the world’s fifth-largest accountancy firm.

Almost two years  after the formation of the FCA and PRA, the research – Friends or Foes?: From Conflict to Collaboration– finds that nearly half (47%) of the financial services firms interviewed said that regulatory bodies do not understand enough about the commercial aspects of the market in which they operate and this is the cause of the industry’s decreased competitiveness.

The research also reveals a concern amongst the sector that the UK’s regulatory environment may be damaging its position as a leading financial centre. This is supported by the finding that almost two thirds (64%) of those interviewed went as far as to say they are considering moving overseas because of heightened regulatory scrutiny.

Almost three-quarters (70%) of respondents believe UK regulators have only a marginal influence over the writing of EU regulation. To maintain the country’s position as a leading financial centre, two thirds of firms (67%) believe the UK should focus on developing stronger relationships with global regulators.

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Just one in three (33%) firms believe that more time should be spent lobbying the EU for regulation favourable to UK financial services business.

BDO’s Financial Services Partner, Alex Ellerton, said:

“There have always been tensions between the regulator and the regulated. However, the UK thrives on its reputation as a global financial centre and these results are concerning. We are  in a relationship and this is the honeymoon period coming to an end.

“The responsibility for all now is to keep up a clear, honest dialogue and work to ensure the UK remains attractive in a sustainable way. The “belt and braces” approach could end up cutting off the industry’s circulation.”

Alex Ellerton continues:

“The tensions between UK financial services and its regulators, and the wider debate with the EU, have  a worrying double impact It is clear the industry is pulling in different directions and it will be interesting to see how the appointment of Jonathan Hill as EU Financial Services Commissioner helps to ease these tensions. At present we would surmise that financial services companies are not pushing for stronger ties with Europe. Our belief is that, of the 64% of firms looking to move abroad, Europe would not be their first port of call.”

Despite these findings, the report also found that 61% of respondents said the move to a dual regime – FCA/PRA – had been positive, due to an underlying belief in the need for real change after the financial crisis.

These findings have spurred BDO to form a working group consisting of major financial services firms, regulators and industry bodies to respond constructively to the challenges highlighted by the research.  This group will put together a series of recommendations for a better working relationship between industry and regulators. Results are expected mid-2015.

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