The financial services industry has seen another year of change. At Kinetic Partners we recently compiled our 2014 Global Regulatory Report which leverages insight from our clients and contacts in the financial services industry as they look forward into 2014. Combined with a survey of 300 senior executives in banks, asset management firms and hedge funds globally, we have created a detailed representation of the global regulatory landscape. Through this, we were able to showcase the range of unresolved challenges and issues concerning regulation that the financial services industry will face in 2014 and beyond.
Regulatory Global
Evolving Regulatory Attitudes and Trends
Developing regulation for the international financial services industry
Our research reveals a slight softening in attitudes towards regulation within the industry: 30% of CEOs now say they see the importance of regulation in building a more stable financial services environment, up from 20% a year earlier. In addition, the number of CEOs who think that financial regulation will destabilise the financial services industry has fallen from 20% to 10%.
Cooperation Between Global Regulators
An emerging theme from our research was a strong desire for increased coordination between regulators in different jurisdictions. Many firms operate in more than one location and therefore must deal with numerous, sometimes conflicting, regulatory regimes. We found that nearly three out of 10 CEOs said a single global regulatory framework is the most important factor in delivering an effective compliance system for the international financial services industry. Those surveyed also acknowledged additional variables important to achieving this goal: 25% of respondents thought principles-based regulation was the most crucial factor, with 23% highlighting better communication from regulators.
Meanwhile, it is also clear from our report that, five years on from the trauma of 2008, many in the financial services industry do not think that regulators and industry participants have either learned or acted upon the lessons of the crash. Just 3% of financial services professionals polled believe that the regulatory changes implemented since 2008 have done enough to prevent a future crash. An additional 41% of respondents said they believed regulators have only partially addressed the key risks that could lead to another crisis. And when asked whether they thought regulators fully understand how the financial crash happened, 85% said they thought regulators have a limited understanding or no understanding at all.
Shifts in Global Financial Centres
The global financial centre: New York and Shanghai up
With regard to the ranking of global financial services centres, respondents to our survey overwhelmingly cited New York (49%) and London (44%) as the ‘current pre-eminent global financial centre’. However, when they were asked where that centre would be located in five years’ time, doubts about London’s future prospects were raised. Only 26% thought London would still be a contender for the title in five years’ time. New York lost some ground too, with only 40% of respondents affirming its supremacy, down from 49% the previous year.
When asked to name the leading emerging financial centre in 2018, almost half (48%) of respondents named Shanghai, while 7% named Dubai and Sao Paulo, the second most popular choices. Although Shanghai still faces significant barriers to attract international business and develop regulatory expertise, these challenges are not insurmountable. Given the expertise resident in China’s existing financial epicentre in Hong Kong, as well as a fast growing, but lesser known, financial services centre in Shenzhen, China’s model, if successful, could serve as an exemplary rubric to be copied in similar centres across the globe. As such, rising competition for markets such as London is only going to grow.
Taxation, Enforcement, and Public Perception
Tax and enforcement
Another key theme to have emerged from our report is the extent to which negative perceptions of the financial services industry continue to influence the actions of politicians and regulators. These negative perceptions have served to increase pressure on governments and politicians to ‘do something’ about problems within the industry. One consequence of this has been a general increase in regulation, including tax legislation, which creates national competition. We are also seeing the possibility that some regulators will levy more fines and punishments upon individuals as well as the firms that employ them.
Interestingly, 27% of CEOs and 40% of firm-wide employees, feel that making executives criminally accountable for the actions of employees within the firms would serve the industry well, as opposed to only 33% who disagree. Therefore, with regards to regulators’ enforcement efforts, striking a balance between targeting firms and holding individuals responsible, in particular, may very well be on many industry executives’ minds.
Over the next 12 months, understanding what the implications are for firms, following recently approved regulation, is likely to be a key focus for industry leaders. What is clear from our report is that there is still quite a lot of progress to be made by regulators, investors and firms in order to develop a more coordinated and comprehensible globalised financial services industry.
Report Methodology and Key Takeaways
About Kinetic Partners’ 2014 Global Regulatory Outlook report
The 2014 Global Regulatory Outlook report highlights recent key industry trends and regulatory developments, based on conversations with global regulators, industry bodies and clients. By compiling these diverse perspectives, the report provides keen insight and observations for the coming year. The full report is available from http://www.kinetic-partners.com/GRO/
Julian Korek, CEO and Founding Member of Kinetic Partners, the global professional services firm
The financial services industry has seen another year of change. At Kinetic Partners we recently compiled our 2014 Global Regulatory Report which leverages insight from our clients and contacts in the financial services industry as they look forward into 2014. Combined with a survey of 300 senior executives in banks, asset management firms and hedge funds globally, we have created a detailed representation of the global regulatory landscape. Through this, we were able to showcase the range of unresolved challenges and issues concerning regulation that the financial services industry will face in 2014 and beyond.
Regulatory Global
Developing regulation for the international financial services industry
Our research reveals a slight softening in attitudes towards regulation within the industry: 30% of CEOs now say they see the importance of regulation in building a more stable financial services environment, up from 20% a year earlier. In addition, the number of CEOs who think that financial regulation will destabilise the financial services industry has fallen from 20% to 10%.
An emerging theme from our research was a strong desire for increased coordination between regulators in different jurisdictions. Many firms operate in more than one location and therefore must deal with numerous, sometimes conflicting, regulatory regimes. We found that nearly three out of 10 CEOs said a single global regulatory framework is the most important factor in delivering an effective compliance system for the international financial services industry. Those surveyed also acknowledged additional variables important to achieving this goal: 25% of respondents thought principles-based regulation was the most crucial factor, with 23% highlighting better communication from regulators.
Meanwhile, it is also clear from our report that, five years on from the trauma of 2008, many in the financial services industry do not think that regulators and industry participants have either learned or acted upon the lessons of the crash. Just 3% of financial services professionals polled believe that the regulatory changes implemented since 2008 have done enough to prevent a future crash. An additional 41% of respondents said they believed regulators have only partially addressed the key risks that could lead to another crisis. And when asked whether they thought regulators fully understand how the financial crash happened, 85% said they thought regulators have a limited understanding or no understanding at all.
The global financial centre: New York and Shanghai up
With regard to the ranking of global financial services centres, respondents to our survey overwhelmingly cited New York (49%) and London (44%) as the ‘current pre-eminent global financial centre’. However, when they were asked where that centre would be located in five years’ time, doubts about London’s future prospects were raised. Only 26% thought London would still be a contender for the title in five years’ time. New York lost some ground too, with only 40% of respondents affirming its supremacy, down from 49% the previous year.
When asked to name the leading emerging financial centre in 2018, almost half (48%) of respondents named Shanghai, while 7% named Dubai and Sao Paulo, the second most popular choices. Although Shanghai still faces significant barriers to attract international business and develop regulatory expertise, these challenges are not insurmountable. Given the expertise resident in China’s existing financial epicentre in Hong Kong, as well as a fast growing, but lesser known, financial services centre in Shenzhen, China’s model, if successful, could serve as an exemplary rubric to be copied in similar centres across the globe. As such, rising competition for markets such as London is only going to grow.
Tax and enforcement
Another key theme to have emerged from our report is the extent to which negative perceptions of the financial services industry continue to influence the actions of politicians and regulators. These negative perceptions have served to increase pressure on governments and politicians to ‘do something’ about problems within the industry. One consequence of this has been a general increase in regulation, including tax legislation, which creates national competition. We are also seeing the possibility that some regulators will levy more fines and punishments upon individuals as well as the firms that employ them.
Interestingly, 27% of CEOs and 40% of firm-wide employees, feel that making executives criminally accountable for the actions of employees within the firms would serve the industry well, as opposed to only 33% who disagree. Therefore, with regards to regulators’ enforcement efforts, striking a balance between targeting firms and holding individuals responsible, in particular, may very well be on many industry executives’ minds.
Over the next 12 months, understanding what the implications are for firms, following recently approved regulation, is likely to be a key focus for industry leaders. What is clear from our report is that there is still quite a lot of progress to be made by regulators, investors and firms in order to develop a more coordinated and comprehensible globalised financial services industry.
About Kinetic Partners’ 2014 Global Regulatory Outlook report
The 2014 Global Regulatory Outlook report highlights recent key industry trends and regulatory developments, based on conversations with global regulators, industry bodies and clients. By compiling these diverse perspectives, the report provides keen insight and observations for the coming year. The full report is available from http://www.kinetic-partners.com/GRO/
Julian Korek, CEO and Founding Member of Kinetic Partners, the global professional services firm
