Now the post election dust is settling, there’s trouble ahead for both the regulated and the regulators in the financial services sector, warns Peter Brooke.
Bearing in mind the outcry and backlash against the banks and bankers, only a few months ago, it was perhaps surprising that none of the political parties made more mileage from 'bank-bashing' in their campaigns. But now the dust is settling, there are signs that there may be trouble ahead for both the regulated and the regulators, not just in the banking arena but across the sector.
Vince Cable, one of the most outspoken critics of the role of the banks in the financial crisis, 'casino' banks and the bankers' bonus culture, has been handed the role of Business Secretary in the new Conservative-LibDem Cabinet. He is certain to pay very close attention to the banks and wider financial services sector and it has already been announced that a ministerial commission will be formed to consider ways of breaking off the "casino" investment banking arms of banks from their high street banking operations.
The LibDems appear to have forced the Conservatives to rethink their plans to 'disband' the Financial Services Authority and hand its powers for regulating banks to the Bank of England. Even so, it seems likely that there will be some changes to the division of regulatory responsibilities from the current tri-partite system, with the Bank of England assuming a greater role in macro-prudential supervision.
The implications of the election results for the regulation of the financial services industry will probably be fairly limited in the short term. The FSA's new tougher stance will no doubt continue with greater intrusion, enforcement and penalties for regulated firms. The FSA will want to cement their newly reaffirmed role by demonstrating their effectiveness to Vince Cable and the new Government, which will mean further stepping up the pressure on all financial services firms.
The FSA are still assessing the possible impact of the change of Government on the current major initiatives such as the Retail Distribution Review and the Mortgage Market Review. At this stage all they are saying is that they see no reason why these initiatives will be affected and our view is that these will remain largely on track. European initiatives are more likely to impact RDR than the change of government, but it remains to be seen what changes emerge in the way that engagement with Europe is managed.
In the longer term we expect to see continuing regulatory change, with the most probable areas of focus being:
- More global regulation
- More alignment between the Bank of England, FSA, Office of Fair Trading and the Financial Ombudsman
- Many more supervisors 'on the ground', monitoring wider business models, strategies and products
- A movement away from principles based regulation to a more prescriptive approach
- A simplification of financial product offerings and greater transparency in their operation
These changes will impact how financial services organisations across the board manage their risk and regulatory strategies.
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