The Impact of Over-Regulation on the Financial Services Industry
Regulations have become as commonplace to the finance industry as bread to a duck pond since the banking collapse of 2008 and 2009, and the question now is, is the finance industry suffering from having too much of a good thing?
From Basel III and EMIR to Dodd-Frank and MiFID II, regulations come in many forms as those governing bodies force banks to hold more capital and inch up the capital they are required to place behind their businesses. The truth is not all regulators are the same, which is clear from the consistent indecision of the UK regulator PRA in its reluctance to come to a final decision over the amount of capital it expects UK banks to hold, whereas the Americans have already established their bottom line. Rather than being concerned, at this point, by over-regulation, European banks are far more preoccupied with being given some clarity with the regulation in order to understand what PRA intends its banks to look like.
Clarity and excessive regulation aside, creating transparency within the finance industry is certainly a good thing. Banks are having to produce enormous amounts of data for their regulators, assigning whole teams of people to deal with every aspect of their business. This intense regulatory climate has not only generated a more honest approach to business but in turn has led to the creation of a significant number of job opportunities within financial services. Leading banks now produce annual reports that comprise several hundred pages in their efforts to disclose information and data. This transparency is undoubtedly being heralded as a positive development, and the subsequent caution and desire to reduce risk within the sector means that regulation will continue.
“The enormous hit to public finance across Europe in having to bail out the banks seven years ago, created a political upheaval of such magnitude that it can never be allowed to repeat,” says a leading banker. “Enhanced regulation is here to stay, but all stake holders will benefit from clear, consistent and transparent rules.”
Certainly with the ever increasing tide of regulation sweeping Europe and elsewhere, auditors and compliance officers are in strong demand as businesses across the financial services industry tackle each new directive. Even if the current pace at which these new regulations come on stream is too slow, the existing measures create an enormous burden. New rules require banks to share more data with regulators globally, which has further placed a need for expertise in hiring new talent. As more and more institutions succumb to the demands of the policy makers, the industry needs to adapt and enact on both current and pending changes within the regulatory environment.
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Our Renaix Guide to Finance and Accounting Regulations provides information on trends in the industry.
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