Challenges for Regulators

Following the banking crisis many blamed the greed driven, unsound investing of the financial institutions that stood as paragons of security, prosperity and respect in our society. Eventually the blame game pointed its figure at the regulators who, they said, should have done more to curb the renegade investment activities of the unscrupulous institutions and should have foreseen the impending financial tsunami that swept the financial sector and the world at large.

 

Challenges for all in the wake of the banking crisis:
tougher regulations, frequenty reporting, more capital and liquidity, means higher costs

As governments raced to save long standing financial institutions, by bailing them out using tax-payers money, in an attempt to stave-off national financial meltdown and mass unemployment, the regulators prepared themselves for the challenges ahead.

In the UK, the Financial Services Authority (FCA) was empowered by the government to take a more active interest in the inner workings of the financial institutes, who, pre-crisis, the FCA had regulated in an “advisory, observational and ‘light-touch’ policing manner”, but now, post-crisis, took the approach of “fully engaged enforcer”, as Hector Sants (FCA Chief Executive) said, “We will judging the judgements made by the board members”.

The FCA enforcement goes further, by asking the UK on-shore branches of non-UK financial institutions, to disclose their liquidity provision in case the branch fails. Further still, the government, the Bank of England (BoE) and the FCA all agree that banks will need tougher regulations in the future; have to report more frequently with greater detail; hold more capital and possess more liquid assets on-shore to make them ‘safe to fail’.

All of this close engagement and regulation comes at a cost to both the regulator, in having the resource to closely police the firms, and the regulated firms, who will need to make reporting system changes and employ high-priced auditors and consultants, to pre-inspect/audit compliance with section 186 of the FCA Financial Services and Markets Act. Additionally, regulators and governments will need to address the challenge of how to stimulate the private banks, who the government bailed-out during the crisis and now hold substantial shares in, to lend to good UK businesses, with filled-order books, to help the economy as a whole. Yet a further challenge; is how to solve the issue of under-writing, with tax-payers monies, the risky activities of the commercial arms of high street banks, who are too big to allow to fail. Couple this, in the UK, with a government NOT wanting to make radical changes so close to a general election; an opposition party looking to give all regulatory powers to the BoE solely, and there is uncertainty in the direction a reform will take place. However, one thing is certain; regulatory changes will mean more work, costs and importance in this sector of the finance world, and companies like Ambosco are well positioned to help share the work effort and reduce the cost impact felt by those continued.