When will it all end?

Last night I bumped into an experienced observer of the City and described how the FCA deliberately ignores massive fraud since the test is whether the public notices. This depresses me (I still yearn for the c. £500,000+ that the FSA/FCA vanished from my grasp – but, being a romantic, I slightly hope – however foolishly).

Of course, this cynicism on the part of the FCA induces others who are similarly adversely afflicted by the FCA to express a view and I show below the results of a survey commissioned by Duff and Phelps (a new name in the firmament) covering the effect of regulation as practised by the FCA (no attempt is made to quantify the cost of this regulation – but it is colossal):

“Press Release 

Financial regulation “failing to increase stability” warns new global research study from Duff & Phelps

Financial regulation has done little or nothing to improve stability in the financial services market, according to senior financial services professionals polled by valuation and corporate finance advisor, Duff & Phelps. The survey of nearly 200 professionals commissioned by Duff & Phelps shows that 35% of respondents –believe recent regulation has had little or no impact on financial stability, with 17% stating that regulation has actually made the financial services world less stable.

Kinetic Partners, now the Compliance and Regulatory Consulting Division of Duff & Phelps, has been publishing the Global Regulatory Outlook report since 2012.^[1] The fifth annual Global Regulatory Outlook report also found that, a decade on from the financial crisis of 2007/8, just 10% of senior executives surveyed say they believe changes to regulation have fully addressed the risk of a future crash.

55% of respondents agree that the risk has been partly addressed by new regulations – but 33% don’t believe the regulatory framework has adequately created safeguards to prevent a future crisis. With President Trump committed to reviewing Dodd-Frank and the future regulatory framework of the London market uncertain due to Brexit, financial regulation may be about shift once more for banks and fund managers.

Julian Korek, Global Head of Compliance and Regulatory Consulting at Duff & Phelps, comments on the findings:

“More needs to be done to build stability in financial services and ensure the system is resilient in future, for both banks and the alternative investment industry. Even now, a decade on, most people in the financial services sector are not confident that the risks that caused the crisis have really been managed. The major regulatory bodies have been very clear about future areas of focus and concern, but the fact that so many still think there is potential for another crash is worrying – even without Trump or Brexit potentially taking the market down a quite different regulatory path.”

Despite these challenges, the survey revealed that the industry believes financial regulation is having a positive effect on the investment community – only 6% believe financial regulation has reduced investor confidence, whilst 42% believe regulations have helped cement investor confidence.

However, only 23% of the executives surveyed believe that regulators have created effective global regulatory frameworks, although 57% do believe that regulators are better at collaborating and coordinating across borders.

Effective cross-broader collaboration will be essential for fund managers in particular post-Brexit, especially for those based in non-EU jurisdictions looking to be assessed as equivalent under the Alternative Investment Fund Managers Directive (AIFMD). The European Commission is currently reviewing recommendations issued by the European Securities and Markets Authority on the application of the (AIFMD) marketing passport for non-EU markets, meaning the future of the financial passport is still unclear.

As such, the 2017 Global Regulatory Outlook report shows most firms (62%) agree that Brexit will have an impact on their compliance arrangements, though it is not clear whether this will be felt in the short or long term. More than a third (35%) believe that Brexit will have a short term impact on compliance arrangements, whilst a quarter (27%) expect the impact to be felt in over 18 months.

Julian Korek explains:

“Recent political turmoil coupled with scepticism regarding the efficacy of financial regulations means uncertainty reigns in most financial compliance departments today. Although the UK is expected to be in a good position in terms of third country equivalence, firms are looking for further stability from regulators. Fund managers and bankers clearly lack confidence in the current regulatory regime, which may provide a level of support for those governments seeking to make significant changes. 

“That said, regulators have gone some way to help rebuild trust in financial services. Firms therefore have an important role when it comes to maintaining investor confidence in the sector and ensuring transparency is evident in all their operations and governance going forwards.”

…ends…

Summary of key findings

– 35% of respondents believe recent regulation has had little or no impact on financial stability
– 17% believe regulation has actually made the financial services world less stable
– Only 10% of financial services executives believe changes to regulation have fully developed safeguards to prevent another financial crash
– Just 6% believe financial regulation has reduced investor confidence, whilst 42% believe regulations have helped cement investor confidence
– 62% agree that Brexit will have an impact on their compliance arrangements
– 35% believe that Brexit will have a short term impact on compliance arrangements, whilst 27% expect the impact to be felt in over 18 months.
– Just 23% of the executives believe that regulators have created effective global regulatory frameworks
– 57% believe that regulators are getting better at collaborating and coordinating across borders

About Duff & Phelps

Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, M&A, restructuring, dispute and legal management consulting and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visitwww.duffandphelps.com

M&A, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A and capital raising services are provided in a number of European countries through Duff & Phelps Securities Ltd, UK, which includes branches in Ireland and Germany.”

Regulators dream of supplanting the general requirement of the people to govern themselves and be sensible by imposing the regulators’, as they see it, omniscience. Apart from the fact that this attitude is simply silly it is astonishingly expensive. Perhaps the people are starting to mind.

*****

The government has imposed highly notional computations of future liabilities to cover personal injury damages where the increased cost to insurers is massive. It’s all based on the silly yields on gilts which have been artificially induced by quantitative easing.

This column has previously covered the effect of this stance upon house prices, pension fund deficits, consumer confidence and, I shouldn’t be surprised to learn, premiership football results on Saturdays. When will it all end?

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One victim of this extraordinary deficit computation approach is Phil Green since, although I do not think Phil should have picked up a knighthood given that I decided long ago that he is a spiv, he is nonetheless entitled to fair play. My sympathy arises because somehow the pensions regulator concerning BHS has managed to lever £363m out of him. Goodness knows how – there seems to be little or no basis in law. Certainly the weaselish Ian Wright MP claims that Phil has a moral duty to pay into the BHS pension fund. I stress ‘moral’ rather than legal liability since I suspect there is none of the latter. (Incidentally, had I been Phil’s PR adviser I would have shifted that silly boat somewhere else in the Mediterranean to avoid snappers.)

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Finally, everywhere I traipse I am warned that the market is completely mad and must shortly collapse. That’s fine but it does not.