In a keynote speech to delegates at SunGardâs City Day on 6 July in London, OâNeill said it was a âfanciful notionâ that the financial crisis would never have happened if the right regulation had been in place. âAt the core of the collapse was the idea that 300 million US people could own a home without having enough income,â he said.
He said that industry watchdogs are right to try and improve the way the financial services industry is monitored. However, it would not be possible to satisfy all requirements through the forthcoming âonslaught of regulatory nonsenseâ. He said that firms need to work together with regulators to ensure the stability of market infrastructures - and those that succeed will demonstrate the most adaptability and desire to change.
During his speech, Davies criticised the current tripartite regulatory system - which includes the FSA, the Bank of England (BoE) and the Treasury - but the changes will ensure this becomes âfar more complicated and confusingâ. The FSA is due to be phased out by 2012 and replaced by the Prudential Regulatory Authority (PRA), the Financial Conduct Authority (FCA) and the Financial Policy Committee (FPC). He added that the scale of these changes - or ârearrangement of the deckchairsâ as he described the reform - was overly ambitious, particularly when the industry was still in a state of recovery following the financial crisis.
Davies went on to say that there will be three tiers of regulation affected by the changes - global, European and UK legislation, with the latter seeing a significant overhaul through the break-up of the FSA - politicians will have much greater involvement with the industry while the regulatorâs âlight touchâ approach will be replaced by one more âintensive and intrusiveâ, he explained.
He added that the Basel III initiative is the most significant proposed reform â it requires financial institutions to have a tier one capital ratio of six percent - which could put significant strain on relations between national and European regulators as credit becomes scarcer and more expensive.
The swing of growth from developed to developing markets was the central theme of OâNeillâs address, perhaps unsurprisingly from the banker responsible for coining the Brics (Brazil, Russia, India and China) acronym. He described the financial collapse as a âNorth Atlantic crisisâ rather than a global concern and said that it was âlazyâ to label it as such: âIt is socially offensive to label these areas âemerging marketsâ, as economically, these territories are driving the world,â he said. He emphasised this by saying that by 2020, the economies of the Bric nations will be larger than the US.
The emerging markets were highlighted at one of the breakout sessions in the afternoon - Giles Bedford, partner at Beltone Financial, Martin Orji, managing director and chief executive officer (CEO) at Nex Rubica Capital, and Olivier Gueris, chief operating officer at the Qatar Exchange, emphasised the new investment opportunities in Egypt and the pan-Africa region. While other sessions covered the impact of new technologies on trading, the management of market data and ways in which the firms can combat insider trading, the main theme of much of the discussion came back to regulation and how the industry is reacting.
Earlier, Kathleen Traynor, director of regulation at the Futures and Options Association, outlined the various reforms aimed at the marketplace. She said that changes in Europe and in the global market are aimed at reducing risk, offering greater transparency to business practices and limiting impacts of the downturn. Traynor explained that âhuge efforts are underwayâ by regulators to address these issues but the period of transfer is ongoing. The number of sessions and attendees at the event suggested that the dialogue surrounding these issues, like this transfer period, is definitely not over yet either.
By Jim Ottewill