FS industry in UK feels constrained by wave of regulation, says Moorhouse Research

24 October 2012

The UK financial services (FS) industry is struggling with the pace and sheer volume of change driven by new regulation and increasing legislation fololowing the 2008 crash, according to research from the Moorhouse consultancy. The survey of 130 senior executives and board-level directors in the UK FS industry, representing some £3.2bn invested in change initiatives, found 88% feel regulatory change is preventing their organisation from addressing other urgent business priorities, such as technology or csutomer initiatives; while over half (61%) said it was a having a significant impact.

A further 83% feel regulatory change is affecting their ability to deliver day-to-day operations and services and almost half (48%) say the regulatory agenda is negatively affecting their competitive advantage. A staggering three-quarters (77%) of those surveyed felt their organisation would have to change its business model in order to thrive over the next three to five years, with almost two-thirds (60%) reporting this change would need to be substantial or fundamental.

The research, entitled ‘Too Much Change? Financial Services Survey 2012’, finds that FS organisations are undertaking an average of 21 major transformation projects at any one time, with an average of 41% of these driven by regulation. Only 4% of FS organisations are coping very well with the amount of regulatory change they are faced with; 40% are not coping well.

FS organisations are left unable to focus on growing their business and responding to the changing market; specifically, respondents singled out cost reduction, business improvement, growth and innovation being sacrificed, as resources are focused on meeting the needs of regulatory demands.

Richard Goold, executive director at Moorhouse and head of its FS sector, said: “The financial services sector is at breaking point. While there is no doubting the need to tighten the rules governing the industry, the tidal wave of legislation facing organisations is more than they can cope with. They are effectively paralysed; struggling to meet regulatory requirements to avoid fines or penalties, unable to further develop their business and failing to deliver the best service or function. As a result, the UK financial services industry is losing its competitive edge and opening itself up to competition from overseas organisations that are less burdened by regulation, and new market entrants who can more efficiently undertake smaller parts of the traditional functions of larger FS organisations.”

Senior FS executives and directors are doubtful that their organisations can manage the changes required; only 12% believe their organisation has the capability and capacity to deliver the required changes ‘to a great extent’, and 46% believe the business does not have the capability at all, or only to a slight extent. Almost half (48%) of respondents feel that frontline staff are not coping with the changes well., while only 7% said regulatory change was having a positive effect on their organisation. It’s likely that this minority represent the new market entrants in a better position to take advantage of the changed marketplace. Over half (52%) expect the pace of regulatory change to increase over the next 3-5 years.

The problem is compounded by the overlapping and piecemeal nature of much of the regulation, particularly for organisations operating globally, which are facing legislation from multiple governments. Almost all (94%) of the senior level FS respondents in the survey felt that the overall regulatory agenda has not been fully thought-through or is consistent. As a result, just over half (51%) of organisations admit to inefficient and wasteful duplication of activity across departments in rolling out new programmes and change.

In an ominous sign, Richard Goold continued, by saying that organisations have to accept that further legislation and more regulation will happen. "While many organisations feel the guidance and support is not as helpful as it could be, they must pick up the baton and work with regulating bodies to tackle this," he added. "They must become so adept at responding to new legislative requirements that they in effect become self-regulating. The key to managing this is seeing mandatory change as an opportunity for broader business improvements and to find new ways of doing things better. Boards must build a culture and way of working in the business that is ready for change and better at managing it. To prosper in what is already a challenging market, they will need to raise their game and respond faster, better, and without sacrificing other improvements to their business – a tough challenge by any yardstick.”

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