Government urged to cut cost of financial services regulatory compliance

Government urged to cut cost of financial services regulatory...In the wake of a general election, different groups – from businesses to public sector bodies to families – have their own views on the new government’s priorities, and all are eager for their voice to be heard.

When it comes to the UK, one of the loudest voices is the financial services industry, which contributed £126.9 billion in gross value added (GVA) to the economy in 2014. As such, when the results of a new poll of financial services firms were published recently, it’s fair to say the government sat up and took notice. But what do those businesses want?

According to the latest CBI/PwC Financial Services Survey, which covers the three months to June, the biggest priority is bringing about a reduction in the cost of regulatory compliance. This cost has a much more significant impact than merely shaving a few digits of a company’s bottom line: it has also been blamed for hampering the productivity of the sector.

The impact of regulatory compliance costs

Figures from the Office for National Statistics reveal that the output of financial services and insurance companies has dropped in the wake of the global economic downturn. Most importantly, many businesses within the sector agree: banks, securities traders and life insurers all overwhelmingly believe that output per employee has dipped, or at least grown more slowly. Asked to explain this trend, some companies within the sector – specifically banks and life insurers – attributed it to an upturn in “non-productive” activities like regulatory compliance.

Rain Newton-Smith, director of economics at the CBI, said: “The cost of regulation and tax uncertainty are a top concern for firms across the sector. They want to see the government focus on keeping the UK a competitive financial centre by not putting UK firms at a disadvantage.”

While financial services companies were most eager for the government to prioritise a reduction in regulatory compliance costs, respondents also made a number of other requests. Second on the wishlist was ensuring the tax stability of the financial system, while third place went to promoting financial literacy among businesses and households.

Despite their demands, most financial services firms are still positive

Although businesses throughout the various financial services sectors are understandably keen to make their requests to the new government, they are still broadly optimistic about their future prospects.

Some 33 per cent of respondents revealed they were feeling more positive about their overall business situation than they were in the first quarter of the year, with just one per cent saying they were less optimistic. More than a third of those surveyed said their business volumes rose in the three months to June, while 17 per cent said they decreased. And firms are expecting this to continue: two-fifths think volumes will climb over the coming quarter and only two per cent are predicting a decline.

However, banks were less effusive about their near-term outlook. Among this key group of financial companies, optimism remained broadly unchanged quarter on quarter, despite the arrival of the new Conservative government being largely heralded by the sector.

Kevin Burrowes, UK financial services leader at PwC, explained: “Ongoing regulatory uncertainty, the EU referendum and other macroeconomic factors have dampened the outlook at least in the short term.”ADNFCR-1684-ID-801795958-ADNFCR