With regulatory changes coming in thick and fast, UK financial services firms are struggling under the onslaught
Change is afoot in the UK financial services (FS) sector. Swathes of regulation have been introduced over the last year in an attempt to address some of the oversights in financial legislation and, in terms of refining business practice and increasing economic stability, this is almost certainly all to the good. But how are the large firms coping with the changes? According to research undertaken on behalf of transformation consultancy Moorhouse, not all that well.
Taking in responses from 130 senior execs and board-level directors from the UK FS industry, the report found that 88% felt the regulatory changes were impairing their ability to address other urgent priorities in their business; 61% felt that the disruption was significant. Over four-fifths of respondents stated that dealing with regulatory change was impacting on their ability to carry out their day-to-day operations and almost a half of companies felt the changes were detrimental to their ability to retain a competitive advantage. With 40% of financial firms reporting that they aren’t coping with regulatory changes, it is perhaps an unsurprising that three in five organisations felt they would need to implement fundamental changes to their business model if they were to survive.
Overall, it’s a rather thorny issue. Whilst some people might claim that the regulatory overhaul is the consequence of the FS sector failing to sufficiently vet its own practices, there are legitimate grievances that have been raised about the direction of the legislative changes. One of the main charges is that the changes have been insufficiently thought-through and demonstrate a lack of consistency, with 94% of firms feeling this has caused them problems. A little over half of firms feel that this lack of a unified approach has ultimately related in inefficiency and unnecessary duplication of work across departments. On top of this very few companies feel that enough guidance is provided; under 4% felt it was ‘fully comprehensive’.
But sometimes these challenges can be an opportunity in disguise. Approximately a fifth of businesses surveyed felt that they are utilising the changes as a strategic opportunity by using them as part of a program of change across a much wider spectrum. As Richard Goold, Executive Director at Moorhouse and head of its FS business, comments:
“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.” Additionally, the challenge of regulation has sparked innovation amongst smaller firms that are able to capitalise on their relative manoeuvrability, challengers of the ilk of Funding Circle.
It’s a trying time for FS firms and one that promises significant upheaval. But it is part of a period of natural selection which will be responsible for evolving a much stronger, healthier financial industry. And that has to be worth the risk.