By Marcus Leach
Businesses in the City are concerned about the impact of regulatory uncertainty on their business operations, according to a new report released today (Monday) by international law firm Eversheds.
More than half also believe that EU policy is damaging London’s economic position, and that simpler regulation would make London a more attractive place to do business.
The Eversheds Regulation in the City Report engaged with almost 200 senior level decision makers in the City, to gauge opinion on current regulation impacting on the City. The report examined their thoughts on current legislation, regulatory reform, and how they would like to be regulated to ensure the City of London remains competitive on a global stage.
The results reveal a significant degree of frustration about the UK regulatory regime. Two thirds (61%) of businesses state that uncertainty around legislation compliance has led to their organisation delaying business activity, one third (34%) believe the volume of legislation often means that complying with one leads to contravening another.
The report also reveals concerns about the lack of cohesion between UK, EU and US regulatory requirements. Nearly two thirds of businesses (63%) feel that UK interpretation of EU law is more concerned with legal certainty than with upholding the original spirit of the law. Half (50%) of those surveyed are also concerned that businesses will move to other financial centres in an attempt to avoid regulatory pressures, with 44% thinking that businesses will relocate to Hong Kong and 37% to New York.
Despite the frustrations, senior executives in the City do acknowledge that tight regulatory control is required, with four in five businesses (80%) in favour of a compulsory, rules-based system compared to just 7% who believe it should be a voluntary, principles-based regime. Just 1% of businesses believe that no changes are needed to the current system
“During the last year, the topic of regulation impacting on the financial services sector has caused much discussion in the City," Michael Wainwright, partner at Eversheds, explained.
"Recent reforms to industry regulation have caused many to say that legislative overkill is due to lack of imagination from the regulator, rather than lack of choice. In particular, businesses are keen to see the future course of banking regulation resolved as soon as possible, so that the banks can get back to business with a clear view of the ground rules under which they will operate.
“With these concerns in mind, we undertook an in-depth study to assess the impact of regulation on the City and examine how the ongoing reform of the City’s regulatory framework will affect the UK’s financial services sector.
“While there are certainly many gripes, we found the City is actually in favour of regulation. However, with less than 1% of businesses believing that no changes are needed to the current system of regulation, we wanted to find how exactly the City would like to be regulated. With the publication of this report we have drawn out the main areas where the City would like to see change to form the ‘Regulation in the City Charter’.”
The City Regulation Charter sets out the main areas where the City would like to see change, including:
· The City is in favour of regulation: Businesses are not against red tape, in fact 80% believe that regulation of the City should be a compulsory, rules-based system compared to just 7% who believe it should be a voluntary, principles-based regime.
· Increased guidance from the regulator: Businesses want the regulator to help them comply with regulation, with over a quarter (27%) of businesses surveyed wanting the UK regulator to provide more guidance to help the City more fully understand how to act in accordance with financial regulation.
· Regulatory environment should reflect the City’s structure: Businesses feel that the regulator should be made up of bodies/divisions that understand each sector in the financial industry much more fully and regulate each one accordingly.
· Establish a two-tier regulator: More than half (53%) believe that the UK should have a two tier regulatory framework, with one regulator aimed at retail investors/consumers; and another at the institutional market place.
· Regulate for the future not the past: There is a sense in the City that current regulation and the latest regulatory reforms focus too heavily on fixing the problems, rather than legislating for the present day and future.
· Embrace EU legislation with a lighter touch: Nearly two thirds of businesses (63%) feel that UK interpretation of EU law is more concerned with legal certainty than with upholding the original spirit of the law.
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