I have to admit that the usual bile and vitriol that I call upon as my muse for my various Blogs has been hugely dissipated by watching London 2012 and a family holiday in the Basque country. Every time I have felt the need to wax lyrical on the failings of the global financial services industry I have only managed a Tweet in support or deriding the hard work of somebody else.
I have long since returned to a normality, the warm feeling of pride in the fact that we all managed to deliver a wonderful and uplifting spectacle has long since been replaced with huge personal cynicism by confronting the absurdity of the current financial services market.
Firstly and or a more positive note whether it be the often ridiculed organisation committee, the Mayoral office, the competitors, the volunteers or the spectators, all and I mean all deserve praise for delivering beyond expectation. I wish our politicians and lawmakers were not exhibiting the exact antithesis of these Olympian values!
I was recently looking at a PowerPoint slide originally produced by Pwc two or three years ago entitled the regulatory Tsunami ( see attached). I have since adapted it and in reaction to several commentators and retitled it the Regulatory Ice age. Tsunami is a misnomer because although destructive, tsunami's engulf but ultimately dissipate and things get back to normal with the obvious acknowledgement of the human and personal traumas that inevitably remain. Life however goes on. If the current set of regulatory developments, laws and directives are implemented as drafted or consulted on, God help us!
If the dinosaurs were wiped out by an Ice age caused by a huge meteorite strike somewhere in Mexico (bare with me if you don't subscribe to this particular theory as it matches a tortured analogy) then the same thing may happen to the leviathans of the financial services industry! This time the Ice age follows not a meteorite strike but a paper based onslaught of game changing laws and regulatory upheaval. It is not that any one individual text is flawed in its thinking or objectives (although some are and admittedly some I can't even bring myself to read the synopsis of, so could be anything) it is the interaction or lack of coordination whichever way you wish to look at it that gets me.
I pride myself on trying to understand the objective behind the law or regulation before I get caught up in the individual clauses and detail. This allows me to take part in pre-implementation consultation and hopefully have influence on the eventual outcome. Even if it is only a clarification request, or more fundamental observation, in my experience the authors need practitioner help. Afterwards I get to grips with the detail.Therefore I get that; Solvency II and Basel III are about prudential standards and making sure the Dinosaurs have enough to stave off starvation; I know that MIFID II is looking to level the conduct of business playing field in European Markets; UCITS V and VI are about saving the brand of the only truly pan-European regulated product; Volcker preventing poacher being gamekeeper in the Investment banks, and AIMFD ensuring that managers of Collective investment Schemes are subject to regulation and oversight by a third party. The UK's RDR wants to see transparency in charging for advice while challenging the advisory industry to show their worth. There's my favourite of all in FATCA which is probably the most ill conceived of the lot (forgive the simplification) whereby anybody investing in American financial instruments will have to prove to the US revenue that all Americans who have beneficial ownership of said instruments have been identified as such, the costs of this I only shudder to think. There you have it a series of single focus developments that create a barren wasteland of entrepreneurial opportunity. Outwardly there is no acknowledgement of the "law of unconsidered consequences". I am finding it difficult to believe that the large institutions are not caught in a web of regulatory impasse, having to consider structural change and adaptation at the expense of viability.
When the meteorite hit 65 million years ago it is estimated that half the species on earth were wiped out, only those that could adapt to the environmental paradigm shift did and then evolved into the present flora and fauna we have today (with the exception of the species hunted into extinction or denied environments in which they can survive). I obviously don't know that half the businesses in Financial services are going to disappear but I do know their chances are slimmer than they were now that we are entering the regulatory Ice age.
HRP 20th November 2012
