Is the banking regulations ‘norm’ and introduction of ringfencing, hampering economic growth?

Mark Astbury 14.09.2015

Regulation and compliance plays a large part in the changes we see in the banking world today. Everyone involved from the business itself to its consumers has felt the affect.

However, whilst we all feel and see the affect this is having on the banking sector today, have we actually considered the longer term impact on the economy tomorrow?

The need to meet regulatory requirements has created a “new normal” for banks, an environment that looks very different than the one we knew before the financial crisis. This new norm shifts the focus from growing the business to ensuring compliance with ever changing regulations. With this, the banks are having to devote much of their time to reviewing thousands of pages of new regulations and strict reporting requirements.

Certain banks face at least three years of overhaul to ensure that they comply with the fast incoming regulations around ringfencing. Ringfencing acts as a safeguard that will be positioned between the high-street operations and the investment-banking piece. Again hereby lies the question, does the time and resource being invested into this have a negative affect on the growth of an organisation? How much of an affect does this have on the consumer?

How much of a distraction ringfencing will cause remains unclear. What is certain though is that the banks will be hoping that the government will play a key role in convincing the regulator to be generous in the interpretation of the rules.

As a specialist recruiter within the banking sector, specifically within Change Management, it is clear that the market has become one that is focusing not only around regulation but also heavily around ringfencing. Most organisations have re-aligned structures in order to cope with this new and demanding requirement and as a result, will prove to be a key recruiting area over the coming years to the potential detriment of others.

In reality though, a system can me made to be too safe. As a result, the profitability of a business suffers, recruitment is squeezed and we all feel the affect. So safe that the UK and Europe have to rely increasingly on US investment banks in a less competitive, and therefore a higher priced, market.

Given the other regulations and compliance already introduced to make the banking worlds safer, would a touch of leniency on the potentially unnecessary exercise of ringfencing prove to be wise? Extra constraints on some of Europe’s biggest homegrown banks could inflict unnecessary pain on the continent’s fragile economy.

I am always keen to hear people’s opinion around the complicated and vast area that is regulations. Feel free to drop me a note on email with your thoughts. Click here for opportunities within the regulation space of Change Management, or please do not hesitate to get in touch.

Mark Astbury's picture
Associate Director
mastbury@morganmckinley.com

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