Pressure to keep up with new regulation and legislation risks competitiveness of UK FS sector

The UK Financial Services (FS) industry is struggling with the pace and volume of change driven by new regulation and increasing legislation, according to new research out today (18 October 2012) from transformation consultancy Moorhouse. The survey of 130 senior executives and board-level Directors in the UK FS industry, representing some £3.2bn invested in change initiatives, found 88 per cent feel regulatory change is preventing their organisation from addressing other urgent business priorities; over half (61 per cent) stating significantly.

A further 83 per cent feel regulatory change is affecting their ability to deliver day-to-day operations and services and almost half (48 per cent) say the regulatory agenda is negatively affecting their competitive advantage. A staggering three quarters (77 per cent) of those surveyed felt their organisation would have to change its business model in order to thrive over the next 3-5 years, with almost two-thirds (60 per cent) reporting this change would need to be substantial or fundamental.

The research, “Too much change? Financial Services Survey 2012”, finds that FS organisations are undertaking an average of 21 major transformation projects at any one time, with an average of 41 per cent of these driven by regulation. Only 4 per cent of FS organisations are coping very well with the amount of regulatory change they are faced with; 40 per cent are not coping well.

FS organisations are left unable to focus on growing their business and responding to the changing market; specifically, respondents singled out cost reduction, business improvement, growth and innovation being sacrificed as resources are focused on meeting the needs of regulatory demands.

Richard Goold, Executive Director at Moorhouse and head of its FS sector, comments: “The financial services sector is at breaking point. While there is no doubting the need to tighten the rules governing the industry, the tidal wave of legislation facing organisations is more than they can cope with. They are effectively paralysed; struggling to meet regulatory requirements to avoid fines or penalties, unable to further develop their business and failing to deliver the best service or function. As a result, the UK financial services industry is losing its competitive edge and opening itself up to competition from overseas organisations that are less burdened by regulation, and new market entrants who can more efficiently undertake smaller parts of the traditional functions of larger FS organisations.”

Senior FS executives and directors are doubtful that their organisations can manage the changes required; only 12 per cent believe their organisation has the capability and capacity to deliver the required changes ‘to a great extent’, and 46 per cent believe the business does not have the capability at all, or only to a slight extent. Almost half (48 per cent) of respondents feel that frontline staff are not coping with the changes well. Only 7 per cent said regulatory change was having a positive effect on their organisation, and it’s likely that this minority represent the new market entrants in a better position to take advantage of the changed marketplace. Over half (52 per cent) expect the pace of regulatory change to increase over the next 3-5 years.

The problem is compounded by the overlapping and piecemeal nature of much of the regulation, especially for organisations operating globally, which are facing legislation from multiple governments. Almost all (94 per cent) of the senior level FS respondents in the survey felt that the overall regulatory agenda has not been fully thought-through or is consistent. As a result, just over half (51 per cent) of organisations admit to inefficient and wasteful duplication of activity across departments in rolling out new programmes and change.

Richard Goold continues: “Organisations have to accept that further legislation and more regulation will happen. While many organisations feel the guidance and support is not as helpful as it could be, they must pick up the baton and work with regulating bodies to tackle this. They must become so adept at responding to new legislative requirements that they in effect become self-regulating. 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. To prosper in what is already a challenging market, they will need to raise their game and respond faster, better, and without sacrificing other improvements to their business – a tough challenge by any yardstick.”

Money by Ian Britton

Money by Ian

Less than a quarter (18 per cent) of respondents felt that their organisation is capitalising on the strategic opportunity of incorporating other business changes and improvements into their regulatory change programmes. Over a third (35 per cent) of organisations in the survey are not measuring the ongoing performance of change projects and initiatives within their business. Given the huge sums invested in these programmes, the expected benefits must be tracked. With an average programme investment in the research of £31m, this equates to some £1.4bn on unmeasured spend.

Almost a quarter (23 per cent) feel the guidance provided by regulating bodies is ‘completely inadequate’, and just 4 per cent feel it is fully comprehensive. Well over two thirds (70 per cent) feel the increase in regulation is forcing them to consider their operations globally.

The research identifies four trends to help those leading transformation in FS organisations cope with the ‘perfect storm’ of regulation and change:

1. Define and maintain a single strategically aligned portfolio of projects: rather than programmes that tackle the regulatory changes needed and one that helps the business face other market challenges, organisations should adopt a single portfolio of projects that tackle its total business strategy.

2. Track, measure and manage portfolio delivery: Given the significant sums invested, tracking the progress of programmes and ensuring the benefits they are expected to deliver are delivered is vital.

3. Improve the organisation’s capability to deliver change: Only just over half (52 per cent) of those reporting into the board felt their leaders have sufficient experience and understanding to successfully manage the change agenda to a fair or great extent. Leaders should champion change and visibly demonstrate the values and behaviours they wish to foster in others. Individuals need to understand how the change they are delivering is aligned to strategy and overarching priorities.

4. Take proactive steps to shape the future of the industry: Rather than blame regulators for the volume and reach of new legislation, or rely on external guidance to help implement it, organisations have to take the initiative and proactively respond to the needs of both legislation and their customers.

A full copy of the Too much change? report can be requested from <> from 18 October 2012

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