The tumultuous events of the past few years have led to a much greater focus on the financial sector and on how it needs to remodel itself to face the challenges of the next decade.
First on the list for consideration are the lessons drawn by the organisations themselves from the financial crisis (in particular for risk management) and the need to address these through robust implementation of remedial measures. But equally important are the regulatory and political responses to the crisis. Many of these reflect the view that never again should policymakers be faced with the unpalatable choice of risking either significant amounts of taxpayer support or widespread dislocation as firms and markets fail and can no longer provide the services essential for the functioning of a modern economy.
As a result there have been a wide range of supervisory initiatives. Some endeavour to hard-code the lessons drawn into rules for the future; rules that will continue to apply once memories begin to fade. But in others the response has gone further, in part reflecting different attitudes towards risk between the public and private sectors. G20 governments have supported much higher capital and liquidity standards, together with additional measures intended to make the financial infrastructure more robust and to counter the credit cycle, as well as steps to simplify the task of closing troubled institutions. While many of these steps have been coordinated on a global basis, some individual countries or regions have chosen to go further than others such as the ‘Swiss finish’ applied by the local regulators to the capital requirements of their largest firms.
This financial stability agenda has come on top of an already busy regulatory programme, focused on the need to protect consumers and investors, to fight financial crime, and to reflect the increasingly international nature of financial services. The regulatory framework itself is being restructured, both internationally (for instance via the establishment of the European Supervisory Agencies) and in the UK, where the Financial Services Authority will be replaced by the Prudential Regulation Authority (a new subsidiary of the Bank of England) and the Financial Conduct Authority.