Banks want government to cut regulatory costs, survey finds

Ribbon Cutting

Banks and other financial companies want the new Conservative government to cut the cost of complying with a swath of new regulation, according to a survey by the Confederation of British Industry.

When the employers’ lobby group asked firms what the government should do to help the financial industry support economic growth, reducing regulatory costs was the top priority, particularly for banks.

Banks said they expected to spend more money complying with rules in coming months and that new laws and regulations were potential brakes on business expansion.

Companies also called for more stability in the tax system – a priority that came a close second to lower regulatory costs among banks.

Rain Newton-Smith, the CBI’s director of economics, said:“The cost of regulation and tax uncertainty are a top concern for firms across the sector. They want to see the government focus on keeping the UK a competitive financial centre by not putting UK firms at a disadvantage.”

The CBI published its survey little more than a week before the chancellor, George Osborne’s budget on 8 July. It is his first budget in a Conservative government, rather than a coalition.

As the City recovers from the financial crisis, companies are lobbying for an end to criticism of the banking industry and an easing of rules designed to prevent another crisis.

They argue the sector is a big employer and that the City’s position as a financial centre is important for the UK’s economy. The City is lobbying hard in the hope that, after the Tories’ surprise election victory, Osborne will use the budget to take greater note of their arguments.

Barclays and other banks have urged the government to review the ringfence required by 2019 to separate retail and investment banking. Banks also object to the introduction of criminal liability for senior executives whose reckless behaviour causes their company to fail.

The CBI survey showed life insurers, forced to implement new capital rules, also put less regulation at the top of their list of priorities.

The call for greater tax certainty reflects banks’ unhappiness at the bank levy, which Osborne increased in his March budget – before the general election – and has declared a permanent fixture of the UK tax system. The British Bankers’ Association has written to Osborne asking him to review tax measures affecting the sector.

HSBC has taken the lead for the banks by threatening to leave the UK if it decides the cost of remaining is too great. Britain’s biggest bank listed ringfencing and the levy, which HSBC says affects it disproportionately, as important considerations.

Banks, investment banks and other companies also blamed regulation partly for falling productivity among their workforces. Increased spending on “non-productive activities” such as regulatory compliance was the top reason given for weaker output per employee.

The quarterly survey, compiled with the accountants PwC, showed business activity and confidence increasing in the financial sector though banks’ confidence did not rise. Profitability in the three months to June rose at its fastest pace since March 2011.

Kevin Burrowes, UK financial services leader at PwC, said: “Levels of optimism among banks remain broadly unchanged this quarter, which is a little surprising as we had expected to see a bounce from the election result and the greater encouragement for financial services from the new government. However, ongoing regulatory uncertainty, the EU referendum and other macro-economic factors have dampened the outlook at least in the short term.

Not all bankers have opposed the government’s measures. Lloyds Banking Group’s chief executive, Antonio Horta OsoĢrio, told bankers earlier this month to stop complaining about the ringfence and other regulatory measures.

Sir John Vickers, whose commission proposed the banking ringfence, will give evidence to the House of Lords economic affairs committee on Tuesday. Jonathan Symonds, chairman of HSBC’s UK bank, will also appear to discuss the ringfence alongside Lloyds finance director, George Culmer.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for The Guardian on Monday 29th June 2015 00.01 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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