Legislative change in the financial services industry has been the burden of the global financial crisis (GFC), leading to possible adverse impacts for investors.
Standard Life Investments’ latest Global Outlook has found that the GFC has created a loss of trust in the financial services industry, which has led to an increase in regulation across the globe.
“The financial services sector depends on the trust of clients for it to continue to be successful in the future,” Standard Life Investments governance and stewardship director Mike Everett said.
“We believe that actions that increase the interaction between owners, managers and investee companies are welcome,” he said.
“It is important, however, to be aware of the impact of unintended consequences arising from legislative change.”
The report said that the G20 group of countries in particular have relied on regulatory change as an attempt to prevent future crisis.
“The level of legislative and regulatory change affecting financial services companies is substantial,” Mr Everett said.
“History shows that post-crisis regulation often tends to go too far, as well as being backwards looking. Unintended consequences appear later.”
As an example, the report discusses the proposed European Financial Transaction Tax (FTT) which may have the unintended consonance of increasing the cost of investing, market liquidity and dampening future returns for long-term investors.
As a result of the changing regulatory environment, the report suggests that financial firms take the opportunity to demonstrate the value of advice.
“The current situation also offers opportunities for financial firms to demonstrate that they have a role to play in seeking solutions to the current economic challenges,” Mr Everett said.
“The more proactive banks, insurance companies, financial advisers or asset managers are engaging constructively with their counterparts in parliaments, regulatory agencies or industry associations to ensure that change and reform will result in a client-centric environment.”
