London First speech to The Future of Financial Services SummitApril 15, 2013
**to be checked against delivery**
Speech by Jane Archer, Executive Director, Policy, to The Future of Financial Services Summit
More than five years have passed since the start of the crisis and it is easy to get the impression that little has changed – so I am pleased to have the opportunity today to share thoughts on how to get beyond the current negative environment and target a new settlement.
Speaking on behalf of London First – and for those of you who do not know us, we are a business organisation whose mission is to make London the best city in the world to do business – I am interested in sustaining London’s leading position as a global business hub and in addressing barriers constraining the UK’s return to sustained growth.
Restoring trust in our financial services sector is vital to both of these.
London’s position as a global business hub is dependent on its role as an international financial centre. London is a centre of excellence in many fields from research to engineering; healthcare to new tech industries. However, without the international reputation of our financial and associated professional services; the talent they attract; and the wider activities they support; it is questionable whether globally mobile corporates and individuals would choose London for their home.
In terms of supporting growth, not only is the financial services sector itself a substantial provider of jobs and economic activity, it also generates income for many other businesses from restaurants and coffee shops to property developments and theatres. But this is only part of the story, as the financial services community, incorporating banking, insurance and other investment sectors, sources not only the finance but also the risk management tools required for investment.
And, while not the focus of today’s discussion, it is always worth remembering, especially in light of our stubbornly persistent budget deficit, the significant contribution financial services makes to the exchequer.
It is clear that the economy will not return to sustained growth without financial services playing a significant role.
However, the financial crisis destroyed trust in the banking sector (irrespective as to whether certain institutions played any role in the events). Trust was lost across the board with bank structures, leaders, and the wider stability of international finance all being brought into question. Once trust is lost it takes a long time to restore and the various issues that have come to light in more recent years – LIBOR, PPI, etc – have meant this process had struggled to even start.
So where from here?
Well, I believe that a great deal of progress has already been made – although this is often not the message received by the public.
- In terms of increasing the stability of international finance, international and domestic regulation has and is being introduced to deliver this by requiring increased capital requirements, resolution and recovery plans, and structural change such as ring fencing. And while to date regulation has been a necessary response to many issues, and targeted and proportionate regulation will yield positive results, we must be careful not to over regulate as excess regulatory burden, or poorly designed or implemented regulation, risks further burdening business with additional costs of finance or a loss of product availability further hindering the road to economic recovery. Likewise, unnecessarily going beyond international agreements to make the UK regulatory regime more burdensome than elsewhere risks pushing valued activity offshore, threatening UK jobs, gdp and tax receipts.
While allowing time to let the new regulations bed down we must also now look beyond regulation to find solutions.
- Leadership – the departure of Bob Diamond I believe was an important turning point. However, more has changed than the Barclays leadership, since the crisis the chairman, CEOs, executive and non-executive board directors of many of our leading banking institutions have changed. With these changes has come a new approach which leads me to my next point, culture.
- Culture takes time to instil. However, the new leadership in many of the banks have been clear in their mission. The need for a longer term approach that targets sustainable profit rather than rewarding short term results has been accepted. That said, more needs to be done to get the message embedded across institutions and to get it believed by customers.
And while in terms of the reputation of the banking sector we may have (hopefully) hit the bottom and began to climb out, there is inevitably going to be more bad news to come. To prevent this holding up progress or pushing us back we need this news to be properly dealt with. That means actual wrong doing being seen to have consequences for both individuals and institutions and the banks being transparent about what went wrong and the changes they have made to prevent a repeat. It also means that where issues relate to a time when a previous culture or leadership prevailed, that this is recognised and accepted by policy makers and commentators so that the new regime is given room to succeed.
In summary we need to all work together to forge a new settlement. The banks have the key role but business, Government, media and other stakeholders also must play their part. We need a collaborative approach across the industry and beyond to change the image, rebuild the trust and to once again ensure our financial services sector is both valued and valuable.