Large companies expect big costs of financial reform

 

 

The cost of complying with financial reforms could run to many millions for the big firms, according to a new survey into the unintended consequences of the new regulations.

 

  The report, entitled “Benefits and Unintended Consequences of Financial Markets Reform”, aims to put a price on the increasing costs of financial regulation. It found that 31% of senior executives at companies with revenue of over $10bn believe they will spend over £10m this year on fighting its effects.

 

  The report, which was compiled by the Economist Intelligence Unit on behalf of Lloyds’ Wholesale Banking and Markets, canvassed the views of 454 senior executives. Forty four percent of those polled were from financial services companies while 54% were from non-financial services companies.

Thirty percent of those from the largest companies said they were unable to quantify the costs involved in complying with the new regulation.

  Executives said costs were likely to include IT, staffing, the loss of sales and management time.

Perhaps unsurprisingly, executives from smaller companies expect to be spending less on covering the cost of reforms, with 37% of executives with companies with $500m to $1bn of revenue expecting to be spending up to £500,000. Only 5% from this category expect to be spending over £10m, while 19% cannot quantify the costs.

  Overall, 20% of respondents expected costs of over £10m, with 20% anticipating bills of less than £500,000 over the next year.

 

  The report quotes Jessica Ground, a UK bank analyst at asset managers Schroders, who says that she has “already seen eye-watering sums, running to many millions, spent by the big banks – and over the medium terms those figures are likely to become really massive”.

 

  It predicts that “in most cases, clients will ultimately pick up the cost for increased regulation”, quoting a commentator who believes that “all costs are bound to be shouldered by end users”.

The report also looked at the extent to which firms are concerned by regulation, revealing figures which show that half of respondents cite regulation as one of their main concerns. Only 61% of respondents feel prepared for the new regulations, although 77% believed that their boards are aware of the impact.

 

  The regulation cited as the most concerning to senior executives are the Basel III banking reforms, which 58% expect will significantly affect business. Sixty eight percent of respondents anticipate a significant or fundamental impact on the profitability of their financing and risk-management models, while 51% believe the reforms will effect profitability in their industries.