Can a new wave of regulation really transform an industry into a profession?


In the aftermath of the global financial crisis, regulators in the world’s largest financial markets set about trying to rebuild banks, restore credit lines and get markets back to working efficiently. However, the biggest challenge they faced was to restore the level of trust in the financial services industry.

What followed was a swathe of new regulations from rules on governance, increased capital requirements, levies on transactions and even rules on compensation of highly paid bankers; who in the public eyes at least, had perhaps been at the heart of many of the problems.

Despite recovery, trust has still not returned
As we transitioned out of the ‘noughties’, indices around the world started to recover and the M&A world reported deal sizes to rival the GDP of small countries; however there continued to be a problem – the trust in the finance industry had still not returned.

But why is that trust so important? Without trust, people do not save, companies do not invest and an economy will not adequately prepare itself for future growth. The growth of non-banking sources of finance, like crowd-funding, are just one example of people voting with their cash and demonstrating their distrust for banks.

Increasing emphasis on expertise of those in financial markets
So as now we approach almost a decade since the first rumblings of the global financial crisis, it seems that regulators around the world are trying a different approach; to not only focus on what banks can do, but also to address how well trained its bankers are, and how aware of their own actions they are.

We are seeing multiple new regulations being launched, or being planned for launch, that, whilst still covering the traditional technical points of how the finance industry operates, are also placing an increasing emphasis on the level of training, expertise and continuous education of those involved in the financial markets.

What is being done?
In the UK we have seen the launch of the senior managers and certification regimes; both assessed on an annual basis and with continuing education requirements, together with a Code of Conduct focusing on the behaviour of individuals.

The review included recommendations for examinations and continuous professional development for FICC employees to become mandatory…”

Again, in the UK we recently saw the Fair and Effective Markets Review (FEMR), a joint initiative by the Bank of England and HM Treasury focusing on the scandal hit set of markets:  Fixed Income, Currencies and Commodities (known collectively as FICC). The final recommendations are not due until June 2016 and the review included recommendations for examinations and continuous professional development for FICC employees to become mandatory, as well as specifying that the training should focus on the understanding of conduct standards that should be expected by all participants in the FICC markets.

Andrew Hauser, a senior member of the Bank of England team behind FEMR, cited the reason behind the initiative at the AFME’s Annual European Market Liquidity conference: “Restoring public trust must be, and is, a top priority. But it is much, much more than a PR exercise – because trust lies at the very heart of how financial markets operate. Without it, markets cannot function.”

Knowledge and competence concerns are global
Action is not just limited to the UK, across the EU arena we have seen the wide reaching MiFID II regulation include a consultation paper covering the assessment of knowledge and competence. The paper provides a guideline suggesting that in order to comply with the knowledge and competence requirements, an appropriate qualification and relevant experience will be needed.

Can requiring people to sit exams and sign up to conduct rules really change the way they are viewed by society as a whole?

But is there any evidence that this approach of qualifications and reassessment can bring success? The requirements being mapped out do seem to bear a strong resemblance to those of the more traditional professions of accountancy, law and medicine. Although covering three very different services, practicing professionals of all three must acquire a professional qualification, gain experience before flying solo and maintain their expertise through on-going training and education. Whilst all three have occasionally suffered from breaches and unfavourable headlines, their ability to hold individuals accountable (and punishable), does appear to mean that the public’s trust has remained largely intact, at least compared to the banking sector.

So can these latest round of regulations and regimes really turn the financial industry into a profession?
Can requiring people to sit exams and sign up to conduct rules really change the way they are viewed by society as a whole? It would be naïve to think that simply creating a new set of rules for individuals will make quick improvements, and progress is likely to be slow. But the reality is that purely focusing on the technical regulation of markets has not worked, and without a greater emphasis on behaviour of individuals the lack of trust will continue. Therefore for the integrity of our financial markets, and the wider impact on the economy, it seems we have no choice other than to make these changes work, however long it may take and disruptive it may be.


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