Financial services firms call on government to reduce cost of regulatory compliance – CBI/PwC

Tax stability was also ranked highly and was the number one concern for general insurers and investment managers, according to the latest CBI/PwC Financial Services Survey for the three months to June.

Business volumes and optimism in the sector continued to grow at an above average pace but more slowly than in the previous quarter. Weaker overall growth mainly reflected a fall in volumes among building societies and stable volumes in the banking sector.

Trends in financial services incomes varied, with the value of fees, commissions and premiums falling from the previous quarter, weighed down by poor results among banks and building societies.

However, net interest, investment and trading income continued to grow at a healthy pace.

Meanwhile there was a sharp increase in total costs, but non-performing loans continued to fall and firms managed to keep average costs under control. These factors, combined with decent growth in business volumes, meant that profits increased at their fastest pace since March 2011, and rose across all sectors.

Overall business volumes are expected to grow at a slightly faster pace next quarter and profits are predicted to increase in most sectors, with the exceptions of banking and building societies.

Lindsay Gardiner, regional chairman, PwC in Scotland, said: “With the UK Emergency Budget imminent and last week’s final Remuneration Codes confirming that we now have the toughest bank pay rules in the world, it is perhaps not surprising that tax stability and regulation featured so high on the agenda in the June survey.

“When it comes to remuneration, the biggest concern for banks headquartered in Scotland and the UK is the uneven playing field that now exists between here and the rest of the EU, adding to the existing differences between the EU and the rest of the world.

“Regulators will clearly be hoping the rules will help re-build trust in the City, but experience suggests that structural pay changes and penalties have limited impact on behaviour, as shown in our latest financial services report. It stated that bankers can’t be scared into ethical behaviour and suggested that firms and regulators should instead focus more on creating a positive culture in which ethical behaviour is a result of employees’ intrinsic motivation as opposed to fear of negative consequences.

“Other factors such as ongoing regulatory uncertainty, the potential for a Grexit, the EU referendum and other macro-economic factors are also stifling confidence, at least in the short term. It will be interesting to see how the Scottish and UK Government supports the financial services industry in the weeks and months ahead.”

Rain Newton-Smith, CBI director of economics, said: “Demand for financial services continues to strengthen, with profits holding up and employment showing signs of an improving trend. But 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.

“Meanwhile, in the Eurozone, negotiators need to move quickly towards a new bailout programme that secures Greece’s finances for the long term, but is also realistic in terms of Greece’s ability to pay and carry out meaningful structural reforms.

“Looking ahead financial services businesses are planning to ramp up their marketing spend to try to reach new customers, as competition from new entrants and from other sectors intensifies.”