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The search for 'Strength through Diversity'
As Europe’s financial centres strive to rebuild trust, OWEN KELLY hopes for a sense of common purpose in the competition with Asia and the Americas.
A widespread loss of trust in financial services, and in banking in particular, is now accepted as one of the more intractable legacies of the financial crisis. As we enter the “Age of Austerity”, it remains to be seen whether this loss of trust is entrenched or diminished by the inevitable recognition of banking’s central role in building the recovery.
On the one hand, the blame for cuts in public provision might be placed on those perceived to have created the bubble economy in the first place, among whom bankers figure prominently in the minds of many. On the other, as banking contributes, as it undoubtedly will, to a growth in the export of services beyond the UK’s borders, its value to national prosperity will become increasingly apparent. But trust is hard won and easily lost: and these competing trends will take time to play out.
It is striking that this is not a problem only in the UK. SFE’s discussions with our counterparts in other European financial centres confirm that trust has been undermined throughout the EU.
And the causes for this loss of trust have also been common across European jurisdictions. In retail, they include the failure of pension payouts to live up to expectations as markets have declined, the tightening of credit, excessively complicated products and, let’s face it, the perception that some individuals have been well rewarded despite not doing all that well, at least as far as the common weal is concerned.
In wholesale markets, causes include perceptions of much higher levels of counterparty risk, doubts about sovereign debt and uncertainties about impending regulatory change.
But articulating the shared challenge is only the first step. We have also been discussing what could be done to address it, while recognising that Europe is a big place and the scope for action common to such a diverse range of financial centres and markets is, precisely because of that diversity, limited.
However, “Strength through Diversity” has long been a rallying cry for the EU and its institutions and some key principles readily emerge from looking at the shared experience of multiple financial centres.
Whose trust do we need to rebuild? First and foremost, that of customers, a point so fundamental it hardly needs stating. But that of investors, commentators, politicians, educators and legislators, too. Each, in its own context across the mosaic of Europe, has taken a knock.
How might we help to achieve this? In some elementary ways, like sharing good practice (though what works in one culture might not easily translate to others) and working harder to explain the reality behind words and phrases like “speculation” and “casino banking” which sometimes distort rather than promote understanding.
More ambitiously, we might agree on a shared analysis of the social utility of financial services, to support our efforts to promote EU financial centres in a world that sees us competing, as an economic bloc, with Asia and the Americas. The EU should be one of the most open and best regulated markets for financial services in the world, with a firm foundation in trust and confidence.
The institutions of the EU are moving very quickly on the regulatory front. In the last couple of months, we have seen the creation of a completely new regulatory architecture, with new authorities for banking, insurance and securities. The appetite for regulation seems certain to exceed the necessity for it and a slew of Directives and revisions to existing legislation lies ahead of us.
For our part, we see a need for the industry and its supervisory authorities across Europe to think not only about changes to the rule book but also about how trust can be nurtured back to health. I hope to report further to readers on that as our work progresses.
OWEN KELLY is Chief Executive of Scottish Financial Enterprise.
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