These unintended consequences could stem from post-crisis regulation that has gone too far and is backward looking, the firm has said in a new report.
Frances Hudson, global thematic strategist at the firm and Mike Everett, SLI’s governance and stewardship director, who authored the report said: “The answer to the question ‘what is changing?’ in relation to the financial services regulatory environment is perhaps better asked as ‘what is not changing?’
“The financial services sector depends on the trust of clients for it to continue to be successful in the future. Hence the vast majority of firms recognise that they need to play their part in developing a new safer environment so as to ensure that higher levels of trust are achieved.”
Knock-on effect
But they added that some of the proposed changes could have a detrimental impact to investors, including the Financial Transactions Tax and liquidity and capital rules for banks.
Hudson and Everett explained that because banks continue to represent a significant part of indices across Europe, new legislation which effects their business models and future growth and dividend-paying prospects also have an impact on investors returns.
At the firm level, meeting regulatory requirements also increases their cost bases and thus reduces profitability; something Lee Robertson from Investment Quorum has termed “the cost of doing business”.
“This is not going to go away. We now have a new regulator and European legislation that is feeding through to the UK, the private client will end up paying for it,” he said.
“As for the banks, they are a difficult animal to have confidence in at the moment. Every time they make some headway they get more restrictions and requirements placed on them and the fact they make up such a big part of the index means Standard Life is right,” Robertson added.
