Financial Services - Our Backbone for Recovery
How is our financial services sector adapting to support our changing consumer needs and behaviors? What more is needed from the sector to underpin our recovery ambitions? How will the pandemic and Brexit be a catalyst for change and opportunity for us all? Watch our session recording to get inspired and challenged by the CEO from the Financial Services Compensation Scheme, the CEO of Cashplus Bank and other industry leaders.
Meet Our Inspiring Speakers
Caroline Rainbird, CEO, Financial Services Compensation Scheme
A passionate advocate of consumers, Caroline Rainbird is CEO of the FSCS - a crucial organisation in helping people when their financial service providers fail, putting them back on track and building confidence in the sector. Caroline’s career spans 30 years within the financial services sector encompassing regulatory, strategic, operational and investment banking roles. Inspiring, resourceful & engaging, she empowers & motivates the teams around her to provide exemplary service to the clients they serve.
‘If it’s one thing this country does well, it’s international financial services’
How are people feeling about the state of UK financial services after Brexit? This week we heard from three speakers who were realistic about the challenges, but also the opportunities to take our innovation, regulatory expertise and vision to the next level.
The UK is poised to show its strength on the world stage. Just six weeks after Brexit, commentators believe the financial services sector will create opportunities for the economy and help banish gloomy headlines about leaving the European Union. That was the verdict from Protiviti’s Collaboration Forum on 11 February, which included speakers from UK Finance, the Financial Services Compensation Scheme and challenger bank Cashplus.
Companies in the sector employ 2.3 million people in the UK and two thirds of those are based outside of London. The growth of financial technology businesses – or fintechs, as they are commonly known – has also redefined banking and finance. There are 75,000 people in a mixture of fintech startups and more established names, which contribute more than £7bn to the economy each year. In the past 12 months, they have also received $4bn of investment, and continue to attract attention.
“The UK’s position is unique,” said Theo Murden, consultant at Protiviti. “It has a pool of world class talent, access to capital, and forward-thinking regulators. London is a financial services centre like New York, a policy and regulation centre similar to Washington D.C., and it has thousands of tech companies like Silicon Valley. It’s not easy to replicate.”
This melting pot of ingredients hasn’t gone unnoticed. Challenger bank Cashplus, which was recently awarded its UK banking licence, is funded by a private equity firm in Silicon Valley. According to its founder and chief executive Rich Wagner, the company’s investor-director – who is based over seven thousand miles away – believes London is the centre of the fintech world. Yes, you did read that right.
But alongside these impressive statistics and accolades, financial services firms and regulators have had their hands full. Over the past four years, work has going on behind the scenes to prepare for life outside the EU. Often, it has meant moving substantial operations, including people and IT, to the continent and applying for new authorisations and licenses. Companies have also had to cope with a rapidly changing political landscape – and that hasn’t been easy.
In 2016 and 2017, UK Finance spent 18 months building a new framework for financial services, which would provide cross-border access to capital markets in the UK. But because of a British desire for legal and regulatory autonomy, that wasn’t to be, and the industry has had to adapt again. There is limited coverage for financial services in the Brexit deal and banks are now reviewing regulations they haven’t considered for 40 years.
Conor Lawlor, director at UK Finance, explained more. A British bank servicing a car manufacturer in Germany, for example, might be able to offer a cross-border deposit and lending facility outside the single market. But it would be harder to offer the same product or service to France, The Netherlands, or Luxembourg. This is because their market access regimes are different and depend on where customers are based, he said.
So, while there has been a lot of preparation, it doesn’t mean the industry has been shielded from the impacts. Inevitably, there will be some operational risk and turbulence. To coin an old adage, many have prepared for the worst, and hoped for the best. In March, the UK expects to sign a Memorandum of Understanding with the EU, but Lawlor expects it will only result in quarterly meetings of regulators to look at potential agreements.
He does believe, however, that measures put in place here by regulators have softened the impact. The Financial Conduct Authority (FCA) has built a temporary permissions regime, for example, so a branch of an EU company operating in the UK can continue to do so for another three years before applying for a full license. The regulators are also saying that if they see banks trying their best to comply with new laws, but struggling, there are measures in place to make things easier.
The regulators also have a key role to play in reducing scams and fraud in the sector. During challenging and uncertain times, there is always an upturn in the number of ‘poor actors’ bringing the rest of the industry down. Caroline Rainbird, chief executive of the Financial Services Compensation Scheme, said her organisation saw the pain experienced by consumers when financial firms or products failed. She recounted many stories, including helping intensive care doctors on the front line to access support, in the past 12 months.
“We need to do whatever we can to drive those poor actors out of the industry,” she told the audience. “They are highly professional, highly sophisticated, and by the nature of what they do – one step ahead of us. We are using our data on a daily basis to report activity to the regulator. We are also educating consumers to ask the right questions when they take out new products. But there are still too many poor customer outcomes and we need action around this conduct to be developed at pace.”
While the turbulence of Brexit and financial failure is hitting the headlines, it’s clear that long-term opportunities exist. There have been a record number of startups this year, as people begin to sow the seeds of their own futures. Consumer credit has been falling over the past 12 months and it’s well documented that some people have been saving money. The same goes for investors and frustrated entrepreneurs stuck in jobs that they no longer consider safe.
“Registrations at Companies House are up 20 to 25 per cent,” said Rich Wagner from Cashplus Bank. “It’s a number we track, because we command a 7 per cent market share of new startups in the UK. Why is this happening? Individuals in companies are concerned about their jobs. They are opportunistically setting up businesses. Because we are also seeing a record low in the number of those cards and accounts being activated. These people are prepared for whatever this economy creates, but they are waiting.”
This pent-up demand sits on the back of what the UK has already achieved in financial services. Its global position might have been rocked by the movement of people and technology to the continent, but its supporters are clear about its ability to bounce back. They say the focus should now move towards galvanising regulatory power, the growing number of startups, and the UK’s position in the eyes of international investors. With these ingredients in place, they believe life outside the EU will start to look clearer.
“The EU is very clear about reducing its dependency on the UK,” said Conor from UK Finance, “so what we would like to see is a prioritisation of regulatory reform and gearing up for a world where the UK maintains its global position. Because if it’s one thing this country does well, it’s international financial services. I don’t think the competition is Frankfurt or Paris. Europe wants to get there, but it is five, ten, fifteen years away from achieving that. The competition for London is most definitely New York and the Asian markets.”
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