The financial services sector is failing to adopt voluntary standards crucial to rebuilding trust, despite overwhelming support from those working in the sector, says a new report.
Backing Market Forces, a report jointly commissioned by BSI, the UK national standards body, and the Chartered Institute for Securities & Investment (CISI), the professional body for securities and investment practitioners, argues that adopting voluntary standards, alongside regulation, could provide a 'third way' between self-regulation and over regulation from government.
The study analysed how voluntary standards could play a greater role in rebuilding a safer and more trusted financial services sector. Findings show that financial services decision makers overwhelmingly support the adoption of voluntary standards and believe such standards could help them navigate this highly regulated sector. More than two thirds of those surveyed called for more standards in finance around people (78%), products (71%) and processes (69%), with the majority (54%) favouring their creation by the industry as opposed to the regulator (23%).
Around the world there are calls for more intensive regulation of financial services, yet regulation requires resources and changes the nature of, or even reduces, competition. The report argues that voluntary standards markets, used widely in industries such as food and shipping, could be used more widely in financial services if regulators and legislators considered a 'third way' for financial services regulation. While standards are already used in financial services they appear to be a relatively low user when compared to other sectors.
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Scott Steedman, director of standards, BSI, said: ""Given the mounting pressure on the financial services sector, Alderman Michael Mainelli's excellent and timely report confirms that voluntary consensus standards could provide a valuable tool for the financial services community to share best practice in many areas of business, including products, processes and organizational development.
"Bringing consumers, the wider society and all stakeholders together to help create a trusted voluntary standards market in financial services, is a role that BSI as the National Standards Body is well placed to deliver."
The report, prepared by leading financial services think tank, Z/Yen Group, concludes that a 'New Combined Approach' to regulation in the financial services sector will bring benefits through more rapid reform of the sector, lower costs of regulation and increased confidence in the financial system as a whole. It recognizes the need to seize opportunities for the use of voluntary standards as part of new regulatory initiatives or reforms.
Professor Michael Mainelli Chartered FCSI, one of the report's authors, said: "Society naturally reacts to risks by wanting to eliminate or control them, but over-reaction can impair or ruin markets. In the right circumstances, rather than imposing onerous regulation or spouting unenforceable principles, using voluntary standards markets that bridge the market-government divide, can help us all make better decisions."
The report recommends better coordination of existing voluntary standards development, more evidence of voluntary standards markets' benefits and costs, and integration of voluntary standards with wider government policies. The report identifies many areas where voluntary standards are currently lacking, such as in anti-money laundering, qualified investor rules, or fiduciary ratings.
Simon Culhane, Chartered FCSI and CISI CEO said: "This stimulating report highlights how standards could play a greater role in finance, not least to increase transparency and encourage better practice."
Following an initial discussion group with financial industry professionals in July of 2013 held in the City, 78 interviews were conducted with senior professionals and decision makers from financial services, trade bodies, professional services, academia, accreditation and certification bodies. Interviews were conducted in person in London, Geneva and several other locations, with many international telephone interviews carried out under conditions of non-attribution. Interviewees came from a wide range of firms with an interest in financial services.