The FINANCIAL — A new KPMG report has called for the G20 to focus on the role the financial services industry can play in creating jobs and stimulating economic growth. The report, Brisbane G20 summit: A new agenda for financial services, highlights that growth strategies already agreed by G20, such as increasing investment in infrastructure, can be accelerated by the financial sector. For example adjusting the capital and liquidity rules on banks undertaking long term financing should boost investment, according to KPMG.
The report also warns that the unintended consequences of the financial regulatory reform agenda are not being recognised. The reforms are being implemented inconsistently across different jurisdictions, and this has led to higher regulatory costs, greater uncertainty and reduced availability of financial products to help fuel economic growth. There is also the concern that the current environment has reduced the number of market participants; and this reduces choice and is not good to sustain competitive and innovative markets.
The report was presented to the G20 heads of summit ahead of their meeting in Brisbane on the 15th and 16th November. It calls for
Re-evaluating the cost-benefit analysis of some regulatory reforms based on the evidence of their outcomes
Prioritising future reforms, and giving greater certainty on the timing for implementation
Agreeing to reduce inconsistencies between national regulations which add cost and slow growth
The report strongly encourages banks to intensify efforts to rebuild trust and resolve the culture challenges they face. Everyone agrees that the industry has made significant progress on the capital front, but still faces numerous challenges with governance and culture. Expectations around risk culture can be opaque. However, management have to develop a culture for their organisation. Board reporting should include clear evidence, which can be shared with supervisors, that appropriate action is taking place. Getting this right and creating some constraints will rebuild trust with society more widely and allow banks to support the economy.
“The G20 needs to ensure balance between dealing with the crisis of yesterday or on building growth and jobs for tomorrow. We need a new relationship between the financial services sector and regulators which delivers increased stability while stimulating economic growth,” said Jeremy Anderson, global head of financial services at KPMG.
“At the same time banks, in particular, must intensify their efforts to introduce culture and behavioural change, so regulators can more comfortably step back. We must break out of this unproductive environment in which regulators believe they need to tackle everything because part of the sector cannot be trusted to play their part in improving standards.
“We also still see too much evidence of localisation and inconsistent application of regulatory reforms across jurisdictions leading to higher costs and reduced availability of the financial services needed to promote recovery and growth,” he added.
The report proposes four actions required to refine the agenda:
Reducing regulatory disincentives to encourage banks to lend to small businesses, infrastructure and trade finance – for example adjusting regulation to treat high quality securitisation of bank lending as covered bonds in capital and liquidity requirements.
Encourage insurers and other long-term investors to lend to infrastructure and small businesses – creating a regulatory regime and tax environment that encourages insurers to lend to long term capital projects.
Encourage asset managers to invest more in infrastructure – develop the framework for European Long-term Investment Funds (ELTIFs) to allow investment in long term illiquid assets such as infrastructure projects and real estate.
Develop new, dynamic, capital markets – other countries and economic areas should apply lessons learned from the US to develop an equity culture, deeper and more liquid capital markets underpinned by regulatory and tax regimes which incentivise investment.
“The discussions and decisions taking place in Brisbane have the potential to stimulate investment which will create significant numbers of new jobs and as a result accelerate the global economic recovery.
“We urge the G20 to set the scene for a renewed contribution of the financial services sector to the global economic recovery,” Jeremy Anderson said.
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