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Banks fear new regulation will dampen recovery

REGULATION, political interference and corporate governance have topped the list of risks identified by UK banks, according to research published today.

Many respondents to the biennial Banking Banana Skins study, conducted by the Centre for the Study of Financial Innovation in association with accountancy firm PwC, feel the flood of new regulation is becoming excessive and may dampen economic recovery.

The previous report, published in 2012, had credit risk, the macro-economic environment and liquidity at the top of the table.

Only concern about the economy, which came in at number five in 2014, remained in the top 10 this time around. Other factors cited included technology, back office functions, sales and business practices, profitability and the quality of risk management.

More than 650 bankers, regulators and industry experts across 59 countries were asked for their views, with 186 of the respondents based in the UK.

Concern about regulation and politics were the strongest in Europe and North America. In Asia Pacific the worries were more about the economic environment and changes in interest rates.

Kevin Burrowes, PwC's UK financial services leader, said: "The regulatory response to the banking crisis is still in full swing as shown by the focus on banker pay, conduct in the banking and insurance sector and ongoing LIBOR and Forex investigations.

"This has clearly influenced the latest survey results, which cite regulation and political interference as the top two concerns.

"This could be interpreted as a return to normality as regulation has always had a high ranking, reflecting natural tension between the regulator and the regulated."

Those who participated in the research were also asked how well banks were prepared to deal with the risks they had identified on a sliding scale where one was the worst and five the best. The UK came in at 2.7 which was lower than the global average of 3.04. Researchers suggested this may be because UK banks feel areas such as regulation are outside their control.

Julie Coates, financial services risk and regulation leader at PwC, said: "While many see financial regulation as a problem and hindrance, banks should also see it as an opportunity to both rebuild trust and play a real part in ensuring we have a healthy and sustainable UK financial services industry."

David Lascelles, the survey's editor, added: "Although there are encouraging signs in this survey, respondents' concerns around overregulation need to be taken seriously."

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