Financial Services Must Act To Restore Trust

What is crucial is that the sector itself takes the initiative to solve the issues identified during and after the crisis. It must be seen to be actively seeking solutions and taking responsibility if it is to regain the public’s trust. Financial services may well be critical for the economy, but without trust and confidence, neither banks nor other institutions will be able to do business.

What next for financial services?

Uncertainty is still the overall feature of the global economy but it is still possible to ascertain some key likely trends for 2013 and beyond.

Regulatory reform will stay on the agenda, not least thanks to the fallout from the banking crisis and the current state of the Eurozone. The greatest effects of this will be felt in the UK, the EU and the US, but the repercussions will be felt around the world.

Ethics will also become even more important as transparency and accountability shoot to the top of the agenda. This will be partly driven by new compliance requirements, and partly by investors looking for safe havens for funds. This will mean there is renewed interest in financial reporting, especially in cross-border audit quality.

New requirements concerning both capital and liquidity are likely to be imposed on banks. The effects of these are uncertain, but it is possible it may lead to more non-traditional banking providers entering the market.

This is likely both in micro-finance, offering small finance and retail banking, and at the other end as private equity providers and hedge funds – which are not subject to the same requirements as banks – spot opportunities in the market. This is a further area that regulators are likely to scrutinise.

Thirdly, risk management will become ever more important. Increasingly, regulatory bodies are demanding that institutions focus on how they assess, manage and report risk. The challenge is ensuring that risk management is an integral part of the culture whilst not allowing risk aversion or management to get in the way of doing business.

Finally, it is becoming increasingly clear that developed economies will have to get used to lower growth models.

For some emerging economies it is still possible to show impressive percentage growth, but they are often starting from a lower position.

Most developed economies have seen a distinct slowdown across the last five years and there is no reason to expect that this will change.

What does this mean for the Middle East?

The good news is that economies in the region are healthy – thanks to strong oil prices – which in turn can sustain infrastructure development and public spending, whilst still leaving leeway for fiscal stimulus if necessary.

Construction and real estate also continue to help drive economic growth, resulting in high employment and fuelling consumer spending.

And looking ahead the region is geographically well-placed to benefit from capital flows from West to East, whilst the development of places like Dubai as a major finance hub is likely to continue, especially as China plays an ever-greater part in the global economy.

There are risks to consider; reliance on oil revenues means that fluctuating demand and developing hydrocarbon technology might impact in the longer term.

The answer is for the region to diversify economically further from oil; this is not something that can be achieved overnight, but successful efforts in the UAE demonstrate that it is possible.

This should be helped by the evolution of the global finance market – increasing demand for highly-qualified finance professionals will mean that countries prepared to invest in education and skills are well-placed to capitalise on new developments.

Skills and trust remain vital

The critical importance of financial services will not change, but the industry is going to have to evolve in order to maintain confidence and adjust to a new economic landscape.

The likelihood that the world will have to adjust to flatter growth means that the experience, skills and expertise of finance professionals will, if anything, be even more important than currently, but this can only work if professionalism is matched with ethics and confidence. Without trust, the industry cannot work.