CBI: 50 YEARS OF BUSINESS INNOVATION | UK SPOTLIGHT
the public markets. Because London is a global financial centre it gives customers access to a global pool of liquidity. Since the most recent recession there has
been a dramatic decline in the volume of bank lending to businesses. While there is major debate over whether this is due to resistance by banks to lending at affordable rates or lack of demand by firms, it is clear that the UK will benefit from alternative sources of finance. In its 2013 report, Ripe for the Picking, the CBI showed that the crisis put the UK on an irreversible path to a “new normal” in financing. Regulatory reform, balance- sheet restructuring and a more realistic pricing of risk, mean that traditional bank debt will no longer be the right finance for all businesses, all of the time. The report included a clear guide to alternative sources of finance such as peer- to-peer lending and crowdfunding, supply-chain finance and the retail bond market.
REFORM AND REGULATION The global financial crisis of 2007/08 led to the near collapse of several UK institutions, starting with the run on Northern Rock. It prompted the government in 2008 to launch a £500 billion
Opposite: The banking sector is adopting reforms
“ A HEALTHY ECONOMY NEEDS AN EFFICIENT FINANCIAL SYSTEM TO HELP BUSINESSES INVEST AND GROW”
bank rescue package that was used to bail out Royal Bank of Scotland and Lloyds Banking Group, which both remain partially state-owned. A number of smaller banks and building societies were also taken over. The scale of the crisis has highlighted the
importance of having comprehensive and smart financial regulation to deliver financial stability and prevent a build-up of risk – while ensuring that markets operate efficiently. Regulations drawn up in the UK, European Union and globally affect Britain’s banking and financial industry. As CBI director-general Richard Lambert said in the 2010 Annual Report: “We have been working with our members to develop proposals for the kind of regulatory reforms that will allow the banks to once again stand on their own two feet.” The UK government has implemented wide-
ranging reform of the financial services industry. At its heart was the 2013 decision to establish a new regulatory framework. This gave the Bank of England responsibility for financial stability and a new financial stability committee to take action to remove or reduce systemic risks. It also
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abolished the Financial Services Authority and established the Prudential Regulatory Authority to regulate around 1,700 financial firms and the Financial Conduct Authority to regulate conduct related to the marketing of financial products. The European Commission has embarked on a major financial markets reform – the review of the Markets in Financial Instruments Directive – that the CBI has welcomed. It has also worked on new rules covering a host of activities including derivatives, alternative investments, retail investment funds and insurers, and has established a European System of Financial Supervision. Meanwhile global regulators have worked on the Basel III regulatory regime for major banks. There is clearly further to travel down
the road to regulatory reform, and financial innovation continues apace. Now the worst of the crisis has passed, the CBI will work with national and global policymakers to ensure that the financial system can provide the lending consumers and businesses want. It’s something Captain Mainwaring would doubtless applaud.
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