What is the point of financial regulation?

April 04, 2012  

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Comment by Joy Dunbar, Editor of Absolute UCITS

I have read a lot about regulation recently. I have waded through the financial industry’s responses to European Securities and Markets Authority’s consultation into UCITS and I have spoken to industry experts about how changing regulations will affect their business.

All of which makes me think: what is the point of all this regulation? The answer is supposedly very simple – to protect investors and taxpayers. But the consequences of increased regulation are of course more complex.

Since the credit crunch the impact upon financial sector has been enormous. But the events of 2008 exposed another major problem – which is the intergenerational battle between the rich baby boomers and a younger generation saddled with debt and less generous benefits from their employers and respective governments.

An example of this conflict is shown by the recent sharp rise in youth unemployment in Greece, Spain, Portugal, Ireland and the UK since the global financial crisis.

Increased regulation in the mortgage market in the UK means that the average deposit has increased to about £66,000 (€80,000) – a big contrast with before the global financial crisis when not all mortgages required a substantial deposit.

Perhaps the less sexy part of this debate is that the consequence of more financial regulation is that it will eventually hit those under 30 the hardest – especially if more rules mean that there is a lack of investment choice. 

This could be problematic for the European Commission, which wants to use investments wrapped up in UCITS as an investment building block for its pensions policy and the wider industry.

Possibly the main problem with new rules that responds to a financial disaster, like the credit crunch, is that it always seems to regulate for the crisis just gone – not the new one on the horizon.


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