Financial industry 'punch-drunk' with regulation
A SENIOR Central Bank figure has warned that poor financial regulation could undermine investor trust and hurt economic growth.
Gareth Murphy, director of markets supervision for the Central Bank of Ireland, is responsible for regulating the Irish funds, stockbroking and investment management sectors.
These are important industries for Ireland. Some 41pc of all of the world's alternative investment funds – a category which includes hedge funds – are administered from Ireland.
Mr Murphy was speaking at a forum of alternative investment managers in London.
He said regulation of the financial services industry was undoubtedly necessary, but referred to concerns that regulatory compliance was now a cottage industry in its own right, that the industry was "punch-drunk" with change and that waves of new regulation created a very uncertain environment for business planning.
"Yet implementation matters as much as policy content. Ask any architect or engineer, poor quality of materials and bad construction craftsmanship have scuppered many a grand design," he said.
"In a world with low yields, longer lives and greater reliance on self-directed pensions schemes, industry must build a relationship with investors based on trust and regulation must seek to nurture it."
Mr Murphy said financial authorities had repeatedly been frustrated by the prospect of a key policy decision being considered without adequate data.
The risks associated with the massive derivatives market were also raised. Mr Murphy said the total value of all over-the-counter derivatives was now worth almost three times the combined value of all other global financial wealth.
The colossal damage the collapse of a major counterparty in a derivatives trade can cause was demonstrated in the fall of Lehman Brothers.
Mr Murphy said that this risk had been partly reduced by new legislation like the European Market Infrastructure Regulation and Dodd-Frank in the US.
These laws require derivatives trades to be cleared by a regulated body like the US Securities and Exchange Commission.