Eversheds recently polled senior executives in the City to compile a wish list for future regulation. Michael Wainwright reports

The UK's financial services sector faces a changing regulatory landscape, with the consequences of proposed UK, European Union or US reforms currently on the minds of many City businesses.

Eversheds recently examined senior City executives' opinions on the ongoing reform of the City's regulatory framework and, in its 'Regulation in the City' report, offered a unique opportunity to gather a consensus on how the City would like to be regulated. By distilling these views, it has been possible to create a 'Regulation in the City Charter'– a wish list for future regulatory control that, in the opinion of the City, will help underpin the future competitiveness of the UK's financial services sector.

In general terms, businesses in the City are concerned about the impact of regulatory uncertainty on their business operations, with over 50% of those questioned believing that EU policy is damaging London's economic position and that simpler regulation would make the City a more attractive place to carry out business.

The research also reveals a significant degree of frustration about the UK's regulatory regime, with two thirds of people polled stating that uncertainty around legislation compliance has led to delays in business activity, and 34% believing that the volume of legislation means that complying with one piece of law often leads to contravening another.

The lack of cohesion between UK, EU and US regulatory requirements also presents real issues for the City. Nearly two thirds of businesses feel that the UK interpretation of EU law is more concerned with legal certainty than with upholding the original spirit of the law. In addition, 50% of the senior executives questioned expressed concern that businesses will relocate to other financial centres such as Hong Kong or New York in an attempt to avoid regulatory pressures.

Underlying the concerns stated above, however, is a widely-held acknowledgement that tight regulatory control is required, with the vast majority (80%) in favour of a compulsory, rules-based system, compared to just 7% who believe it should be a voluntary, principles-based regime.

The Charter

From the wide-ranging research, it is possible to ascertain a number of key areas that elicited broad consensus in terms of how the changing landscape of regulation should take shape; in effect how the City would like to regulated. These fall into six main categories and provide the basis for the 'Regulation in the City Charter'.

The City is in favour of regulation – The respondents are not against red tape, and four out of five businesses feel that regulation of the City should be a compulsory and rules-based system. However, only a small minority believe that the regulator should be able to intervene from a very early stage if it believes that a regulated company is not complying with legislation. Indeed, the majority feel the regulator is too focused on micro issues, instead of the more important macro issues.

Increased guidance from the regulator – Businesses want the regulator to help them comply with regulation, with over a quarter (27%) of businesses surveyed wanting the UK regulator to provide more specialist guidance to help the City more fully understand how to act in accordance with financial regulation.

The regulatory environment should reflect the City's structure – The City is calling for the regulator to be constructed of bodies or divisions that understand each sector of the complex finance industry more fully and regulate each one accordingly. The regulator should also employ people who have worked in the industry.

Establish a two-tier regulator – The majority in the City (53%) believe that the UK should have a two-tier regulatory framework, with one regulator aimed at retail investors/consumers, the other for the institutional marketplace.

Regulate for the future, not the past – There is a sense in the City that current regulation and the latest regulatory reforms focus too heavily on fixing the problems rather than legislating for the present day and future.

Embrace EU legislation with a lighter touch – Nearly two thirds of businesses (63%) feel that UK interpretation of EU law is more concerned with legal certainty than with upholding the original spirit of the law. The research demonstrates that the City is not afraid of regulatory control, but wants any new structure to ensure that the City of London remains competitive on a global stage.

And, while there are areas of frustration and concern, the City is actually in favour of regulation. However, with less than 1% of businesses believing that no changes are needed to the current system of regulation, it is vital that the views of the City are taken into account when decisions are being made that could affect the success of the UK financial services sector and the legal professionals that act within it.

Michael Wainwright is a partner at Eversheds. Click here to request a copy of the full report.