The Market

With global uncertainty the only thing we can count on at present, the markets have again come crashing down threatening yet another recession which could prove the double dip theorists right and that we were only enjoying a false recovery. Unfortunately there is not much good news for the markets to focus on with the Eurozone on its knees with now both Spain and more importantly Italy now looking vulnerable and in need of support. The knock on effect is then France's banking exposure particularly to Italy coupled with Germany's slowing growth and inevitable tough times when their lending tightens and hidden toxic debt issues rise to the surface, surely makes the future of the Eurozone very uncertain.

In the US matters are no better. The need to increase their national debt limit to over $14 trillion caused huge divide between the Republicans and the Democrats. Last minute approval averted the real possibility of the US defaulting and causing economic catastrophe but which did lead to Standard & Poor's historic downgrade of the US economy from its triple AAA rating to AA+. These really are gloomy economic times. Since the Obama administration national debt levels have increased by nearly 50%. Significant US debt has only materialised in the last 70 years.

On home soil a very similar picture. Record debt, failing economy, lowest levels of lending, high inflation, record low interest rate of 0.5 which looks to remain at this level for the foreseeable future, stagnant housing market.......we all get the picture.

With the Tories now back in government the planned break up of the FSA is underway with much of the power moving back to the Bank of England. From 2013 there will be two new regulatory bodies the Prudential Regulation Authority (the PRA) and the Financial Conduct Authority (the FCA). The PRA will be a subsidiary of the Bank of England responsible for promoting the stable and prudent operation of the financial system through regulation of all deposit-taking institutions, insurers and investment banks. The FCA will be responsible for regulation of conduct in retail, as well as wholesale, financial markets and the infrastructure that supports those markets. The FCA will also have responsibility for the prudential regulation of firms that do not fall under the PRA’s scope. The restructuring costs to the tax payer are estimated at £12.3 million. The new regulatory reform promises to keep tighter control to avert the future market break downs and to protect the UK economy. Time will tell. It seems historically we are to quick to forget the past lessons when good times arrive again although it is not easy to see when that will be.

However the need for Financial Service organisations to understand their risk and ensure they are compliant to ever changing regulation is very much a priority for all boards. With Basel III requirements and new regulatory reform the balancing act between being compliant and making money is now more of a challenge than ever.

As ever, MDM are uniquely placed to help our clients identify the hidden talent in the market to help meet these evolving challenges.

Mark Martin