With a populist call by some politicians and certain sections of the media to put a (tighter) leash on the “gamblers” in our “casino banks”, not a day goes by without news of tighter regulations for the finance sector. Basel III, Solvency II, the end of the FSA, proposed changes to EU regulations, to name but a few.
Much of the traditional regulation concerning hedge funds and investment banking has been built around consumer protection. However, having been viewed by some as making a considerable contribution to the severity of the crisis through the use of highly leveraged capital and techniques such as short-selling, regulation in the post credit crunch world is built around market protection and managing volatility.
Will the new regulations would make it more expensive to operate and harder to make mega-profits? Many expect so and some leading hedge funds have rejected the proposed laws and threatened to set sail from the UK, by far Europe’s largest home to hedge funds.
In our recent work on hedge funds, “Over the Hedge?”, we examine what the latest industry trends mean for the West End office market and conclude that fears of a large scale exodus are overblown. As Lee Elliott pointed out in an earlier blog, moving operations is not easy and established places like London benefit from a wide range of factors.
Certainly, regulatory risk can be significant for any business (we will take a closer look in our next white paper on the possible implications for the financial sector as a whole), and as the trend to regulate continues, we need global and regional consistency to ensure single nations do not gain or indeed lose competitive advantage. While we will see the financial industry changing, I think it’s safe to say that we won’t end up in a dramatically new financial environment – but as property market professionals we will continue to watch the regulators closely.