The changes ushered in by the Prudential Regulation Authority and Financial Conduct Authority, including deferring bonuses for the most senior bank staff for ten years rather than the current seven years, were hailed by the government as giving the UK the toughest banking pay rules in the world.
But the latest quarterly financial services survey from employers’ group the CBI and PricewaterhouseCoopers said: “Reducing the cost of regulatory compliance should be the new Conservative government’s priority for financial services.”
The warning comes as the survey reveals that in the three months to June overall optimism and business volumes in the sector grew, but more slowly than the previous quarter.
A total of 33 per cent of financial services firms said they were more optimistic about their situation than in March, while 1 per cent said they were less optimistic.
This gives a positive balance of plus 32 per cent, but is well down on the plus 50 per cent seen in March.
A total of 35 per cent of financial services firms said business volumes rose in the latest three months, while 17 per cent said they fell, giving a balance of plus 18 per cent, down from a more optimistic plus 24 per cent in the previous quarter.
Lindsay Gardiner, regional chairman of PwC in Scotland, said: “With the UK emergency Budget imminent and last week’s final Remuneration Codes confirming that we now have the toughest bank pay rules in the world, it is perhaps not surprising that tax stability and regulation featured so high on the agenda in the June survey.
“When it comes to remuneration, the biggest concern for banks headquartered in Scotland and the UK is the uneven playing field that now exists between here and the rest of the European Union, adding to the existing differences between the EU and the rest of the world.”
He added: “Regulators will clearly be hoping the rules will help rebuild trust in the City, but experience suggests that structural pay changes and penalties have limited impact on behaviour.
“Bankers can’t be scared into ethical behaviour and [the report] suggested that firms and regulators should instead focus on creating a positive culture in which ethical behaviour is a result of employees’ intrinsic motivation.”
Today’s survey said levels of optimism among banks were broadly unchanged in the past three months.
Kevin Burrowes, UK financial services leader at PwC, said this was “a little surprising as we had expected to see a bounce from the [general] election result and the greater encouragement for financial services from the new government”.
But he added: “However, ongoing regulatory uncertainty, the EU referendum and other macro-economic factors have dampened the outlook, at least in the short term.”
More positively, the survey said that in the three months to June bad debts continued to fall and firms managed to keep general costs under control.
It also said that, combined with decent growth in business volumes, profits in the sector – which ranges from banks and insurers to building societies and investment – increased at their fastest since March 2011.