Uk Financial Services Sector - Essay Example

UK FINANCIAL SERVICES SECTOR Introduction The finance industries are responsible of economic services which are the financial services and they include management of money, by such bodies as banks, credit unions, insurance companies as well as government credit enterprises among others. The UK understands the importance of having functional financial system for the health of its economy. The importance of a sound financial system in any country cannot be understated as in among other ways; the system facilitates investment and growth, management of day-to-day financial transactions and the associated risks and facilitating trading activities within the entire country. The UK economy has undergone through very critical evolutionary steps in the 1980s through the implementation of Gower report and the enactment of the subsequent 1986 financial services act (Ellwood, 2002, 565-594). It is acknowledged that these changes are responsible of many developments that the economy has had throughout the late 20th century and the subsequent years in 21st century. This paper therefore focuses on analyzing the critical role that financial services sector play within the UK economy after the Gower report and the financial services act in the late 20th century and subsequent enactment of FSAct in 1986. Discussion The Gower report established a platform through which the UK financial sector can provide insights, financial services as well as advise to investors both locally and at the international front. The financial sector specializes in services such as finance and accountancy, banking, financial planning, insurance as well as pension and investments. Over the years that followed the 1980 Gower report, the United Kingdom has moved from the state of passive sale and display of manufacturing produce to become a leading determiner of what is manufactured as well as consumed. The financial services sector shifted the attention of services provide towards retailing and wholesaling industries within the country. Moreover the enactment of the 1986 financial act has been pointed out to have contributed towards increased regulation and compliance requirements within the sector (Llewellyn, 1999, p. 309-316). The importance of such regulation cannot be overlooked as it has the main aim geared towards consumer protection. Through the act, the industry has been streamlined towards effectiveness in service delivery through overcoming information asymmetry between the service providers and the customers. The importance in regulation is also based on the reason that many institutions are cropping up to offer the services which brings about the risk of confusing the potential customers and thus the need to have such regulatory frameworks as would aid in availing such critical information to the public. Diversification of financial services being offered across the country has also necessitated regulation in order to have quality and better services observed without which system failure and financial crime are most likely to be witnessed. It is worth noting that although the FSAct was introduced, members of the industry within the UK observed a regulatory framework based on individual responsibility (Falkner & Gerty, 2006, p. 69). This however was not as effective as would have been anticipated and hence the formulation and introduction of the act in 1986. In fact, it was due to such self-regulation that various scandals were recorded within the 1970s coupled with issues of globalization of financial services and slow growth in the economy that saw the government commission Gower into reevaluating investor’s regulation and legislation. This therefore explains the content and the necessity of the famous 1980 Gower report in UK. Gower concentrated on issues of overregulation within the industry and emphasized on the need for the government to be involved in the regulation of the industry although he emphasized on individual players within the industry to register with self-regulatory organizations. The role of SROs would be to oversee the regulation of day-day operations by the individual players while the government was to take the overall regulatory responsibility. The government created SIB (security investments board) which was designated the responsibility of supervising financial investments within the UK. The current state of affairs within the UK financial industry takes into consideration the effectiveness of the regulatory framework that has its foundation in the activities of the 1980s. Although other developments have taken place in the years succeeding the Gower report and the FSAct, the success in the industry would be traced back to the formational years of 1980s. The overall effects to these efforts would be traced in the maintenance of high levels of confidence within the UK financial service sector as has been boosted by the improved regulation and monitoring processes as seen after the 1980s. The financial service sector has also played a critical role in improving and promoting understanding by the public on the financial systems at play within the country. Furthermore, the efforts by the sector has been effective in curbing financial crime such as through laundering of money, dishonesty and fraud as well as such other crimes as insider dealings. While attempting to create a favorable environment for the players within the financial sector in UK, the regulations created after the Gower report emphasizes the effective and efficient use of resources and the importance of competition within the industry. Accordingly, competition is pointed out as a major and effective regulatory tool in the financial industry. The FSA (financial services authority) is a regulatory body that was created in the 21st century and whose responsibilities include authorization of investment plans within the industry, supervision of the activities of the already functioning firms in accordance with the regulatory conditions in existence and enforcement of these rules. The other bodies that have been created to oversee the imposition of such regulations have been the bank of England, takeover and mergers panels, the government as well as general voluntary codes. In United Kingdom, just as is the case with other countries, the financial system plays an important role in ensuring the functionality of the entire economy (Kim, 2009, 409-420). Among other important functions that financial sector plays in the UK economy is provision of employment opportunities, provision of credit facilities, provision of liquidity as well as management of risks among other services especially after the 1980 milestones. a. Employment opportunities: Bank for instance creates many opportunities for employment which are very fundamental to the economic well being of any economy. The employment ratio in any country illustrates the level of productivity as it give the number of people involved in active responsibilities for creation of wealth as against the number of people who would be termed as dependents. It is however to be noted that there are other players within the financial sector in the country apart from banks and they all contribute positively towards employment creation. Employment levels within an economy are an equal measure of economic performance of an economic system. b. Credit facilities: Credit services are very critical in any economy because they enable investors to raise levels of investments beyond own capital positions. Besides, households require financial services in form of credit in order to acquire houses and such other assets without necessarily having to save such amounts before they acquire them. The government also result to seeking financial assistance through credit facilities from the financial institutions in order to supplement the revenue gains from taxes and through the credit, the government is able to attend to development projects which would otherwise be unattended to with the government’s revenues. The importance of the financial sector within the economy would not therefore be overlooked especially for the purposes of development. c. Provision of liquidity: Investors as well as households often require to be protected against unanticipated needs for cash. The financial sector payers like the banks and the insurance firms play an important role in providing such liquidity by availing credit lines and other services like direct deposits and withdrawals. Furthermore these financial institutions play an important role in purchase and sale of securities although at costs. In particular, this is one major necessity to the UK economy which has risen to attract international appreciation as a market economy. d. Risk management: Financial crises that have frequented the global scene have exposed investors and households to many sufferings through financial losses, risks in market operations especially within financial markets and price instabilities. In efforts to counter such effects of unpredictability in financial sector, the banks (as part of players within the industry) play a critical role in enabling investors and households to pool resources together and lower risks through derivative transactions. Other players like thee insurance firms provides affordable measures through which investors and households would overcome risks caused by economic pressures. In other aspects, the banking system within the UK provides the single and most useful avenue through which payment systems depend on. This is a core facility within any economy as through such payment systems, employees are able to be served with financial remuneration through fund transfers from employers’ accounts into the employee accounts. Besides, emerging features in the incorporation of it and banking systems enables individuals to access retail services through credit cards which is another fundamental service that the financial sector within the economy. It is also to be appreciated that UK adopts capitalist economic system where financial intermediation is critical and as such the basic necessity for such services that banks and other financial institutions play. They also influence on monetary stocks that an economy has and this explains the importance of having deposit liabilities by the banking system. There is the need to understand the role of effective and efficient flow of money within an economy as this will equally contribute towards explaining the milestones that UK has undergone after the Gower report and FSAct in the 1980s. While the efforts by the government to adopt the report and enact the legislations were mainly meant to safeguard the credibility of the financial sector within the economy, it is important to understand that the direct influence was to be through influencing circulation of currency as well as on such related services as discussed above. Monetary policies by the government have also been dependent on such regulations in order to influence the rates of interests by commercial banks, bank reserves, and although commercial banks do not any longer maintain deposits with the federal bank, some specific capital ratios are prerequisite for the operations of such banks within the industry. This therefore explains the importance of government and other forms of regulation of players within the financial sector in order to have small investors and the other large but susceptible players safeguarded from the possible danger of uncontrolled financial system. From the discussion, it clear that the financial sector of the country has undergone through great structural changes through regulations in the financial markets especially on matters pertaining to safeguarding customer and investor interests (Ennew & Devlin, 1993, p. 8). However, this paper postulates higher level of legislation and especially regarding online trading activities as have increasingly been taking over trade in the 2st century. It is therefore likely that the effectiveness of the regulations that have been operational after the Gower report may require adjustments in order to suit a more extensive global market as the economy of all countries is increasingly becoming relevant at the global level. For instance, while the regulatory frameworks crafted to attend to financial service crimes may not have been comprehensive regarding online retail and money transfers, this would be pointed out as a weakness hence the necessity to have revaluation of these laws (Helmer, 2000, p. 69-70). It is likely that the next two decades will see great milestones in the UK financial sector in development and technological progress which equally translates to the likelihood that these laws as they are will not be effective. Conclusion For the UK economy to grow, the financial service sector has played and continues to play a very significant role in among other ways, aiding in creating an enabling environment for businesses to thrive. The general industry offers various services and products which have aided in transforming the UK financial sector into a world class sector. The UK has been rated first among the world’s leaders in financial services provision and this has contributed to making the UK a global market. However, changing economic times and the global pressures in the finance sector through escalation of regulatory frameworks, unstable investor confidence as well as general weakened market demand within the key financial market segments has necessitated continued regulation of the sector (Gieve, 2006, p. 337-345). Bibliography Ellwood, S. 2002, "The financial reporting (r)evoluton in the UK public sector", Journal of Public Budgeting, Accounting & Financial Management, vol. 14, no. 4, pp. 565-594. Ennew, C.T. & Devlin, J.F. 1993, "International Journal of Bank Marketing - The Financial Services Act: How well has it served the customer?", Marketing Intelligence & Planning, vol. 11, no. 6, pp. 8. Falkner, R. & Gerty, J. 2006, "A summary of the Financial Services Authoritys enforcement procedures in the United Kingdom", The Journal of Investment Compliance, vol. 7, no. 1, pp. 69. Gieve, J. 2006, "Financial system risks in the United Kingdom - issues and challenges", Bank of England.Quarterly Bulletin,vol. 46, no. 3, pp. 337-341. Helmer, M. 2000, "united kingdom: Financial E-Services In U.K. Subject To Many Laws", Bank Technology News, vol. 13, no. 10, pp. 69-70. Kim, H. 2009, "Cooperation and Coordination between the Financial Authorities: A Review of the Experiences of the United Kingdom, Norway, Sweden, and Korea", Seoul Journal of Economics, vol. 22, no. 3, pp. 409-444. Llewellyn, D.T. 1999, "Financial regulation: A perspective from the United Kingdom", Journal of Financial Services Research,vol. 16, no. 2, pp. 309-317. Read More