We are almost at the end of February and in the world of change in the City of London (and maybe elsewhere?) it feels as if 2015 is off to a very slow start. This is in direct contrast to the previous few years when by late January things were moving with urgency, especially on the regulatory agenda. I am very familiar with the City’s annual cycle and the huge focus on finishing “stuff” by year end and starting afresh in January, but this year feels different.

Recruiters that I have talked with confirm the unusually slow start as do a number of consultancies who are chasing many RFPs, but finding it hard to transition many into real work.

I think that difference can be attributed to fear and in particular what Executives are and are not afraid of.

In recent years there has been a huge fear of the avalanche of regulatory change (RDR, AIFMD, Dodd Frank, EMIR, etc) with numerous deadlines to be met. CEOs/COOs/etc were scared (though they may not use that word) of the imperative to comply and the risk of regulatory sanction. So much so that the general wisdom was that this work was not avoidable and stakeholders/shareholders accepted (reluctantly) that it dominated the change agenda and demanded considerable resource.

That said the expectation was that as with other projects, once “it” was complete, normal service would be resumed including lower investment in change and a redirection of management attention. This did not recognise that today’s regulatory change is different. Not only is there more regulation ahead (and not too far at that) the complexity caused by one regulation laid over another is growing and more importantly I predict that the shortcoming of the sticking plaster solutions that have typified recent years will become ever more apparent and troublesome.

Add to this the FCA’s stance that after a period of forbearance it is going to be tougher on content and quality this year.

All this suggests to me that there needs to a continuing focus on regulatory change and not the reduction in effort there seems to be. The proverbial foot needs to stay on the gas peddle. Tooling up with more Compliance staff as many banks are doing can be seen as an obvious and possibly political response to the continuing revelations of wrong-doing, but without a pro-active organisation (people/processes/systems) that is fit to operate to the standards expected today then they are likely to do little that mop up after the fact.

Three reasons

I can see three reasons that might explain this strange start to the year

1. Change fatigue
2. Lack of credible deadlines in 2015, waiting for 2016
3. More scared of costs

The first may reflect organisational fatigue after long and sustained push on many regulatory fronts in the last two or three years. It takes a lot of management/leadership effort to sustain the levels of energy that have been needed, and with many aspects of EMIR and AIFMD already delivered and delays and uncertainty around the 2016 agenda for clearing, margining etc. I suspect some key players are taking a breather.

I have already alluded to the second point. Through 2013 and 2014 for most firms there was a packed calendar of regulatory deadlines making it easy to argue the necessity for focussed effort. Along that journey a number of deadlines slipped, sometimes more than once. There were also public statements of periods of forbearance from regulators. This eroded the regulatory imperative in many minds as they simply stopped believing “drop dead” nature of dates set by the regulatory texts. In 2015 the main dates relate to mandatory clearing and the margining of OTC, both of which have been subject to delays and many expect there to be more. As a result 2015 seems to lack a credible set of deadlines that will focus a firm’s Executive.

I sense that many eyes are skipping over 2015 and looking to 2016/17 and the impact/implementation of MiFID II.

Lastly, it feels as if Executives are currently more afraid of costs. After having the reluctant acceptance of their stakeholders/shareholders that they needed to make exceptional investments in regulatory change for the last few years, those same stakeholders have re-examined performance and are pushing hard on that agenda. I see many firms releasing “expensive” yet knowledgeable resource and looking to replace it with cheaper (and maybe less capable) stock in order to fit a budget. As many have little real control over the top line income it makes sense to focus on the costs, but not mindlessly. Difficulty in finding these resources is contributing to the current hiatus

Be Afraid

Returning to my theme about why Executives should be afraid.

1. The regulatory agenda has clearly not diminished, even if for the present it seems less urgent. This work still warrants your considered attention and application of effort if you are to deliver the known knowns let alone the unknown knowns. A key element will be removing the reliance on change teams and effectively embedding the knowledge and behaviours into business as usual.
2. The shortcomings of recent (regulatory) solutions are now surfacing. Last year around half of my work was devoted to fixing poor operating models, solutions and thinking that had been applied to hit dates in 2013 and early 2014. This will be come worse as the regulatory architecture becomes more complicated. These shortcomings will create a growing number of issues and will likely attract unwelcome regulatory attention.
3. While the focus on costs is sensible, just cutting back in the investment in change is only a palliative fix. It does not prepare an organisation for the new world in which it has to operate. If a firm is still working with fundamentally the same operating model it had two years ago then it has missed the point. The new world is better suited to new organisations with new operating models.

Overall this slow start is not good for anyone and I am certainly looking for an uptick in activity in March and April. Whether a firm and its Executive are tired, uncertain or just lacking in resource, the old adage of adapt or die is even more pertinent today.