The remarkable events of the past few weeks in the financial
markets will have significant effects on asset finance, some
positive, some negative. It is too early to predict the results in
any detail.
But it is already clear that regulation of the financial
services sector generally, and in particular how solvency and
liquidity are measured, reported and controlled, will change.
Coming on the back of other recent regulatory changes, including to
anti-money laundering and accounting rules, what can we expect in
the new regulatory world?
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A knee-jerk reaction from governments and regulators would, of
course, simply be to raise the amounts of capital that banks are
required to hold.
A more refined solution might involve revisiting the way the
capital requirements are calculated and placing greater emphasis on
adjustments made for risk. But whatever the outcome, asset finance
will retain a core advantage over other forms of business
finance.
Asset-based lending is less risky for providers because the loan
is more easily recoverable than is the case for alternative forms
of lending. As an aside, strong risk management not only reduces
losses, it consolidates asset finance’s position as being low
risk.
Anti-money laundering regulation was a key theme of the FLA’s
Financial Crime Conference held in October. The FSA is responsible
for registering and monitoring lessors for money-laundering
purposes and the Joint Money Laundering Steering Group has
developed extensive guidance, which is being bedded-down across the
industry.
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By GlobalDataThere is no reason to expect that the FSA will wish to spend
much time worrying about money-laundering in the leasing industry.
As was pointed out at the October Conference, leasing is hardly in
the same league as some other areas the FSA is monitoring – for
example, the operation of safety deposit boxes.
Looking elsewhere, a key new set of rules for lessee accounting
is now likely to be written by the international standard-setters
over the next year or so. This is likely to mean that all leased
equipment will need to be included in lessee’s accounts, not just
that provided on finance leases.
The FLA’s members have no problem whatever with increased
transparency in the use of our services; we welcome it. Improved
information might even help us to detect and prevent fraud.
But we do need to ensure that the accounting regulators keep
things simple. They seem to have a remarkable desire to take a
straightforward form of finance and make it look very complex.
Already in these three areas of regulation (capital adequacy,
money-laundering and accounting standards), we are expecting
significant changes that will impact, directly or indirectly, on
leasing. But we should remain a lightly regulated industry because
our core product is inherently low risk and because of the success
of the industry’s voluntary code of conduct, the FLA Business
Finance Code.
We will, nonetheless, need to continue to watch the impending
changes very carefully, to ensure they are fair to our industry and
our customers – and to spot where they may lead to new
opportunities for an industry well-placed to serve businesses
finding other forms of finance difficult to come by.
Stephen Sklaroff, director general of the
Finance & Leasing Association
