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A survey of risk management executives in the UK shows that there is increased anxiety over regulation and taxes, in particular in relation to the Financial Transactions Tax.
The Bank of England's latest Systemic Risk Survey, which is conducted on a biannual basis, found that 39 percent of respondents currently see regulation and taxes as a risk to the UK financial system, representing an increase of 5 percentage points on previous surveys. Respondents focused on "excessive, poorly co-ordinated, inappropriate, or overly complex regulation, as well as on a loss of confidence in regulation," and one in five respondents specially cited proposals for a Financial Transactions Tax (FTT).
Currently, a number of EU states plan to implement an FTT under provisions for "enhanced cooperation" that would create an "FTT zone" within the EU. The UK Government has ruled out participating, but there are fears that the tax will nevertheless adversely affect the UK economy and the British Government has launched a legal challenge in Europe.
However, only 3 percent of respondents see risks around tax and regulation as having the greatest potential impact. In contrast, 38 percent cite sovereign risk, and 32 percent the risk of an economic downturn. Other potential risk factors include risks surrounding the low interest rate environment (cited as having the biggest potential impact by 7 percent), the risk of financial institution failure or distress (4 percent), the risk of property price falls (3 percent), and risks surrounding monetary and fiscal policy (3 percent). Risks around falling property prices and low interest rates were also new additions to the top seven perceived risks, along with operational risks such as cyber-security.
However, the survey also shows that the perceived probability of a high-impact event is at its lowest level since 2008, which was when the survey began. Only 8 percent now consider there to be a high or very high probability of a high-impact event in the short term, representing a decrease of 12 percentage points. In relation to medium-term prospects, the figure is down by 17 percentage points, and now stands at 24 percent.
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