The capital requirements directive is a new legislation coming soon from the EU, it is about making sure that both big and small firms have the capital to meet the day to day running costs of the organisation. It is built in with the Basel II Accord. Perhaps this is a reason why Standard Life are not so against the idea of demutualisation, because it will provide them with capital that will allow them to meet this legislation. In addition to this legislation there will be UK industry responses to this which will bring with it additional UK regulation related to it.
Failure for Standard Life to meet these requirements will means financial fines and bad PR, which in turn reduces profits, incurs costs, reduces their market share and damages the brand reputation they have built up. All of these implications mean that Standard Life needs to have the capital and brand reputation to implement this legislation and ensure they stay at a competitive advantage. Other strategic issues that are currently facing Standard Life and came just outside the top 3 are:
Demutualisation because when Standard Life go through this procedure it will cost them financially in payouts to its members and it will mean they are going from being top provider with the largest market share to having to share its place with Norwich Union and ultimately increase its innovation to maintain its profitability. On the other side of demutualisation they will be able to generate capital by the selling of shares, this will enable them to act in the same way that their competitors are doing, e. g. offering discounted policies, new products etc.
Outsourcing because this lowers the operational costs the company faces and enables them to sustain their profitability and survival. Many companies outsource the processing and support services sides of their business, this enables them to reduce operational costs and focus more specifically on their products. As more and more companies outsource parts of their companies it means they can enjoy more profit and put more into research and development and investment in new technology, Standard Life need to invest in the latest technology and in research and development to stay at the top of the market.
By demutualise they will generate capital that they can then invest to fend off increased competition by other companies with these outsourced, low operational costs. International markets because there is currently a lot of divergence into foreign markets and with the EU becoming larger in the next few years this means the consumer will have increased product choice.
I think this is important because the latest social trend is that the consumer likes to think for themselves and take a more hand on approach in their finances, this means that if they can see that they would get a better deal by using some company based in America or in one of the latest countries to join the EU then they will take this option. Advances in technology have also made this trend increase because many people have access to the internet and can thus do all their dealings over the internet cutting out the need to a middle man and a branch/base over in the UK.
Standard Life do sell directly over the internet but they also have IFA’s that will have branches all over the UK that sell their products for them, this network of IFA’s will reduce as the competition increase. Standard Life will have to invest in more technology to bring out better products that mean they stay ahead of the competition. Higher living costs means bad news for insurers because employers find it expensive to contribute to pension’s schemes and the employees do not have the spare cash with having to pay student loans, mortgages before they can think about saving/investing money for their future.
This links in with interest rates because if we have lower interest rates then the basic living costs repayments will be lower and thus give the consumer more disposable income. However, the opposite is true if the interest rates are higher. The government’s policy on the economy is to create financial stability, fairness and transparency for public finances and the consumers finances. The policy is set out at http://www. hm-treasury. gov. uk/documents/uk_economy/fiscal_policy/ukecon_fisc_index. cfm.
This affects the financial services industry as they become more regulated by the current government and also more heavily taxed to pay for the current policies and government spending. At present the political environment seems rather unstable, the government released A-Day when there will be significant changes to pensions and regulations regarding them. However, since then they have further released three changes to this regulation, the latest one being that the wealthy public can no longer put property into a SIPP.
If there was to be a change in government it would also mean a change in government policies concerning pensions and life assurance which Standard Life would then have to adhere to. For example the Labour government have the policy of means test everyone and tax more heavily now to pay for those currently retired and for future retirements. This is different to the Conservatives policy who believe that the whole systems needs to be reformed so that people can have a “decent” state pension without other citizens having to be over taxed.
The government is very heavily involved with EU and as such a lot of their political affairs affect the UK’s financial services industry, a change in government would result in a change in the way the EU presently governs the UK. It has trading agreements with the EU, although Brown is currently trying to cut the red tape with regards to the financial services trading with the EU. One political factor is the demutualisation of companies. Such a move would damage the company, with 2 million customers and an average of i?? 2,000 per customer Standard Life will have to pay out millions if they are forced to demutualise by its members.
