A convergence of new regulations and new business economics is poised to change the face of the UK retail financial services. At present, most financial institutions are preparing for these regulations in a piecemeal fashion and many are finding it a challenge. We argue that those thinking strategically now and taking action accordingly will secure a stronger competitive position when the dust settles.

Our recent survey, based on interviews with senior management of large retail financial services institutions, and a survey of more than 50 regulatory and risk directors in the UK, concluded four key findings.

• Regulation has entered the boardroom. Arguably, not since the wide-ranging liberalization of financial services activities in the 1980s has regulation driven such dramatic change. A large proportion of senior management is not being briefed in key areas of regulation and the pace of implementation needs to be quicker. Banks and insurance companies need to adapt their business models to the new environment.

• Post watershed, size may become an advantage. Broadly speaking, the high ground belongs to the large, diverse companies with captive distribution and capital strength. Although some niche organizations will benefit from their focus and ability to move swiftly.

• A capital hungry transition. Making the transition to the new environment requires capital whether defined by Basel, Solvency II, economic capital or rating agencies.

• Policy challenges still remain and cost of regulation may increase. Expect to see new policy issues arise in two areas: the provision of medium and long-term savings products, and consumer choice.

The key for all, lies in the alignment and balancing of investments and operational activities around three Cs – capital, cost and customer. By 2010 the UK financial services landscape will look very different and this change will accelerate in 2005.

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