The latest CBI/PricewaterhouseCoopers survey has shown a further improvement in business sentiment for this year but respondents admitted that this is tempered by uncertainty over returns on investments and the growing costs of regulation, reports the FT Adviser.

The 94th CBI/PwC financial services survey found life insurers have curtailed capital expenditure due to the postponement of the EU Solvency II directive.

The focus of IT investment in the industry has switched away from regulation and towards strategies intended to counter the effects of low growth, specifically customer acquisition and efficiency improvement.

Despite the fall in regulatory investment and the directive’s delay, almost all those surveyed expect ongoing compliance costs to grow as firms prepare themselves for ‘twin peaks’ regulation.

Furthermore, fund managers remain “remarkably confident”, thanks to good equity market performance and particularly strong retail business, but are concerned about regulation.

Anxiety about the impact of new initiatives has fallen slightly, but an increasingly large balance of respondents plan to spend more on compliance during the coming year. The visibility of new regulations may be improving – as illustrated by the recent issuance of AIFMD Level 2 guidance – but the costs of compliance remain significant, the survey said.

However, the survey shows a further improvement in business sentiment, matched by a recovery in business and top-line revenues.

The improvement in sentiment is also being felt far more widely across the industry than before. Banks and investment managers remain more optimistic than three months ago, while building societies and securities traders are enjoying renewed confidence.

In the latter two cases, the Bank of England’s Funding for Lending Scheme and the continued recovery in equity markets seem to have played a significant role.

Apart from insurers, all sectors report stronger business than in the previous quarter, and further improvements are forecast for the spring and early summer.

Confidence among UK financial services firms continues to grow, building on the sharp upswing recorded in the last survey. Aggregate volumes of business have recovered too, suggesting that trading conditions are catching up with the industry’s improving sentiment.

The survey said: “These represent some of the most positive overall responses to emerge from the survey in recent years.”

The CBI/PwC Financial Services Survey is a quarterly trends report that discusses the health, perceptions and plans of the UK financial services industry.