There’s little argument in the global investment community that the raft of new regulatory reforms designed to address systemic risk, investor protection and governance are complex, overlapping and may have unintended consequences for the industry. The key to success will be leveraging them for advantage, according a new report from KPMG International.
At issue for the global investment management community is the set of multiple regulatory initiatives in various states of play across three key regions of the world – Europe, Asia Pacific and the Americas – reforms that impact retail distribution, product development, governance, alternative investments, capital markets and pensions. At the heart of the global reform is having the proper framework in place for risk and liquidity management and greater transparency, to ultimately regain investor confidence.
“The global investment management industry faces a period of unprecedented regulatory upheaval,” says Tom Brown, European head of investment management at KPMG in the UK. “There are an overwhelming number of overlapping, and even contradictory regulatory initiatives, at various stages of development globally. Investment managers are left to make sense of the patchwork of regulations which will inevitably lead to regulatory arbitrage with the telltale signs pointing strongly toward Asia, as Europe and the US become less competitive.”
“While the industry recognizes the need for regulation, some of which is undoubtedly beneficial for the industry, the volume of regulation can be viewed as over-the-top as numerous unintended consequences have emerged,” adds Brown. “The challenge is achieving the right environment for restoring investors’ trust while striking the correct balance between investor protection and commercial viability. It is undoubtedly a balancing act that can only be achieved if regulators engage in open and honest dialogue with the industry but there will inevitably be trade-offs.”
“Understanding the totality of regulatory requirements and the strategic implications for a business is the key to put one ahead in the race,” Brown says. “With the UCITS (Undertakings for Collective Investments in Transferable Securities) IV effective July 1 in Europe for example, we expect and hope that fund managers will take advantage of the opportunities that the optional requirements present under this reform.”
Investment management regulation remains fragmented in Asia, with regulators in the region taking widely different approaches in areas such as funds distribution and product regulation. Some regulators are focused on maintaining the stability of their domestic investment management industries, whereas others have placed more emphasis on attracting overseas investment managers. This results in a mixed outlook for investment management regulation in the region.
MORE ARTICLES ON INVESTMENT MANAGEMENT