‘Risks Facing Fund Managers Could Be Leveraged by Balancing Act’
Global accounting and consulting firm KPMG has advised fund managers “to navigate the varied pace and levels of regulation around the globe with new business models that can transform regulatory imperatives into catalysts for competitive opportunity and constructive outcomes.”
“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” according to KPMG’s report.
KPMG’s report examines the many overlapping regulatory initiatives facing the global investment management industry including PRIPS, UCITS IV, FATCA and AIFMD and offers regional perspectives from Europe, the US and Asia Pacific.
Leveraging regulatory reforms will ensure success for fund managers, KPMG added.
Specifically, regulatory reforms across three regions – Europe, Asia Pacific and the Americas – impact retail distribution, product development, governance, alternative investments, capital markets and pensions.
With these regulatory reforms, governments intend to establish proper framework in place for risk and liquidity management and greater transparency to regain investor confidence.
Tom Brown, European head of investment management at KPMG in the UK, described the changes faced by fund managers as a “period of unprecedented regulatory upheaval.”
“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,” Brown said.
“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,” he added.
Brown encouraged fund managers to achieve the right environment to restore the trust of investors “while striking the correct balance between investor protection and commercial viability.”
“Understanding the totality of regulatory requirements and the strategic implications for a business is the key to put one ahead in the race,” Brown said.
By July this year, the Undertakings for Collective Investments in Transferable Securities (UCITS) will come into force in Europe. With this, Brown expects fund managers to take advantage of the opportunities that the optional requirements present under this reform.
Fund managers in Europe generally focus on UCITS IV, especially on the mandatory elements rather than the optional changes which, according to KPMG, fund managers should be taking advantage of in order to generate further efficiencies.
KPMG pointed to tax as the primary obstacle blocking the path to creating a single European market through UCITS, which require further work to ensure cross-border funds are successful and competitive.
“Apart from UCITS, attention is focused on raising the bar on governance and the overall risk and control framework for investment managers as they navigate their way through the new regulatory environment,” KPMG said in a statement.
Furthermore, the report shows that almost a year after its enactment, the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act will lead to an overhaul of regulation of financial markets since the Great Depression.
“Technology and greater transparency have caused the investment management industry to become more global in terms of strategies and distribution,” said John Schneider, Advisory Partner and head of Investment Management’s regulatory practice at KPMG LLP in the US.
“Although this global business approach has led to opportunity and growth, it remains uncertain whether global regulatory coordination will continue to lag and potentially impede access to certain regions or countries due to the competitive disadvantages created by increased regulation,” Schneider added.
In Asia Pacific, on the other hand, regulatory measures for fund managers remain “fragmented” as noted by KPMG, with regulators in the region taking widely different approaches in areas such as funds distribution and product regulation.
The financial services firm further noted that maintaining the stability of their domestic investment management industries has become the focus of fund managers, while others have emphasized attracting overseas investment managers.
“This results in a mixed outlook for investment management regulation in the region,” KPMG said.