With the after-effects of the financial crisis still fresh in their collective minds, many of the world’s governments are clamoring to institute layer upon layer of stringent financial regulation. For the most part, these new regulations are tougher and more comprehensive than any of their predecessors, with complex new requirements and many more products falling into scope. Some of the areas hardest hit by this ‘avalanche of regulatory change’ include alternative investment managers and funds, the complex reporting demands associated with systemic risk of private funds and funds distribution.
As part of this regulatory backlash, there is a swift and simultaneous shift toward greater governance, increased transparency and enhanced due diligence as these things become industry best practices, driven in part by regulatory change and in part by demand by institutional investors.
The AIFMD, for example, will have a significant impact on AIFMs’ overall businesses. The implications of the Directive are significant, the amount of work to be done is substantial, and the timelines for preparation are increasingly short.
Business transformation opportunities
Amid the changes taking place throughout the global financial services industry, there will undoubtedly continue to be a number of business transformation opportunities. For example, facing the regulatory strain associated with changes such as those associated with the Volcker Rule (part of the Dodd-Frank Wall Street Reform and Consumer Protection Act), some financial services companies are opting to divest of their asset management arms, generating significant opportunities for those seeking to acquire.
Other players may choose to capitalize on the changing landscape of the global financial services industry by adapting their business models, expanding their footprints via increased geographic coverage and/or introducing new products tailored for the new realities of the market and the new regulatory regimes.
It is also likely that investors’ demands for increased transparency around investments and risk management will lead to increased operational infrastructure costs, resulting in a profitability squeeze throughout the investment management industry.