KPMG warns that unless there is a more co-ordinated approach to the regulation of the investment management industry in Europe and the US, businesses will increasingly look to move their operations to Asia.
A KPMG report entitled, Evolving Investment Management Regulation, highlights the sheer complexity of the suite of regulation currently facing the investment management sector and calls for regulators and industry to strike the right balance between the protection of consumers and the commerciality of the industry.
Tom Brown, European head of investment management at KPMG, said: “The global investment management industry faces 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 regulation which will inevitably lead to regulatory arbitrage with the tell tale signs pointing strongly toward Asia as Europe and the US become less competitive.
“The investment management industry is effectively being caught in the crossfire of financial regulation. Investment managers face a deluge of their own regulation plus bits and pieces from the insurance and banking sectors. However, unlike other areas of the financial services sector where change is being driven by co-ordinated actions across national boundaries – such as Basel 3 in the banking world – the response in the funds arena is more piecemeal and fragmented. In many respects this makes the challenges facing a global fund manager more complex.
“While the industry recognises 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. 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.”
The 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.
Key regional findings include:
UCITS IV is the major focus for all European fund managers. As the implementation deadline approaches, fund groups are focusing on the mandatory elements rather than the optional changes which fund managers should be taking advantage of in order to generate further efficiencies. Tax is the primary obstacle blocking the path to creating a single European market through UCITS with further work required to ensure cross-border funds are successful and competitive.
Away 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.
The Dodd-Frank Wall Street Reform and Consumer Protection Act will likely result in the most comprehensive overhaul of financial market regulation since the Great Depression. Dodd-Frank’s scope is significant; however the legislation marks only the beginning of a broader regulatory sea change that will transform the investment management industry. These regulatory changes may be a catalyst to accelerate certain trends that have been underway within the industry.
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.
Notes to editor
Evolving Investment Management Regulation – Meeting the Challenge, is the third in a series on evolving regulation from KPMG’s Global Financial Services Centre of Excellence. The report is available on request.
KPMG has Financial Services Regulatory Centres of Excellence in London (for Europe and the Middle East), in New York (for the Americas region) and in Hong Kong (for the Asia Pacific region). The Centres bring together regulatory expertise from across KPMG’s global network to provide valuable insight to clients on regulatory developments locally and globally in the fields of banking, insurance, and other areas of financial services, and to provide advice on the strategic, compliance and business implications.
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