The view of our Asset Management Leader

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  on the waves of regulatory reform impacting the asset managment industry

Waves of regulation in perspective

Given the unprecedented level of reform, it is easy to lose sight of the overall key objectives. These objectives include, of course, greater transparency, enhanced risk management processes, wider product choice, and lower manufacturing, operating and delivery costs.

Some will argue that many of the current regulatory initiatives will fall short of their objectives. As an example, the much discussed UCITS IV Key Investor Information (KII) document was much heralded as the solution to the problematic Simplified Prospectus. However, for many, the KII will end up costing much more than the Simplified Prospectus. On the other hand, the greater level of transparency afforded through the KII disclosures may, over a period of time, be a catalyst for consolidation within the industry, driving down investment funds’ Total Expense Ratios (TERs).

The challenge for politicians, regulators and others will be to ensure that there is a balance between the cost of implementing regulatory reforms and the real value added brought about by them.

 

The wider issues

Looking forward from an investment fund industry perspective, the paramount test of current and future reforms will be whether they result in investment funds truly becoming the key savings vehicle of choice for both retail and institutional investors.

In my view, for this to happen, it would not be enough for the current key regulatory reforms to be implemented. They would need to be complemented by:

  • Real pan-European tax reforms for investment funds. Such reforms will not be easy to achieve given the current position of many EU Member States on taxation.
  • Much greater alignment between compensation paid to the key actors in the investment fund value chain and the ultimate outcome for the investor, rather than measured on an annual, or other arbitrary, basis.
  • The establishment of Pan-European Private Pension Schemes. The future of European state pension schemes has become even more uncertain in recent years, considering the high debt burden of many countries and the low level of expected economic growth over the coming years. Therefore, privately funded pension schemes are becoming all the more important. This makes the establishment of the much discussed Pan-European Private Pension Schemes even more relevant and urgent. One would expect investment funds to be a core building block of such solutions.

Michael Ferguson
EY Luxembourg
European Regulated Funds Leader