Shedding Light on Non-Financial Risks – a European Survey

Shedding Light on Non-Financial Risks – a European Survey — January 2012

Executive Summary

of such measures is based on similar information to that of ratings, but that it has a strong qualitative component since many events (such as the immobilisation of assets at a bankrupt sub-custodian) have had very little or no occurrence in many countries. Distribution and Restitution Need Clarification Above All Clarification is much needed in the area of distribution. A very strong majority of respondents (81%) agree that responsibilities should be clarified ex-ante according to who controls each subset of information. This could be done contractually so as to better accommodate differences between funds. Then, a majority of respondents (69%) agree that distributors should have complete responsibility as the first line of defence for investors, but it could fall back on other parties if they have provided

that regulations cannot act in lieu of managers, and the point of contention is more to which extent regulations must be principle based only. Overall, 67% agree that asset managers should have greater responsibility regarding non- financial risks. A majority of respondents (65%) agree that greater fiduciary duties should be required of depositaries. Most prominently, 75% agree that a clearer responsibility regime should be instated for depositaries, with monitoring and obligation of means. While 44% agree that risk-based capital requirements (based on ratings of non- financial risks) should be applied to asset managers, qualitative answers show that opinions are very mixed about basing them on a notion of rating of financial risk. More precisely, because such measures do not currently exist, many respondents are unsure about when and how these could apply. We argue that the establishment

Figure 5: How much do you agree with the following descriptions of responsabilities for distribution?

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An EDHEC-Risk Institute Publication