Shedding Light on Non-Financial Risks – a European Survey

Table of Contents

Executive Summary .......................................................................................................................... 5

1. Introduction ................................................................................................................................. 19

2. A General View of the Situation and Challenges.........................................25 2.1. Major non-financial risks and degrees of protection..................................................... 26 2.2. Historical causes of the rise of non-financial risks........................................................ 28 2.3. Consequences of the new European regulations............................................................. 32 3. The Need for Change in Regulation and Risk Management Practices ...35 3.1. Priority topics for respondents............................................................................................. 36 3.2. Regulation on transparency, information and governance.......................................... 37 3.3. Regulation of capital protection and financial responsibility of the industry........ 41 3.4. Regulation on distribution..................................................................................................... 44 3.5. Regulation on restitution....................................................................................................... 47 3.6. Regulation on judicial power of investors......................................................................... 52 3.7. Different protection needs for different categories of investors................................ 56 4. The (Fair?) Cost of Protection ......................................................................... 61 4.1. Increased protection: a net cost or a benefit?................................................................. 62 4.2. Costs incurred by each party................................................................................................ 67 4.3. Costs passed to clients............................................................................................................ 69 5. Limitations of Regulation and Alternative Solutions ................................ 71 5.1. Regulations on non-financial risks...................................................................................... 72 5.2. Secure UCITS funds................................................................................................................. 75

6. Conclusion............................................................................................................79

7. Appendix..............................................................................................................83

References ........................................................................................................................................... 91

About Caceis ...................................................................................................................................... 95

About EDHEC-Risk Institute ..................................................................................................... 97

EDHEC-Risk Institute Publications and Position Papers (2009-2012) .......... 101

We thank all respondents, particularly those who gave precious insight during interviews but who, of course, wish to remain anonymous. We equally thank those who gave us feedback on the construction of the questionnaire and on the report: Christian Dargnat, Eric Derobert, Alain Dubois, Jean-Marc Eyssautier, Denis Faller, Jean-Louis Laurens, Isabelle Lebbe, David Pillet and Gérard Roubach. Printed in France, January 2012. Copyright© EDHEC 2012. The opinions expressed in this study are those of the author and do not necessarily reflect those of EDHEC Business School. The author can be contacted at research@edhec-risk.com.

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