Shedding Light on Non-Financial Risks – a European Survey

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

2. A General View of the Situation and Challenges

of assets were not made explicit). Until recently, country regulators were left to define (or not to define) these duties as the EU framework failed to make technical implementation mandatory. The ESMA now has implementing powers, and its technical measures must be implemented. This is expected to contribute to a better understanding and homogenising of depositary duties. Yet, the problem of varying country laws will still persist in the areas where there is no EU law or implementing measures. So, not only may respondents think that internationalisation has contributed to the risk of non-financial risks in the past, but that it also remains an issue until more profound regulatory changes are made. Some 51% of respondents believe that the lack of professionalism and poor training of some intermediaries are important or very important in the rise of non- financial risks (irrelevant for 14%). Facing the growing complexity of operations, it is also possible that some intermediaries failed to receive adequate professional

of securities to geographies that require local custody. The legislative framework was unsuited to managing the risks arising from the changes in the investment fund industry, as the continuous evolution of funds increased the risk of non-financial losses. The wider availability of alternative investments has increased the complexity of the mechanisms and processes, which is a source of risk. Lack of harmonisation of rules, without surprise, also comes high in the concerns of respondents. Almost 58% consider it important (irrelevant for 14%). The internationalisation of the fund management industry, in itself, comes out as relatively less of a concern than harmonisation. Still, it was important for 48% (irrelevant for 23%). After all, regulatory competition between countries in their implementation of the UCITS directive and of European recommendations was facilitated because the loopholes in EU laws (e.g. duties of bookkeeping and with the sub-custody

Figure 2.2.1: How important were the following factors in the recent rise in prominence of non-financial risks?

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An EDHEC-Risk Institute Publication