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

measures have not been finalised. On the whole, most respondents are uncertain or predict very limited changes when asked to assess the general impact that the latest regulations aimed at reinforcing security will bear. A recurring concern is the increasing complexity of the regulatory setting: new regulations should aim to simplify and not just complement the existing framework, or run the risk of overburdening the industry. Some themes therefore should be prioritised in future initiatives.

transparency and clearer regulation. After all, the political process, consultations and communications surrounding the AIFMD and embedded depositary regulations has largely contributed to a better understanding of non-financial risks and the challenge of their management by the financial industry: “The work around the directive has also allowed the industry to gain a far better understanding of non-financial risks, particularly with the notion that different asset classes require different processes, both for the fund industry and for depositaries.” (Amenc and Sender, 2011, response to the ESMA consultation on possible implementing measures). On the more negative side, some respondents pointed out limits regarding harmonisation and due diligence - something that had been previously indicated. A limited number of respondents fear the unintended consequences, and a possible loss of accountability of managers. A major concern for the AIFM directive is the lack of precise economic objectives, contrary to UCITS. While UCITS manage to become a brand synonymous with security, transparency and liquidity, so far it is not the case with the AIFMD, which has direct consequences on risks. “If the main objective was to monitor systemic risk or even manage it by controlling the leverage of AIFM funds, the bulk of managers would certainly be needed to adopt and submit to the directive. If the AIFMD is not attractive, then it will be easier to monitor systemic risk throughout transaction repositories” (Amenc and Sender, 2011, p. 7). Obviously, it is hard to evaluate an overall impact of the AIFMD as long as implementing

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An EDHEC-Risk Institute Publication