Shedding Light on Non-Financial Risks – a European Survey

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

3. The Need for Change in Regulation and Risk Management Practices

3.1 Priority topics for respondents This section envisages ways of improving the management of non-financial risk and a better functioning of the investment management industry, by assessing the relevance of each of the following themes: regulation on transparency, information and governance; capital protection and financial responsibility of the industry; distribution; restitution; judicial powers of investors; and finally the different protection needs for the different categories of investors. There is a clear opposition between themes, and these can be linked in part to differing country philosophies, and, of course, to position each respondent has in the industry (buyer, manager or distributor of funds). Looking at rankings of importance of the various themes, though, it appears that transparency

clearly comes out on top. Some 61% rank transparency, information and governance as their top priority, and 40% rank financial responsibility of the industry as their second choice. Regulation on both restitution and distribution come out with similar results, in the third and fourth positions. Giving more judicial powers to investors seems to come out much lower on the agenda of our respondents. So, the fundamental importance of transparency and the central role of the investment firm is globally reaffirmed by respondents, and this, despite the fact that the much needed clarifications on the depositary function have put exaggerated emphasis on the depositary responsibility at the expense of transparency and other themes (see Amenc and Sender, 2011 for an analysis).

Table 3.1.1: Priority of topics for new regulation (in percent) The following table shows the percentage of respondents who picked each theme as their nth priority for new regulation. The synthetic index is computed for each theme as the sum over n of (1/ n ) times the percentage of people who chose that theme in the n th place.

Transparency, information & governance

Financial responsibility of the industry

Regulation on restitution

Regulation on distribution

Judicial powers to investors

Choice #1

61

20

11

7

1

Choice #2

16

40

14

21

9

Choice #3

14

19

20

27

19

Choice #4

6

18

29

21

25

Choice #5

3

3

25

24

45

Synthetic index (1/n weights)

75.4

51.6

37.5

36.2

27.6

Table 3.1.2: Country breakdown of synthetic priority index with 1/n weights (in percent) Transparency, information and governance Financial responsibility of the industry Regulation on restitution

Regulation on distribution

Judicial powers to investors

Group 0 (RoE)

76.9

51.1

35.2

36.1

29.1

Group 1 (Fr)

65.3

48.2

46.4

40.6

27.9

Group 2 (UK)

80.9

58.4

31.6

32.7

24.5

Group 3 (Ge+Au+Nl)

78.6

58.0

30.6

34.5

26.7

Group 4 (Lux+Irl)

77.9

46.5

41.4

35.0

27.4

36

An EDHEC-Risk Institute Publication