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

Figure 3.4.1: How much do you agree with the following descriptions of responsabilities for distribution?

a recognized responsibility respondents tend to highlight the responsibility of sponsors relative to that who do not. Overall, some 61% also agree that fund sponsors should have the central responsibility for their products (12% disagree). Finally, a majority of respondents (51%) disagree that depositaries should have a strong responsibility of control of all marketing information (26% agree). So, depositaries have a check and balance role, but respondents think that they should not be held responsible neither in lieu and in place of the investment manager to produce information, nor in lieu and in place of distributors to require that adequate information be produced. This is quite logical, as marketing is usually very far from their core competencies. They do not have all the necessary information and internal resources to verify whatever claims asset managers or distributors

may find it very difficult to be transparent on non-financial risks, but the failure to require this transparency makes it easy for them to avoid blame for not providing it”. This position of “what I did not know, I cannot be blamed for” might limit the potential for industry initiatives, andmight justify formal rules from the regulator. And since distributors are functionally the first line of defence for retail investors, it is logical that regulators enforce their responsibility. Distributors should make sure that the due diligence processes are appropriate and demand additional information when it is not clear. Furthermore, a significant majority of respondents (66%) also agree that asset management firms have a central role in the delivery of information, so they should have the central responsibility in the distribution for their products (14% are unsure). In countries where fund sponsors are distinctly identified and have

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An EDHEC-Risk Institute Publication