Shedding Light on Non-Financial Risks – a European Survey

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

4. The (Fair?) Cost of Protection

a minority of 7%, 5% and another 5% respectively).

a statistical point of view. In addition, AIMA has not explicitly assessed whether regulations would be a net cost or benefit for each party. And for each party in the value chain, changing regulations can have an impact, as costs cannot necessarily be passed in a systematic manner to clients. We thus asked respondents if greater protection would be a net cost or a net benefit to asset managers, depositaries, and custodians, for the same items as before and on aggregate. Greater protections against non-financial risks are expected to be a net cost to all parties Respondents to our survey largely disagree with AIMA’s assertion that any cost will be passed to end investors. On the whole, respondents think that regulations will be a net cost for each party, which contradicts the analysis in AIMA (2011). Responses to our survey are contrary to those of AIMA as for 70% of respondents, greater protection on aggregate would be a net cost or a high net cost to asset managers, to depositaries for 69%, and to custodians for 73% (benefit for only

The greatest cost for investment managers would be the financial responsibility of actors; for custodians and depositaries it will be the responsibility of restitution. More precisely, asset managers would mostly bear the costs of greater protection regarding transparency, information and governance (net cost for 63% of respondents), but also depositaries (net cost for 44%, while a good 49% are unsure) and custodians (47%, and 43% are unsure). The three categories would mostly share the costs of greater protection regarding the financial responsibility of the industry. It would be a net cost or a high net cost to asset managers for 68% of respondents, to depositaries for 60% of respondents, and to custodians for 67% of respondents. Costs of greater protection regarding regulation on distribution would mostly be borne by asset managers. It would be a net cost or a high net cost to them for 59% of respondents, while only 28% think it would be for custodians (as many as

Figure 4.1.2: Would greater protection be a net cost to depositaries?

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An EDHEC-Risk Institute Publication