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

Figure 4.1.9: Net cost of regulation for custodians by type of respondent firm Would greater protection be a net cost to custodians?

Answers are coded in the following manner: -2 for High net cost, -1 for Net cost, 0 for Neutral, 1 for Net benefit, 2 for High net benefit.

incurred for each party and costs that could be passed to clients (analysis of differences in geographies and classes of respondents are less detailed).

appear to be much less optimistic. Resellers stand out as more pessimistic overall. Asset managers, interestingly, think the financial responsibility of the industry would be more of a net cost to them than transparency or other measures. They appear to think the costs of restitution will be borne mostly by depositaries and custodians. All in all, very few people estimate the benefits of protection to outweigh its costs. If it turns out to be the case, this is not an encouraging perspective.

4.2. Costs Incurred by Each Party On the whole, respondents and institutional investors are ready to pay for the two following themes: (1) transparency information and governance, and (2) restitution. They are least ready to pay for distribution – some mentioned that they already pay substantial amounts and do not believe that distribution fees can be raised.

The following sub-sections examine the components of net costs, i.e., costs

Figure 4.2.1: How much are you willing to pay for greater protection?

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An EDHEC-Risk Institute Publication