Shedding Light on Non-Financial Risks – a European Survey

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

5. Limitations of Regulation and Alternative Solutions

politically driven, that they are inadequate, costly, induce high frictional costs that end up penalizing clients, and they generate inappropriate innovation from the industry aimed at removing the inconveniences of regulation rather than at providing better solutions to their clients. Respondents from continental Europe, such as the French, who have inherited a stronger administrative and regulatory culture, have more favourable perceptions of regulatory initiatives in their open answers. They often think that regulation is indispensable for the fund management industry to manage and communicate risks on a level playing field. For instance, French respondents disagree significantly more than average that regulations cannot guarantee the restitution of assets at a reasonable cost. In interviews, some respondents from these countries have underlined that they do not believe in self-regulation. Of course, this

view also reflects regulatory and political culture.

Luxembourg and Ireland, who have both relied on European regulation and the notion that it facilitates the distribution of funds to expand, are naturally inclined to have faith in European regulations, which they also insist on in open answers and interviews. They disagree significantly more than average that the role of regulation is to limit non-financial risks and ensure that they are controlled and managed, and not to suppress them. They also are attached to the UCITS brand. At the same time, discrepancies between categories of respondents must be acknowledged (see figure 5.1.3), with asset management servicing companies acknowledging, more than other groups, the limitations of regulation (that regulations cannot guarantee the restitution

Figure 5.1.2: Country group average of regulatory views How much do you agree with the following statements?

“Fr” is France, “UK” is the United Kingdom, “Ge+Au+Nl” is Germany, Austria and the Netherlands, “Lux+Irl” is Luxembourg and Ireland, and “RoE” is the rest of Europe. Answers are coded in the following manner: -2 for Strongly disagree, -1 for Disagree, 0 for Unsure, 1 for Agree, 2 for Strongly agree.

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An EDHEC-Risk Institute Publication