RETHINKING DISTRIBUTION

1

Increase in regulation The increase in regulation will hit all financial services sectors. Within the AM industry, as former CESR Chairman Eddy Wymeersch stated, “like it or not, there is a real avalanche of regulation coming”. According to EFAMA there are over 25 European and US regulatory initiatives that the European fund market is being forced to deal with, including UCITS IV, AIFMD, MiFID II, Basel III, Solvency II, Dodd Frank and Fatca [1] . Regulation is therefore clearly one of themain challenges facing the industry (see figure 2). In the past, regulators weremore strongly focused on products which, while increasing costs for asset managers, also enhanced the development and growth of the industry. As an example, the UCITS Directive is often cited as one of the most successful EU initiatives and has been such a success that the UCITS brand is now recognised as the leading globally distributed investment product. With the recent financial crisis and increased political pressures, regulators have become more focused on investor protection at the point of sale. This may result in both higher costs for asset managers and distributors, as well as distortions within the financial services industry such as product arbitrage by distributors.

Stricter and more uniform regulation

Fund regulation will become much stricter and more uniform with the arrival of ESMA (European Securities and Markets Authority). While supervision will remain with national regulators, ESMA will be able to issue “regulatory technical standards”which will be legally binding and become national law across all EUMember States. This will contribute to further harmonisation of national regulations and help create a higher level playing field. UCITS IV and other directives are set to provide more stringent rules within the industry but also provide new opportunities for cross-border distributors and asset managers.

Figure 2

What is the biggest challenge you anticipate facing in 2011?

N/A; 3%

Market Volatility; 17%

Investor/Client Confidence; 37%

Regulations; 43%

Source : Linedata, Looking forward: State of the AM industry Survey 2011

[1] Ignites, Regulation avalanche a worry for Europe, 16 March 2011

16