Regulators are focusing on investment products and fund types, introducing or reducing rules, and savings products continue to evolve.
Regulators are more closely scrutinizing different types of funds, including individual products. The alternative funds industry continues to see a trend in the regulation of products that that have previously been unregulated.
On the other hand, there are moves to liberalize some products, to enable them to invest in a wider range of assets or to market them to a wider range of investors. Some jurisdictions are allowing certain types of funds to be unregulated or their managers to be subject to lighter requirements.
Climate change fund regulation creeps forward slowly. Meanwhile, a number of jurisdictions are making further improvements to personal pensions and individual savings accounts, and the impact of new accounting standards on institutional investors in funds is being questioned
MiFID II is introducing for the first time at European level the concept that detailed product governance should include the identification of a product’s “target market”. The requirements apply to firms that manufacture products and to distributors that offer or recommend products to clients. The guidelines will also impact fund managers.
Product manufacturers must put in place product governance processes, from inception and throughout the life of the product, whether it is sold or marketed to retail or professional investors or to eligible counterparties. Firms must ensure that products are manufactured to meet the needs of an identified target market, their distribution strategy is compatible with this target market, and products are actually distributed to the target market.
At the time of writing, ESMA had proposed six categories that manufacturers should use for defining a product’s target market. Some local regulators have already started looking at how firms target investors.
Post-financial crisis, one of the first pieces of new EU legislation was the AIFMD. The US SEC is now taking action in this area with examinations of alternative managers now more challenging and focused. The SEC has also expressed concern about the valuation procedures for alternative funds and whether they addresses conflicts of interest. In addition, advisers continue to be challenged with adequately disclosing and administering fees and expenses in alternative products.
While regulators in Canada, the UAE, South Africa and the Netherlands have become more active on alternative products, some countries are liberalizing their alternative fund rules. For example, the regulations governing European Venture Capital Funds and European Social Entrepreneurship Funds (which allow smaller fund management companies to market cross border within Europe without opting in to the full provisions of the AIFMD) have been eased. Some national regulators are starting to consider whether they need to do more to facilitate the creation of alternative credit funds that may help foster economic growth, while others are allowing unregulated funds.
Regulators and industry continue to look for ways to respond to changing market conditions and investor needs for better pension and savings products. For example, in December 2016 Australia launched a consultation on the development of the framework for Comprehensive Income Products for Retirement. Canada also has witnessed much debate about pension reform at the provincial and federal government levels, driven largely by increasing longevity and declining individual savings rates. New approaches are also being explored in Mexico, Japan and Sweden.
KPMG’s Evolving Investment Management Regulation report reviews the top regulatory challenges for the global investment and fund management industry.