Investment managers are under strain due to the volume of new regulation. “Navigating opposing forces” reveals the apparent tug of war an asset manager feels when responding to policymakers. On one hand, policymakers in many parts of the world are encouraging the investment industry to help drive economic and growth agendas. Yet on the other hand, asset managers are facing tough new restrictions by regulators who see the increasing size of the industry as a potential systemic risk. KPMG believes investment managers can capitalize upon new opportunities within this paradoxical regulatory environment if they focus on some key areas.
There is a significant opportunity for the industry to capitalize on economic growth agendas. In Europe, the investment industry is primed to contribute to the European Commission’s ‘jobs and growth’ agenda through the Capital Markets Union, which aims to bring some of the vibrancy of the US capital markets and reduce Europe’s reliance on bank financing. Further, regulators are making changes to existing pension regulation and new products and tax-free saving accounts. The investment and fund management industry will benefit from more assets to manage and the opportunity to launch new fund-based retirement products.
While regulation is raising barriers in some areas, significant opportunities can be found through new fund passports that are encouraging cross-border investment. Meanwhile, technological opportunities to develop digital distribution channels are at odds with regulatory moves to restrict execution-only distributions. Many previously acceptable distribution practices are now unacceptable, and regulators are unrelenting in the drive for greater and better transparency of costs and charges.
Cyber security is quickly climbing up the regulatory agenda and company boards should be asking key questions about cyber security policy and capability. In turn, firms can use the opportunity to analyze the data collected to improve areas such as operational efficiency and investment decision-making. KPMG warns that as risks are increasing in variety, volume and velocity, fund managers without the ability to analyze as well as make real-time decisions, risk falling behind and impacting fund performance.
The growing regulatory data requirements from initiatives such as the Common Reporting Standard and MiFID II are presenting firms with challenges. With increasing amounts of data being stored and processed, firms are under threat from the growing cyber-risk. Attacks can take advantage of complex trading technology and quickly cause disruption. Firms must use the opportunity before a major attack, to get ahead of these risks and the regulatory agenda.
Among the other key areas under the lens of policymakers is the topic of conduct and culture. Regulators are intent on improving investment management culture. Firms are increasingly being required to oversee and actively monitor their counterparties, service providers and distributors; and they must also focus on internal governance and the security of client’s assets. Indeed, a spotlight is shining on investment management remuneration and value for money.
This report is an important tool for investment managers to understand the regulatory dynamics shaping the industry on a global level. The industry must seize the opportunity to positively engage with regulators and focus on the fundamental purpose of the industry – linking enterprises seeking funds with helping people save and invest for the long-term in an uncertain world. In the current environment, firms must navigate opposing regulatory forces.
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