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23 September 2012

FT: Concerns from the regulation front line

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Investment houses are starting to worry that the European funds industry has become a testing ground for financial services regulation. The Key Investor Information Document and the Packaged Retail Investment Products initiative are the two pieces of regulation that rankle the most.

Both [KIIDs and PRIPs] will eventually apply to mutual funds managed by insurance companies, banks and other financial institutions, and yet the burden of setting them up, testing them, refining and implementing them has fallen to the fund management sector, which is less resourced than its banking and insurance cousins.

In a sense, the European Commission’s trust that fund managers will deliver on new regulatory mandates is a feather in the cap of the fund management industry. This was explicitly acknowledged by the Commission. But praise is not necessarily what the industry is looking for. It has to shoulder the burden of the costs associated with developing and implementing the new rules.

Sheenagh Gordon-Hart, client and industry research executive at JP Morgan Worldwide, said: “A lot of this is very expensive for the industry. The asset management industry is an easy target because it has already embraced transparency and disclosure". “The open-ended funds it manages are predicated on relatively transparent structures.”

Worse than the direct costs, says Ms Gordon-Hart, the industry is put at a competitive disadvantage with competitors in other financial sectors. For an initial period after implementation of a Directive, fund managers operate with stricter standards, giving other sectors – notably banking and insurance – a competitive advantage in the period before they have to implement the same rules.

One of the few benefits of implementing new measures first is the chance for the fund management industry to shape regulation so that, at least to some extent, it fits with its longer-term aims. However, while the Commission has allowed extensive consultations for many of its initiatives, the funds industry still feels its views often fall on deaf ears.

Full article (FT subscription required)

© Financial Times

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