Comment by Joy Dunbar, Editor of Absolute UCITS
The point of financial regulation is to, in part, aim to create a ‘safer’ environment as well as create trust and a reputation for fair dealing in markets.
But two pieces of research published recently indicate that increasingly intrusive regulation may not be having the desired effect of creating trust within the industry.
One, which questioned chiefs within the financial services sector, explains that regulators plans may not stabilise financial services industry and won’t rebuild reputation. While the other has found that fund managers feel that heavy regulation is the main issue facing the industry during the next year.
This is highlighted by the fact that UCITS-compliant funds have had to face their fair share of changes recently – including the enforcing of UCITS IV into EU law, the consultation of UCITS V and the ‘blue sky’ development of so-called UCITS VI.
Not to mention the various other ‘minor’ amendments from ESMA including Guidelines on ETFs and other UCITS issues and investment changes as well as other extensive regulations impacting the industry.
Fund managers, who have to implement these day-to-day measures, say that they do not know what their job will be like in two years time – all they know is that it is going to be dramatically and fundamentally different.
But what is the effect of this increasing regulation and compliance? Fund management lawyers and compliance officers will benefit.
However, investors will find they will pay either by finding their choices limited or will have to pay the increased costs to access certain strategies.
This is coming at a time when developed economies are burdened by overwhelming colossal debts and have problematic structures, like expensive state-funded pensions, and need innovative solutions to resolve these problems.
The asset management and hedge fund industry did not cause the financial crisis – which has been proved by the fact that it did not need to be bailed out by governments.
But increasing regulation is being seen as the prime solution to the untangling of the global financial crisis at the same time that the industry needs to be used more by large and small investors – which will not probably help in the long-term for governments.
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