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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