Opportunities abound for the global asset management industry as the shrinking of the banking sector has thrust asset management to the heart of global capital flows and the pace of regulatory change is starting to ease off, according to a KPMG report.
KPMG's Evolving Investment Management Regulation report highlights that the regulatory uncertainty of the past years has settled down and predicts that 2014 is the year the wheel turns, with the sector now entering the implementation phase of regulation with much greater clarity.
Tom Brown, global head of investment management at KPMG, says: “It is indeed the 'age of asset management'. The industry has come through the financial crisis well and is now operating in a much more stable regulatory environment with greater clarity and certainty. The next five to ten years hold enormous potential for asset managers and I expect to see players introduce innovative products and adopt new strategies as the industry plays its role in the broader savings debate.
“Regulators have followed through on their promise to restrict trading and private funds within banks, which has led to trillions of assets being spun off. As talented traders have less access to bank balance sheets, we will increasingly see them migrate toward the asset management continuum, which is another positive for the industry.
“While there is enormous opportunity, the industry is also likely to come under more intense scrutiny as firms are increasingly considered systemically important institutions. With so many activities previously housed in banks moving over to asset management it is inconceivable that the industry will not be closely monitored.”
The report examines the key regulatory challenges to face investment managers in the future, discussing shadow banking and the call for additional data and reporting requirements to improve transparency.
Charles Muller, investment management regulatory partner at KPMG, says: “There are definite signs that the regulatory fog is lifting. There is much greater certainty about the direction of regulatory travel and global regulation is slowly becoming more harmonised, which takes some pressure off firms.
“Regulators are undoubtedly talking more and starting to act in unison which is very positive progress. Where proposed new rules once seemed perpetually stuck in the consultation phase, many are now decidedly in the implementation phase. However, while the industry is operating within a context of greater certainty there are a number of regulatory challenges ahead.
“Shadow banking is viewed as the next big battleground and greater transparency and consumer protection are the key objectives of regulators. There will be increased pressure on data and reporting with both investors and regulators requiring more meaningful communication from businesses.
“Asset managers should also expect the themes of conduct and culture to remain high on the regulatory agenda. As we see greater focus on these areas, asset managers will need to take more responsibility over the creation and performance of their products to make sure they don't fall foul of conduct rules.
“In line with the consumer protection angle, it is quite possible the concept of 'living wills' could be extended into the asset management sector which could impact the level of capital held by businesses. I would also expect to see greater pressure on remuneration and pricing in line with demands for greater transparency.”
