ICI Global sees a year of regulatory change for investment funds
Dan Waters, managing director of london based trade organisation ICI Global, has included MiFID reforms, the Dodd-Frank Act and Fatca among the regulatory highlights to watch out for in 2013.
The statesman Robert Schuman said at the creation of what was to become the European Union, “Europe will not be made all at once, or according to a single plan.”
The same sentiment could be applied to the fund management regulatory agenda over the next 12 months. Across the globe, numerous regulatory initiatives are due to reach conclusion, even as a wave of new initiatives hit the in-trays of policymakers.
Many of these initiatives have laudable goals, but a consequence will be growing complexity and cost. In the current low interest rate environment and challenging economic conditions, the aims of policymakers should not be advanced at the expense of providing choice to investors and, in turn, allowing fund managers to support the growth and development of the global economy.
Regulatory Highlights of 2013
Let’s start in Europe, where new rules and regulations will go into force for funds. The AIFMD will come into effect, the reforms to MiFID will be finalised, and the year may also bring two sets of revisions to the UCITS framework. Though distinct, these new rules could have substantial implications for fund managers and distributors, and therefore their investors, across the globe. Whilst some change is inevitable to reflect market innovation, any reforms should endeavour to ensure investor choice in efficient markets, robust investor protection, and competitive costs.
Across the Atlantic, the regulatory agenda is equally full. 2013 is likely to see the implementation of the Volcker Rule, a part of the Dodd-Frank Act which, although not directed at regulated publicly available investment funds, nonetheless raises serious concerns for funds. Fortunately, regulators in the United States can take a number of steps, not the least of which is careful coordination amongst themselves, to mitigate these concerns.
Another active policy issue originating from the United States is the Foreign Account Tax Compliance Act (FATCA), a law that imposes additional reporting, monitoring and, in some cases, tax withholding obligations on financial institutions around the world. Here again, implementation poses a serious challenge to governments, with possible negative implications for funds and their investors. Part of the solution to this challenge is found in the Intergovernmental Agreement framework that some governments have been developing with U.S. authorities. Several agreements have been concluded so far, and we are hopeful that we will see many more by the end of 2013, as well as additional time for finalisation and implementation.
Worldwide, the issue of “shadow banking” will be a significant feature of the regulatory and legislative agenda in 2013. As part of this agenda, global standard setting bodies have published recommendations for reform of money market funds. Regulators on both sides of the Atlantic are considering regulatory changes as well. We urge regulators to abide by two core principles in their deliberations: preserve the fundamental nature of money market funds and ensure a robust and competitive industry that can offer constant and variable net asset value products that investors demand.
Last, but by no means least, regulators across the globe are examining a number of issues that are affecting the trading landscape. Reforms, either underway or in development, are addressing the structure of the financial markets, and, most significantly, the impact of technology on how the markets work.
Fund managers, as investors in the market on behalf of their clients, are advocates of the innovations in the market over the last few years that have lowered costs and given fund managers new tools through which they can invest. Reforms are needed, however, to address some of the challenges that these innovations have created. These reforms must be appropriately coordinated and integrated across borders to reflect that capital markets are no longer national-or regional-but global.
The Implications for Fund Managers
2013 will not be a quiet year for financial regulation. Policymakers will continue to press ahead with reforms to enhance the protection of investors and to better identify, measure and monitor risks to the stability of the markets and the wider global economy.
Fund managers should welcome the discussion. Another financial crisis is in no one’s interest. They must also remain engaged as ever in the debate. Too much is at stake for their businesses and shareholders.