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REGULATION


REGULATORY SPOTLIGHT: ‘NO BREAKTHROUGH FOR OPEN ARCHITECTURE’

Dr Wolfgang Mansfeld

The regulation of fund distribution has a strong impact on the fund industry. In this context, two issues are of particular importance.

The first issue regards commission payments. Should distributors be permitted to receive commissions from providers of the products they sell?

The second issue regards the so-called distribution architecture. Should distributors who are part of a financial group offering own funds be permitted to restrict investment advice and fund sales to just in-house products (integrated architecture)? Or should they be required to offer a broader range of funds, including third-party products (open architecture)?

REGULATORY SPOTLIGHT: ‘REGULATORS TIGHTEN FIDUCIARY STANDARDS’

Dr Wolfgang Mansfeld

According to traditional economic thinking, the pursuit of commercial interests by product providers will not hurt the interests of customers. Effective competition will force companies to satisfy the customers better than rivals do in order to achieve commercial success, ie, profits.

If competition is not effective, regulation may impose rules on companies, to ensure they serve the needs of the customers. At best, these rules are a result of self-regulation. A forward looking company may abstain from seeking short-term benefits at the expense of consumers, because the long-term damage from this may be higher. In reality, effective self-regulating behaviour is seldom achieved. So the public regulator will step in and define and enforce the necessary rules.

REGULATORY SPOTLIGHT: ‘TIGHTER RULES FOR LIQUIDITY RISK MANAGEMENT AHEAD’

Dr Wolfgang Mansfeld

The open-ended, daily redeemable type of fund is the model for retail investment funds in the US and Europe. Rightly or wrongly, the daily redeemability of fund units is regarded as a cornerstone of investor protection.

With the extension of investment instruments and techniques used by funds, it became evident that their investments would not automatically be as liquid as the fund units. Investment funds engage, strictly speaking, in the shadow banking activity of liquidity transformation. During the financial crisis of 2008–2009, a number of investment funds ran into liquidity problems and in some cases had to limit or suspend redemptions.

REGULATORY SPOTLIGHT: ‘THE CAPITAL MARKET UNION – TAIL WIND FOR THE FUND INDUSTRY?’

Dr Wolfgang Mansfeld

Establishing a Capital Markets Union (CMU) is one of the most important projects of the EU. The immediate goal is to foster economic growth by improving the funding of the economy and reducing the cost of raising capital. In particular, the EU Commission believes that there is a need to foster the supply of long-term financing and to ensure that effective intermediation channels for long-term financing are in place.

The European fund industry supports the CMU project. Well-functioning capital markets will certainly improve the infrastructure for the fund business. But in particular, there are two measures that promise to create real new business opportunities: the European long-term investment fund (ELTIF) on the one hand, and the idea of pan-European personal pensions on the other hand. Both projects look promising indeed; nevertheless, the assessment of potential benefits for the fund industry requires careful analysis.


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IMR Magazine Summer 2017


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Copyright ©2017 IMR Magazine
Powered by Sage and Hermes

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