Asset management in the EU: Which way forward?
The European asset management sector remains highly fragmented, resulting in a suboptimal size of funds and higher costs for investors. As underlined in the discussions among the participants at a half-day conference organised by ECMI on March 10th, much more needs to be done in order to achieve a truly pan-European market that is competitive, attractive and transparent vis-á-vis its investors (in particular the retail segment). In this context, the Retail Distribution Review, scheduled to be conducted at EU level throughout 2018, aims to investigate whether the current distribution channels are fit for purpose. It will also examine whether adequate incentives have been put in place to induce new business models to emerge, e.g. cross-border online platforms.
At present, the differences in the general notification procedure, registration fees, local paying agent requirements, review of marketing materials by national regulators, additional obligations around investor disclosure and even different tax treatment of foreign vs local funds simply make it more burdensome and ultimately more costly for providers to distribute funds on a cross-border basis. The European Commission will gather evidence on the main barriers to the cross-border distribution of investment funds through a public consultation that will be launched in the coming months. If warranted, it will seek to eliminate such barriers through legislative means.
The growth of the asset management sector has also drawn the attention of policy-makers towards the industry’s business model and the different risks involved, including risks to the system, to individual institutions and to clients. The rules currently applicable to asset managers are much more related to conduct of business rather than micro- and macro-prudential rules. The panellists at the ECMI conference agreed that steps should be taken to avoid regulatory spill overs from the banking sector to the asset management sector. Nevertheless, the existing links between asset managers and banks need to be analysed much more carefully. Increased information on liquidity and leverage risk across asset managers will provide an essential tool for understanding the risks posed to financial stability by the asset management sector.