Although regulators, notably the European Securities and Markets Authority (Esma), have been calling for input from market participants on new regulations, president of the European Fund and Asset Managers Association (Efama), Christian Dargnat, is pessimistic about how much influence the asset management industry really commands.
Esma has allowed two months for replies from the industry to its 820-page consultation paper on Markets in Financial Instruments Directive (Mifid) II, giving a deadline of August 1.
“I would like to know how all the feedback from corporates and associations can be analysed in such a way that at least some industry ideas can be taken into consideration," said Dargnat, speaking to Global Investor/ISF.
“Regulators are very willing to consult us to discuss the new reforms and a huge amount of work is done, but the perception we have is that Esma broadly knows what it wants to implement from the beginning. Whatever the
He suggested that excessive regulation along with competition from alternative investment product providers pose the biggest threat to the asset management industry.
“The problem is that it seems asset managers are being punished,” he said. “We are asking to have a break from the introduction of even more regulations for some time so we can conduct an impact assessment.”
“We simply don’t know yet if the regulations implemented so far have created better protection for investors or better client services.”
Dargnat conceded that some regulatory reforms had been necessary but was resolutely against further regulation, including the implementation of a financial transaction tax (FTT), presently in discussion by 11 European states, which he said was the single largest regulatory threat to the industry.
While keen to stress that he did not deny the legitimacy of the FTT, he described the consequences of its potential implementation as being “completely devastating” for the financial markets.
”If this tax were to be implemented in the way that it has so far been proposed, it will have so many unintended consequences. It will have a huge impact on the competitiveness of the market and ultimately it will negatively impact the end client.”
Pointing to Italy’s experience when it implemented the tax on high-speed trades and derivatives in September 2013, he suggested that there would be a major loss of market in a post-FTT Europe.
“No tax was collected in Italy anyway, because firms left the country and there were no trades. It’s shooting oneself in the foot.”
“Corporates will be forced into fulfilling functions such as hedging risk outside of Europe or they will stop altogether as it will be too costly to do within Europe. Jobs will disappear altogether.”
There is also concern from Efama’s members that regulation is creating an uneven playing field between competing investment products provided by banks or insurance companies.
“It is essential from an investor protection perspective to ensure that similar, competing retail investment products are subject to the same requirements.”
Despite the challenges with new regulation, Dargnat had a positive outlook for the European asset management industry over the next five years.
“When everyone is talking about strong potential for emerging markets, I say yes sure, but look at Europe. We have fantastic opportunities here.”
Some 43% of wealth held by European citizens is invested in cash and only 10% of European citizens have ever invested in a mutual fund compared to 85% of US citizens, according to Efama.
“We are at the beginning of a formidable evolution or revolution of people who are going to realise that to prepare for the long term, they will need to rely on more than their state governments. To do so they will have to rely on us as investors on their behalf. We will have to cope with and respond to these new trends.”
In order to access this as yet untapped resource, Efama wants to educate Europeans about finance. While it already publishes educational reports that are accessible online, it has plans to improve distribution by implementing educational initiatives in universities across Europe.
“This is something we have decided at the annual general meeting in Bucharest,” he said. “Students are potential future buyers of funds or potential future employees.”
“Financial concepts are not widespread enough. It will take time but we need to encourage and foster.”