Delivering growth and competitiveness

In the face of sluggish economic activity, fiscal constraints and industry demands for greater competitiveness, growth has rocketed up the regulatory agenda.

In this year’s edition of KPMG International’s Evolving Asset Management Regulation report, KPMG professionals explore how this new direction of travel is creating opportunities and risks for asset managers around the world.

Amidst a challenging geopolitical and economic environment, KPMG’s review of more than 200 regulatory developments across nearly 30 jurisdictions suggests many policymakers around the world have shifted their stance to better support asset managers and refocus their activities on the growth agenda.

In some cases, that is leading jurisdictions to scrap proposed new rules, simplify existing requirements and adopt a more proportionate approach to supervision. Although in other cases, new requirements continue to be introduced.

Fostering a competitive environment

“If I were to use one word to describe the implications, it would be ’opportunity’,” notes Jim Suglia, KPMG International’s Global Head of Asset Management. “Asset managers should be prepared to make the most of it while it lasts.”

Perhaps the biggest shift in this regard has been in US trade policy and financial services regulation, which has had a ripple effect on other policymakers’ agendas and approaches around the world. Many jurisdictions are now taking steps to revitalize their public markets and strengthen their asset management industries.

Updating asset management regulatory frameworks

In addition to the specific developments discussed throughout this report, regulators in some jurisdictions are revisiting the overall framework that applies to asset managers and related firms and their funds.

This includes streamlining regulatory regimes to reduce burdens on firms while maintaining core protections, and in some countries, modernizing the rules for funds.

Boosting retail investment

While the report notes growing divergence in regulatory approaches, one theme many regulators and asset managers can agree on is the need to use the financial system to drive economic growth by encouraging citizens to shift excess cash savings to investments in funds and securities, in part through better access to investments and advice.

While potentially improving outcomes for individuals, there is also a clear benefit for authorities who are keen to revitalize flagging public markets and bolster funding for defense initiatives.

Specific examples include exploring breaking down barriers to investment and simplifying tax procedures alongside tax incentives. In addition to these steps to encourage retail investing, some jurisdictions are also seeking to improve the overall investor experience through new digital platforms.

Encouraging product innovation

At the same time, regulatory developments have created new opportunities for firms and product managers around the world. Consider, for example:

The increasing popularity of active ETFs, REITs, robo-advice platforms and model portfolio solutions
Efforts to facilitate the democratization of private assets and allow retail customers exposure for the first time
Facilitation of new technology-enabled approaches via regulatory ‘sandboxes’ and the introduction of new policy frameworks and guidance for the regulation of digital assets and fund tokenization
Introduction of new forms of regulated advice to reach a wider audience
Permitting the introduction of semi-transparent ETFs in Europe
Clarifying the status of defense investments in the context of ESG, potentially facilitating the launch of new products.

Enhancing cross-border access

Another way that financial regulators can help contribute to the growth agenda is by allowing firms to sell their products and services across borders. Some jurisdictions are making notable progress in this regard, for example through mutual recognition, reducing barriers to the cross-border distribution of funds and services.

Capturing opportunity through a growth agenda

Facing a rapidly changing regulatory and market environment, our report finds that many asset management firms are revisiting their entire fund and product offering to ensure that it remains relevant and valuable to investors and distributors.

However, as always, the need to continuously protect investors will be front of mind – especially as new conduct and governance frameworks are introduced.

Opportunities and risks

Opportunities for asset managers
Risks for asset managers

Product and service review:

Strategically review your firm's product suite and risk appetite in the context of the growth and competitiveness agenda to check whether any growth opportunities are being ignored, or excessive costs incurred.
Markets:

Explore new international market access possibilities, with the potential to reach a wider target market or to rationalize operations in one or more jurisdictions.
Efficiency:

As regulation is simplified or made more proportionate, look for opportunities to devote more time and resources to product teams and the first line of defense.

Capabilities:

As new or innovative products and services are brought to market, ensure that the second and third lines of defense keep pace with the business.
Competition:

Monitor the entrance of peers and competitors and assess if they are better placed to take advantage of growth opportunities.
Divergence:

Prepare for increased regulatory divergence and fragmentation as the growth agenda creates differing regulatory stances across jurisdictions.
Investors:

Understand how regulatory and tax policymaking in influencing investor decisions, particularly within the high net worth end of the spectrum.