That regulation is a significant consideration for the financial industry will come as no surprise. But just how much of a burden it is was highlighted by a FundForum Asia audience poll asking to what extent regulatory fragmentation between different markets is a challenge.
At a session on the influence of regulation, a full 100% of participants responded that it was either problematic or very problematic.
Janet Chong, COO, Consumer Banking Group and Wealth Management, DBS, said, “The new regulation keeps coming. It does put a lot of pressure on the bank. We need to have quite a lot of resources to handle it and see where the gaps are between our existing processes and new regulation. And it does affect our customers. We need more information from them and we have to disclose more to them.”
Harry Dickinson, Managing Partner, Harrington Cooper, agreed, saying that many clients do not appreciate how much regulatory frameworks vary. “Quite often with the businesses we’re introducing from other parts of the world into Europe or other parts of Europe into the UK, the challenge is getting them to think locally, to put aside a lot of their assumptions about the regulatory regimes in the different jurisdictions and amend their practices. Our business challenge is to educate groups that they need to adapt their behaviour when they enter a new country or region.”
Richard Lepere, CEO, Fund Channel SA, pointed out that even within the European Union requirements varied greatly. “The EU, although it is supposed to be one single market, is in fact as many markets as it is countries. We operate in 14 different countries and we have to cope with specificities. What’s striking is the sheer volume of regulation. But even more disturbing is the way regulation is gradually released. We have to cope with a lot of uncertainty. “
Richard pointed to MiFID ii as an example of the problem. Less than two years from implementation, the finer details of the regulation are still not known despite the significant impact it will have.
Harry Dickinson likened the situation to his experience of the Retail Distribution Review in the UK. “There was a lack of preparation. There was a great flurry of activity once the changes came into force and there was two years of working out the consequences, both intended and unintended.”
Richard Lepere added that another important dimension was US regulation and said that even though he works primarily in Europe he spends a lot of time on US requirements. “The amount of stress caused by US regulation is important even if you are not operating there. There is an amount of regulatory imperialism from the US which is hurting financially.”
Richard also said that while MiFID ii and RDR were meant to be about investor protection, in fact they had left retail investors who were unable or unwilling to pay for advice out in the cold. “Clients are going to be pushed aside because they cannot afford the price.”
There was agreement amongst those on the panel that developments in technology would, to some extent, help to fill the gaps in the market. Janet Chong said that digital innovation would become increasingly important. “I think technology advance will definitely help us. I don’t think we will suddenly all go to robo advisory. Asian people still value personal relationships. They like to look at products themselves but when they are ready to invest they do want to talk to someone.”
In another poll conducted at the session, participants were asked what evolution of regulation concerned them most. 44% said their biggest worry was a greater demand to demonstrate KYC and suitability of products to clients while, 39% were most concerned about a much greater cost burden to keeping pace with regulatory changes.
The session concluded with a ‘wish list’ of requests for the world’s financial regulators. Richard Lepere said he would be willing to get down on his knees ‘and beg’ for regulators to freeze things for a while so that financial institutions have time to implement and digest what is already in the pipeline.
Janet Chong said she would like to see more dialogue between regulators to encourage a more international approach in the hope of “one view instead of many different ones.”
This was echoed by Harry Dickinson who said that his greatest single wish was for regulation that worked in local markets at the same time as working across borders.