The introduction of new regulations across markets to bolster areas like investor protection and ESG reporting have the potential to be a double-edged sword for international asset management firms.
While new rules and guidance might enhance the local landscape, they also require firms operating in multiple markets to have a divergent approach, according to KPMG.
As a result, asset managers need to consider how to manage this new environment as regulators globally take different approaches to dealing with common challenges and priorities.
“Given the cross-border nature of the asset management industry, effective management of regulatory divergence is only going to become more important over time,” said Andrew Weir, global head of asset management at KPMG.
He was commenting on the findings of the 13th edition of KPMG’s annual flagship report, Managing divergence: Evolving Asset Management Regulation Report 2023. It draws from over 11,000 publications by regulators across over 30 jurisdictions, and consolidates insights from KPMG specialists.
To respond effectively to these challenges, Weir believes asset managers need robust and flexible business models, with strong governance, intelligent risk management frameworks, state-of-the art technology, good oversight of service providers and appropriate distribution strategies.
“Firms need to manage their own costs and ensure that the costs and charges borne by investors are transparent and justifiable,” he explained.
Mounting scrutiny
The challenge for industry players follows a wave of regulatory measures around the world to protect retail investors.
The focus has included ensuring value for money and transparency, reflected in new fair value considerations and disclosure requirements.
In line with this, funds are required in some jurisdictions to have licensed depositary entities, which act independently from the fund management company, to better safeguard investors, found the KPMG report.
Hong Kong, for example, plans to introduce a new “Type 13” regulated activity covering fund depositary services, starting in October 2024.
“Asset managers in Hong Kong should review their firm’s strategy, culture and purpose to ensure it continues to serve their customers’ best interests amid the growing global regulatory focus on customer protection and increasing access to information,” said Vivian Chui, head of securities and asset management, Hong Kong, at KPMG China.
Foreign investors welcome
The creation of new fund vehicles and changes to existing products have come from regulators in several markets looking to offer flexibility and compete for market share.
China, for example, has continued to open its markets to foreign investors by expanding the scope of existing regimes.
KPMG pinpoints the new wholly foreign-owned fund management companies approved and given the go-ahead in 2023, along with revisions to provisions on settlement of domestic securities transactions by Qualified Foreign Institutional Investors.
Authorities are also aiming to bolster investment from professional investors, and in infrastructure to assist economic recovery, added KPMG. It highlighted the initiatives by the Chinese and Hong Kong securities watchdogs to strengthen links between the Chinese Mainland and Hong Kong via the expansion of Stock Connect.
