New regulation must not be ‘overly-prescriptive’

Managed Funds Association concerned that CFTC and SEC plans for data collection may have adverse effects on funds and investors

The financial services industry has changed significantly since the beginning of the financial crisis because of market and regulatory factors. In the US and Europe, policymakers and regulators have implemented strict new regulations to help ensure greater oversight of and transparency in our global markets.

While much of the talk in the news media has shifted away from these new regulations to how the upcoming presidential elections could impact markets, regulators remain focused on the implementation of these mandates – keenly aware of the looming deadline election day in the US brings.

Two issues we are focusing on at Managed Funds Association (MFA) that will have an impact on fund managers are the Commodity Futures Trading Commission’s (CFTC) work on new regulations addressing automated trading, as well as the Securities and Exchange Commission’s (SEC) plan to develop a consolidated audit trail.

Both of these substantial regulations have two things in common: they are collecting massive amounts of sensitive, proprietary information, and they will require regulators to be responsible for protecting that information from cyber-attack.

Regulators must safeguard data

It is critical that regulators develop and invest in safeguarding the data they are collecting because protecting customer data is para-mount for investors’ market confidence.

MFA supports the overall objectives of these actions as a way to enhance regulators’ ability to oversee our modern markets. However, implementing a system to track this unprecedented level of customer and trading data must be done in a cost-effective manner – and in the case of Reg AT, done in a way that is not overly prescriptive in nature.

Our work, however, is equally focused on developments in Europe. Under EU Commission President Jean-Claude Juncker’s proposed Capital Markets Union (CMU) plan, unlocking the EU’s capital and developing capital markets to complement Europe’s already robust banking industry has become a top priority.

MFA has been very supportive of the Commission’s CMU goals and the regulatory regimes implemented since the crisis will help the asset management industry play a larger role in achieving them. As we have noted in our letters, the key to success lies in policymakers and regulators accounting for the differences in wholesale and retail markets when tailoring the regulatory framework for the new CMU.

Rising compliance costs and lack of cross-border harmonisation are just two barriers for many investors wishing to fully participate in the European economy. The CMU is an opportunity to promote fair competition, access and cross-border regulatory cooperation.

MFA believes capital markets play a vital role in providing businesses with more financing choices, helping investors – like pension plan beneficiaries – meet financial goals, and diffusing risk across market participants. The successful implementation of a CMU will help set the stage for the EU’s economic resurgence.

With Brexit negotiations looming, some have said the CMU is now but a dream. However, European Commission Vice-President Valdis Dombrovskis, who has assumed oversight of Financial Services in the EU, has expressed his willingness to continue the European Commission’s current agenda, including “driving forward work to build a Capital Markets Union” as he told the Atlantic Council.

The long-term ramifications of these developments in the US and EU will not be entirely clear for some time to come. However, MFA looks forward to ongoing discussions to ensure the asset management industry has access to markets and investors in order to help investors meet their important fiduciary obligations. Sensible regulation enhances market integrity, allows global markets to flourish and, importantly, helps investors, regulators and asset managers meet our mutually shared goals.

* The opinions expressed in the article are those of the Managed Funds Association and do not necessarily reflect the opinions of the Citco Group of Companies.

Richard H. Baker, President and CEO, Managed Funds Association*

9th September 2016