The burden of addressing regulatory requirements will cost the European funds industry between $300 million and $500 million – or €220 million and €365 million - a year in the next three
years, say new estimates.
These costs may lead to consolidation in the asset management sector and create barriers to entry into the market, suggests the study by BNY Mellon and consultancy EY.
Asset managers may be pushed to sign more middle and front-office outsourcing deals as they seek to control their expenses, says Daron Pearce, EMEA head of global financial institutions at BNY Mellon.
“There are a multitude of initiatives that fund managers could consider in the face of falling profitability and rising costs/income ratios,” he says. “These include reconsidering the opportunities of long term restructuring and building partnerships with third-party providers for middle and front office functions.”
The study, The Impending Profitability Challenge for European Fund Managers, suggests the cost of complying with regulation will lead to an increase of at least 3% in cost/income ratios for asset managers.
Another pressure on profits is the growing investor preference for passive investment products such as exchange-traded funds (ETFs), which generally have lower fees than actively managed funds. The survey found that assets under management in passive funds and ETFs are growing at twice the rate of active funds.
Regulatory costs affect investors as well as asset managers. A recent report by Allianz Global Investors claims institutional investors miss out on 2.3% a year of potential returns because of capital controls and other investment requirements set by regulators.
©2013 funds europe