Competition Being Stifled, Says New NCI Report

LONDON, December 8, 2014 /PRNewswire/ --

Structure and Culture vs Regulation

Highlights: 

•  Boutique asset and wealth management firms find the burden of regulatory compliance increasingly onerous
•  New start-ups cannot support the financial costs resulting from increased regulation
•  Since 2001, the number of UK compliance officers has more than doubled, while other asset management staff levels have declined by c.20%
•  The UK investment management industry generates about 1% of GDP and London remains Europe's leading centre for fund management. It earns an estimated £12 billion a year for the UK - London is the hub of specialist boutique firms
•  The NCI warns that reduced competition will eventually result in less choice for consumers
•  The NCI has made six recommendations to help stimulate competition

Competition in the UK asset management industry is being suffocated by excessive financial regulation, says the latest Policy Paper from the New City Initiative, titled 'How Regulation is Damaging Competition in Asset Management' and published today. The paper, available on the NCI website (http://www.newcityinitiative.org), calls for financial regulation to be more proportionately imposed on asset management firms, as this would certainly encourage more boutique asset and wealth managers to come to market.

     (Photo: http://photos.prnewswire.com/prnh/20141208/720188 )

Dominic Johnson, Chairman of the NCI, said: "No-one is arguing for less vigilance by the financial regulators. It's just that we want to see a more flexible attitude by the Financial Conduct Authority. We need more boutique asset management firms coming forward, to ensure this market remains highly competitive. Fund managers who may like to start their own independent firm are currently reluctant to do so, not because of the uncertainties of the wider market, but because the financial cost of FCA authorization is a serious disincentive. Boutique asset managers pose no systemic risk. The difficulty of obtaining FCA authorization, and the vast and growing costs of legal compliance, is ultimately against the interests of consumers, who will face a narrowing choice of firms to manage their wealth. This is a perverse and unintended consequence of the regulatory spread," he added.

Source: FCA, Controlled Functions for Investment Managers 

As a consequence of increased regulation the number of compliance officers in the UK has doubled since 2001, while the number of other asset management staff has declined by around 20% over the same period. "In many ways the compliance function has become the new 'priesthood' of financial services, with compliance officers tempted to gold-plate their adherence to regulations. Punishment for failure to comply can be so financially crippling that exceeding minimal requirements is now de rigueur," said Johnson.

The paper also calls for the development of global regulatory rules to eliminate the current uneven playing field, whereby European firms are conducting business under tougher rules than their American or Asian counterparts and suffering a relative commercial disadvantage. It also argues that in a world with fewer new boutique firms starting up and existing ones facing the uncomfortable choice of spiralling costs or consolidation, financial advice will increasingly be determined by regulatory rules, rather than customised for individual clients.

London is the European hub for specialist boutique firms and the NCI is the leading voice on behalf of small and medium asset and wealth management firms, with 52 members in the UK, France, Italy and Norway. The UK asset management industry manages approximately £6.2 trillion of funds and earns the UK some £12 billion annually.

About New City Initiative  

NCI is a think tank that offers an independent, expert voice in the debate over the future of financial regulation. Founded in 2010, the NCI counts amongst its members some of the leading independent asset management firms in the City and the continent. The NCI gives a voice to independent, owner-managed firms that are entirely focused on and aligned with the interests of their clients and investors. Today New City Initiative is comprised of 52 leading independent asset management firms from the UK and the Continent, managing approximately £400 billion and employing several thousand people.

Core aims: 

- To serve as an independent, expert voice in the debate over financial reform;

- To restore society's trust in the financial sector;

- To promote the values and practices of European owner-managed firms which align their interests with those of their clients; and

- To raise awareness of the positive, stabilising contribution small entrepreneurial firms make to the economy and society as a whole.

All media enquiries to:
Dominic Johnson, NCI Chairman and CEO of Somerset Capital: +44(0)20-7259-1300
Gary Mead, Executive Director, NCI: +44(0)7715-873-697
Tom Allison, Ed Orlebar Temple Bar Advisory: +44(0)20-7002-1486