Policy Papers

The Next Five Years: Regulatory Challenges That Will Impact Asset Managers

The New City Initiative was established to both promulgate our vision for better alignment between investors and money managers – but also to give positive steer to regulators and governments as to how to achieve this. This paper outlines clearly the issues confronting our industry over the coming years and where we would either draw our members’ attention to certain issues, or where we think the regulatory framework could be better structured. Wellington talked about ‘The Other Side of The Hill’ and I hope this document gives some clue as to what is in store for our firms in the near and medium term.

What we find, time and time again is that regulations designed to do one thing (make for a ‘safer world’) actually end up doing the exact opposite – normally destroying competition, making the larger firms larger and thus potentially reducing returns to investors, customer retention, and making the whole system more delicate. The powers that be have oftenmisunderstood what ‘risk’ is and how it is up to a market to price it properly. Much of their efforts to somehow ‘control’ risk, either force it into dark corners where it cannot be easily seen or reduce liquidity in a market, where the real and ultimate risk (as seen in 2008) is a liquidity crisis. We continue to argue that better structures and culture lead to better outcomes and we remain committed to the path of less regulation and more forcing of a change in how people ‘think and operate’ to achieve these same goals of managing risks and being more transparent.

Our view is to promote positive change and I hope that you will find in this paper not only a new set of worries but also a set of quite simple answers to help us make for a better environment in financial services.

Dominic Johnson

Chairman, New City Initiative
CEO and Founding Partner of Somerset Capital Management LLP