Regulation  

KPMG calls for rapid reform of financial products

KPMG calls for rapid reform of financial products

The investment management industry is in danger of losing out unless it works quickly to overhaul the way it builds and distributes products, auditing giant KPMG has warned.

Its report, examining the evolving regulation in investment management, outlined the raft of rules which have been introduced in countries around the world in recent years, with fund managers deemed slow to keep up with mounting pressure over the past 12 months.

Tom Brown, partner and global head of investment management at KPMG, said investment firms risk “falling behind” while they “struggle to address legacy issues” like fund charges and distribution processes, along with failing to properly take advantage of technology.

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He said firms “need to respond constructively to this closer scrutiny”, despite it being “uncomfortable and at times frustrating”.

Mr Brown also said firms should be open to challenge from the regulators and ensure they highlight the unintended consequences of investment decisions.

Julie Patterson, UK investment management director at KPMG, said the industry has to catch up with the influx of changes to regulatory investigations, which are becoming more intense in the wake of information sharing.

“So far the sector has been slow to adapt, that is changing, but it needs to happen faster,” she said, adding firms need to ensure financial products “earn their fees”.

If the investment management sector is to gain from the opportunities at hand, it needs to make significant investments in technology and reform the way it builds and distributes products, she stated.

However, Ms Patterson conceded technology in the investment industry is currently at an experimental stage. “This has not gone unnoticed by regulators, which are looking at developments and starting to conduct research, reviews and consultations.”

She pointed out regulators are questioning whether they need to extend the regulatory perimeter to cover new digital distribution channels.

The report pointed to the rise of “blockchain”, a technology which allows assets to be moved between financial services organisations without using a central ledger to record the deal.

“Regulators are watching developments such as these with a measure of concern,” the report read, pointing to fears over the safety of transactions.

katherine.denham@ft.com