Financial think tank and lobby group the New City Initiative has warned that regulation is destroying competition within the asset management industry.
With several major regulatory changes due to be implemented in the next few years, the think tank has analysed the impact of the new rules on boutique asset managers.
Dominic Johnson (pictured), chair of NCI, said that regulations are serving to make large firms larger.
The paper - The Next Five Years: Regulatory Challenges That Will Impact Asset Managers - notes that regulation is preventing the development of smaller to medium sized businesses. The research found that 46% of NCI's members spend around 10%-20% of their management time focusing on compliance.
Over half of NCI's members estimate the costs of regulatory compliance account for 3%-6% of their overall costs.
It also adds that the Common Reporting Standard (CRS) to be introduced by the Organisation for Economic Co-operation and Development (OECD), similar to the Fatca, will add to the workload of fund managers.
The CRS will begin collection of data in 2016 and information exchange in 2017. NCI recommended that existing mechanisims for reporting under the US Fatca, should be made more holistic to lessen the burden on fund managers.
Johnson said: 'Regulation must be sensible and it must be proportionate. Most importantly, it needs to serve the purpose for which it was intended; to protect all investors and guard against systemic risk. As currently proposed, this host of regulatory initiatives will likely prove detrimental to the former, and do nothing to mitigate against the latter.
'It is all too often the case that regulations within the financial services industry end up doing the opposite of what they are supposed do – namely destroying competition and making the large firms larger. This not only potentially reduces returns to investors, but also increases risk in the financial system.
'Despite this, too much of tomorrow’s regulation appears to be heading in the same direction. Risk will be better managed and greater transparency achieved through changing how people ‘think and operate’ rather than through more inefficient regulation.'