Stanhope Capital, Fleming Family & Partners, Odey, and Lord North Street are among a group of leading wealth management firms that are urging the European Commission to take a proportionate approach to future regulation.
The New City Initiative, a think-tank backed by some of the best known wealth management boutiques in the UK, is seeking to raise the profile of smaller independent wealth and asset management companies in Brussels so they are not placed in the same category as banks in future regulation.
Stanhope Capital chairman Daniel Pinto set up the New City Initiative to bring about long-term reform of the financial services sector but believes regulation is not a panacea.
He said: ‘There are clearly two sub-worlds. There are banks that are trading on their balance sheets and are therefore potentially creating systemic risk, and there are people that are investing on behalf of third parties. Frankly, their balance sheet is irrelevant as they are not investing on their own account.’
Dialogue with regulator
As a result, Pinto is seeking to develop a dialogue with the European regulator to champion a more proportionate approach to regulation and to stress the differences between the UK – where financial small and medium-sized enterprises (SMEs) provide 50% of the jobs in the City of London – and other European countries, where the bancassurance model is dominant.
To build support for its campaign, the New City Initiative is expanding its membership to small and medium-sized asset managers on the Continent.
‘We are not asking for exemptions for the sake of having exemptions. It is not about that,’ Pinto said. ‘We have a set of obligations and we are very happy with that. I would say that for the sake of making the system safer, don’t treat everyone the same way. There are plenty of SMEs in the financial world that have been a source of stability. The problems have not come from SMEs, they have come from banks.’
Cost of compliance
Pinto is concerned the growing costs of compliance may risk putting disproportionate pressure on smaller firms, which could make the industry less competitive, which he believes would not be in the best interests of clients. Although he supports the spirit of the retail distribution review (RDR), he uses the oncoming regulation as a case in point.
‘The government, the regulator and the industry should find the right balance of making the industry safer with better regulation, and at the same time, not making the sector uncompetitive. Competition is key,’ he said.
Ian Cornwall, director of UK regulation at the Associate for Private Client Investment Managers and Stockbrokers (Apcims), said it was frequently engaging with Brussels on new regulation.
He highlights forthcoming European regulation as a big concern for Apcims members, but says they are not necessarily purely specific to SMEs.
‘Europe is a real worry and everyone – big or small – needs to engage with Europe to explain what our business models are over here and make sure that regulation is proportionate and appropriate,’ he said.
He also stresses growing costs associated with UK regulation, most notably those connected with the new regulatory structure.
Guy Sears, the Investment Management Association’s director of wholesale, echoes Pinto’s concerns that growing compliance costs could create more barriers to entry in the UK asset management industry, which is not in the interests of clients.
‘I would say that part of this is not just self-pleading. It is entirely legitimate and I am not just talking about one’s direct clients and the choices they should be able to make. Barriers to entry will create a less competitive market,’ he said.
He believes the New City Initiative should not find it too difficult to raise the profile of SMEs, adding that a number of individuals in Brussels are ‘very keen and public about the need to tailor legislation’ to assist them.