2018 Regulatory Field Guide

The regulatory year ahead for financial services will be characterized by the recalibration of existing rules, rather than by the large-scale implementations seen in years past. If recent regulatory “tools of choice” were bulldozers and excavators, 2018’s will be wrenches and pliers.  It has been 10 years since the start of the Global Financial Crisis and it looks like the era of massive regulations to increase the resilience of the financial sector is largely behind us.

With much work done already to de-risk the system and protect investors and taxpayers, policymakers are now turning their attention to facilitating economic activity and growth. This shift in approach could spur a range of initiatives aimed at encouraging asset managers to fulfill societal goals, such as building infrastructure, increasing non-bank financing, and transitioning to a low-carbon economy.

This year brings an omnibus review of AIFMD and UCITS by the European Securities and Markets Authority (ESMA), and we expect the focus will be on fine-tuning these rules to make them more “fit for purpose.” The EU wants to reinforce and fully harmonize its rules on delegation and outsourcing of fund management as well as remove any unnecessary cross-border barriers.

Another key theme in 2018, particularly in Europe and Asia, will be reducing market reliance on bank financing. Through the EU’s Capital Markets Union (CMU), policymakers are working to encourage asset managers to play a greater role in funding the real economy, particularly the infrastructure that supports their environmental, social, and governance (ESG) ambitions. This could be a growth opportunity for asset managers operating or wishing to operate in this space.

In the US, we expected 2017 to be characterized by President Trump’s deregulatory agenda. This didn’t come to fruition and we don’t expect it will in 2018. Instead, we expect to see the reframing and subtle reshaping of US regulation. If 2017 was a year defined by delays, 2018 is to be a year of action.

Remodeled rules are likely to have shorter review and implementation timelines than new legislation, so asset managers must be nimble in adapting to shifting sands. We must also remember that regulatory refits do not necessary mean less work than new builds. However, while challenges remain, the overall landscape is relatively calm. This regulatory shift presents an opportunity for asset managers to assess how tweaking their business models can position them to take advantage of the changes ahead.

Our 2018 Regulatory Field Guide contains insights from regulatory experts at Brown Brothers Harriman and the asset management industry. We hope you find the guide helpful and informative as you grasp the intricacies throughout a year of regulatory recalibration.