The impact of regulation of the South African asset management industry

Abstract

The primary objective of this dissertation is to assess the impact of regulation on the asset management industry. The secondary aims of the study are to investigate whether the South African asset management industry regulation is aligned towards creating an enabling economic environment, analyse the regulatory regime affecting the asset management industry and provide recommendations regarding the strategies that may be adopted by asset managers, in order to effectively and efficiently comply with existing and new regulations. A quantitative research methodology was adopted. A survey was conducted by means of questionnaire design. The questionnaire was administered to a sample of asset management companies registered with the Financial Services Board.

Through empirical research the researcher gained in-depth knowledge regarding the impact of regulation on the asset management industry. There is an appreciation of the economic importance of the asset management industry, as a creator of employment and its effect on the growth and development of the South African economy in general. The regulation of the asset management industry contributes towards an enabling economic environment and development of the industry.

The rationale and objectives of regulation of the asset management industry, as it pertains to systematic issues associated with externalities, market imperfections and failures, economies of scale in monitoring, consumer confidence and the consumer demand for regulation, would seem to justify the existence and development of compliance requirements. Regulation must however balance the goals of competition and efficiency versus safety and soundness. The current regulatory universe applicable to the asset management industry is justifiable, beneficial and is achieving the intended objectives.

The rapid changes in regulation and costs of regulation of the asset management industry, which entails utilisation of resources such as personnel, time and systems required and limitation on investment freedom and creativity, remain the cause for

concern. However based on the outcomes of the research, there is adequate evidence to suggest that the benefits of regulation of the asset management industry outweigh the costs thereof.

The outcomes of the research suggest that under the new paradigm, success will be determined by how asset managers can solve several key challenges such as enhancing operational efficiency, complying with the complex and rapidly changing regulatory environment and meeting the changing customer expectations. The new era of compliance will force asset managers to focus on an enterprise-wide integration of business strategy and not simply short-term tactical solutions. For asset managers that effectively meet the challenge of the changing regulatory environment, substantial investments in infrastructure or data architecture and implementation of an enhanced operating model will provide opportunities to enhance profitability and ensure growth.