Fund distributors say they face unprecedented pressure from regulators keen on stamping out mis-selling and money laundering, which has made it difficult to even open a bank account for fund investment.
The rising regulatory burden represents the biggest challenge facing the asset management industry, said 45% of respondents to a recent BNP Paribas survey of retail banks, private banks and insurance firms.
The findings, presented at the BNP Paribas Investment Partners Asia-Pacific Investor Summit held in Singapore last week, also found that the reason for low penetration of household financial assets into wealth portfolios is due to a lack of education and trust.
“In Asia, the penetration [of funds in the wealth management segment] may be at around 5%, whereas in Europe such [penetration] can reach 20% or higher,” said Mark te Riele, Asia-Pacific head of marketing and distribution at BNP Paribas Investment Partners. “Our financial industry has during the global financial crisis [suffered from] a big blow on trust by the public.”
Respondents said education (31%) and increased trust in the industry (29%) are the two most needed ingredients for driving more household income into managed wealth portfolios in the region.
Retail structured products in Asia were popular before the crisis, notably in Hong Kong and Taiwan, where banks distributed 'minibonds' linked to Lehman Brothers credit. However, regulators have since tightened their supervisory efforts around the sale of such products in a bid to clamp down on bank mis-selling.
More recently, for example, the Hong Kong Securities and Futures Commission has begun a three-month consultation that seeks to retract exemptions traditionally given to banks from know-your-customer, product suitability requirement when selling to individual professional investors.
Most participants in Singapore last week agreed that the complex layers of rules coming from different regulatory bodies mean approval processes take longer. And many are still unclear about how to handle licensing requirements and obligations.
There is also increased scrutiny by the custodian bank community of its fund manager clients, to ensure that there are no links to organised white-collar crime or terrorist organisations, says Tony Kan, associate director of boutique fund administrator Amicorp Hong Kong.
As such, banks are increasingly turning fund managers away, as they have to take a stringent approach to compliance performance, he notes.
“The funds industry will have to face the challenge of [clients] having [to have] a proper bank account to accept subscription money," adds Kan. "Today, even existing clients face the risk of banks suddenly closing their accounts due to the more stringent approach adopted by banks’ compliance divisions."