Regulation, give us a break!

Since a recent briefing on the role of the European asset management industry, one message has stuck in my mind; we need to take stock of the impact of regulatory change.

The briefing was hosted by the European Fund and Asset Management Association (EFAMA) and they said the industry needs time to dig itself out of the recent regulatory avalanche.

Even before the financial crisis which led to the collapse of Lehman Brothers in 2008, European asset managers were already getting to grips with major reforms from the first MiFID, and the onslaught has never let up since.

This means that the average trading desk has been trying to keep up with regulators for over a decade by now and the timeline of new regulations and directives means they’ll still be coping with regulatory change for at least another two years.

The problem with constant change is you end up never having any stability and thus can never truly judge whether the reform have had the desired effect. The global financial industry needs time to stop and take stock of these changes, regulators need time to analyse the data they’ve collected and discover what has worked and what needs further reform.

A never-ending stream of new rules cannot be based on an objective judgment of the current regime because it just hasn’t been in place long enough to really know if the new rules are really needed.

While at The TRADE’s Leaders in Trading awards, a buy-side trader told me it was crippling to the industry to be facing so many rules that are often being made without proper investigation of the need and likely outcomes, an unscientific approach to say the least.

And many more are fearful that politicians are already secretly murmuring the dreaded acronym, MiFID III, at a time when we don’t even have draft regulatory technical standards for MiFID II, let alone be in a position to say whether those rules have improved European market structure.

So, perhaps regulators and politicians should look at suspending their future regulatory timetable. Because only by knowing how new rules affect the market over the course of the economic cycle can be really begin to figure out what’s working and what’s broken.