Stability is returning to global markets, but more decisive action still is needed by both regulators and the investment management industry to regain investor confidence.
Several speakers at the Sixth Annual CFA Institute European Investment Conference in London emphasized the importance of continued reforms amid buoyant equity markets. Martin Wheatley, London-based chief executive of the U.K.'s Financial Conduct Authority, said a key focus for the financial services regulator now is on the “buy side,” after having channeled its resources on the “sell side” in the immediate aftermath of the 2008-2009 financial crisis.
“Some (money management) firms are not taking their responsibilities to clients as seriously as they should,” said Mr. Wheatley, who listed poor transparency in the use of trading commissions as an example, including the practice of paying for corporate access with client money.
“We want investors to have access to companies, but is (using clients' dealing commissions) the best way to achieve this, especially when they don't know what they're paying for?” he said at the conference, which was held Nov. 14-15. “Asset managers are forking out thousands of pounds simply to gain an hour's conversation with a CEO or a CFO.”
Mr. Wheatley said Europe — and particularly the U.K. — should be leading “a global agenda” to improve the way the money management industry is regulated. While rules are necessary, they are not enough, he added. For example, the FCA began using “a broader array of judgment-based tools and techniques,” such as delving further into a firm's culture to understand how it makes money, in addition to knowing how compliant the company is.
Regulation “is not a zero-sum game, like a tennis match or a football match, where either the regulator wins or the firm wins. If we get regulation right, we all win,” Mr. Wheatley said. “It is about getting confidence back.”
Yves Mersch, executive board member of the European Central Bank who is overseeing efforts to establish a European banking union, said, “Things are moving in the right direction, even if one can argue about the rate of speed.”
Speaking at the conference, Mr. Mersch pointed to three signals as evidence that European markets are stabilizing. “We can clearly see that investor confidence is slowly returning, that the persistent euro-area financial market fragmentation is decreasing and that contagion is receding,” he said.
The eurozone's average fiscal deficit in 2013 is projected to be 3.1% of gross domestic product, compared with 5.8% for the U.S. and 9.5% for Japan. Gross general government debt is expected to peak at 96% of GDP in the eurozone during the same period, compared with 106% in the U.S. and 244% in Japan, Mr. Mersch said.
However, “progress is unevenly distributed,” and bank lending to small and midsize businesses remains muted, threatening a sustained recovery, he said.
The euro itself, which was “incomplete” in its original design, also needs to be strengthened. “The establishment of a banking union has been agreed and is now being delivered in stages,” Mr. Mersch said.
In a three-stage review process, known as the comprehensive assessment, the ECB initially will conduct a risk assessment of banks' balance sheets, followed by an asset quality review and finally a stress test.
In addition to industry regulations, government monetary and fiscal policies also were prominently discussed at the conference.
How and when central banks across the world plan to taper quantitative easing continue to trouble money managers, according to a survey of 200 CFA members released at the conference. In the coming 12 months, “an end to easy monetary policies” is the most important concern for 58% of those surveyed. Rising bond yields, which is a related topic, was a concern for 33% of those surveyed. Other issues involved China's slowing growth and Japan's Abenomics.