No-one doubts the importance of regulation for delivering investor protection and market stability.
But the regulatory costs on asset managers are substantial and occur at a time when firms are investing heavily in digital transformation and when smaller fintech players who lack regulatory resources are trying to aid positive change in the industry.
At the inaugural FundsTech Forum in London on Thursday, a panel of experts discussed whether regulation could hinder innovation.
They also debated whether regulators take proportionality into account. And whether Dora – the digital resilience act – hinders progress, just as another slab of regulation – MiCA, the EU’s new regulation on crypto-assets – is trying to foster progress.
Quentin Werle, head of portfolio management at Luxembourg-based alternative fund manager 6 Monks, said that implementing Dora’s 80 pages of regulation had been a burden for his firm and had come at a substantial additional cost.
On the plus side, Dora had provided an EU-wide harmonised regulatory approach at a time that his firm is extending its operations to Ireland.
Jeroen van Oerle, portfolio manager for global FinTech at Lombard Odier Investment Management, described Dora as a “necessary evil” as digitalisation requires companies to think about security first and then about product rollout and innovation.
“But as with all of the regulations so far that I’ve seen it’s come too late as the damage had already been done.
“Secondly it’s so bureaucratic without actually solving the underlying issue, which is that the basic cyber hygiene of most companies these days is just not efficient.”
Henning Swabey, head of growth at Luxembourg-based fund administration firm Fundcraft, told delegates that his firm views Dora with a mixture of both positives and negatives .
“One of the key takeaways of Dora is the fact that you need to make sure that your service providers are also operating at a certain level of standard,” he said.
“At a conference where we’re talking a lot about blockchain and and crypto and interoperability, you’re only as strong as your weakest chain. From that point of view Dora is good.”
Martin Bednall, chief executive of Jacobi Asset Management, said that the compliance burden for small firms was disproportionately enormous, both from a point of view of time and expense.
“The big firms have got teams of compliance people and they can lobby, whereas a firm my size doesn’t have the time to respond to consultation papers, he said.
“We need to do some trade reporting which is a massive issue and it’s hugely expensive. We’re doing a few low value trades which are not going to have any impact on the global oversight of where assets are and exposures are, but we have to do it. There should be a tolerance level which could kick in at various different levels.”
