Regulatory Outlook: Compliance Exacting a Price
December 6, 2012
The biggest concern, cited by 37%, is that regulators might allow or require the $1 a share value of the assets in a money fund to float. That would formally "break the buck" promise made to investors, that led to a run in the first place in 2008. The foundation of such funds is the idea that an investor can expect to get $1 back for every dollar put in, like a bank account.
Of the executives polled, 35% feared what systemic regulators might do; and, 27% still worried about the SEC taking action. At this writing, it's not clear exactly which regulatory body will carry the cudgel, but it is the SEC which has rule-making power.
And never going away is the concern that change is coming to marketing and distribution fees that funds can charge. These fees once were considered to help lower costs of funds by helping achieve scale, but have become vehicles for paying commissions. Critics charge the fees do nothing to actually enhance performance of a fund.
Whatever the pros and cons, 37% of respondents say they are concerned about the elimination or restructuring of such 12b-1 fees.
The amount of spending on regulatory compliance and investment compliance, while stepping up significantly, does not constitute staggering amounts, however. Only the very largest firms, those with 5,000 or more employees, expect to spend more than $11 million a year. Fully one-fourth of firms expect to spend under $1 million. The average spend, however: $9.6 million.
The result is similar for investment compliance spending.
Only in this case, fully one-third of firms expect to spend under $1 million a year. The average spend is expected to be $7.5 million and the midpoint, the halfway point among all firms, is $500,000.
The rise of reform and the need to manage it is seen at the highest levels of the executive suites, as well.
Almost two-thirds of respondents, 65%, indicated that their firms now employ a dedicated chief compliance officer. Another 36% have chief risk officers.
This is slightly lower, however, than last year's poll. In the 2011 survey, 67% of respondents indicate their firms had chief compliance officers - and 42% had chief risk officers.
Why does any of this matter?
Forty-five percent of respondents said because the outcomes affect their firms' bottom line performances. Another 38% said it affected their firms' ability to grow. And 36% said it affected their ability to innovate.
