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Non-Financial Risks, Regulation and Innovations
Non-Financial Risks, Regulation and Innovations
The financial crisis has been synonymous with a transfer of a portion of investor risk towards the providers of investment and related services. The difficulties that third-party fund management has experienced in the areas of asset security, pricing and compliance with regulation, suggest that this shift in the responsibilities of those involved in fund management will have a significant impact on the profit and loss accounts not only of the fund management firms but also of all the service providers who are associated with them. Against this backdrop, this research programme aims to identify the non-financial risks parties within the fund management industry bear as a result of their practices and of regulations, assess the importance of these risks and their impact on the parties’ solvency and business models, and propose means of mitigating these risks.

The programme benefitted from the support of CACEIS as part of the “Risk and Regulation in the European Fund Management Industry” research chair. In 2012, this research led EDHEC-Risk Institute to make important proposals for the development of mutual fund regulation in Europe, notably with the idea of restricted UCITS enabling investors to be able to identify UCITS that present very limited non-financial risk. As part of the renewal of its support to the French research teams, the French Banking Federation decided in 2013 to support the “Innovations and Regulations in Investment Banking” research chair proposed by EDHEC-Risk Institute, the issues of which are part of this research programme.
Research analysing the major risks faced by the main actors in the European fund management industry due to their practices and the regulations, measuring the importance of those risks and their impact on the actors’ solvency and business models, and proposing rules and solutions to enable the risk of the actors in the fund management industry to be limited.
Information about research and responses to consultations in the area of "Index Regulation and Transparency".
This section focuses on two particular studies undertaken by EDHEC-Risk Institute on the subject of best execution: "MiFID: the (in)famous European Directive?", and "Transaction Cost Analysis in Europe: Current and Best Practices". The first paper is a call for the industry to seriously embrace a reflexion on how the quality of service is and should be measured in order to adequately protect the end investor in a context where a deliberate fragmentation of supply might not be counter balanced by adequate measures. The second paper reviews the conditions in which buy-side firms (traditional and alternative) are currently monitoring transaction costs and investigates the various issues related to transaction cost analysis in the context of the Markets in Financial Instruments Directive due to be enforced in November 2007, which contains an important provision related to best execution.
This study shows that, when accompanied by appropriate risk monitoring and adequate structuring of the relationship with the hedge fund manager, managed accounts today represent a very efficient approach to mitigating operational risks, especially when the size of the investments does not allow for a dedicated operational due diligence and risk monitoring team to be set up.
Information about the FBF "Innovations and Regulations in Investment Banking" Research chair.