Business Model



Regulations and standards get tighter

Regulation is highly influential in the way the industry evolves. Country-specific differences are creating a complex compliance environment for global investment firms. But we can expect the challenges of conducting businesses to increase further in the next 5–10 years. How fiduciary responsibilities will be enforced is a central theme of regulation everywhere.


  • Regulation has become a key part of doing business in the investment industry because of increased complexity in both the regulations themselves and how business is conducted, locally and globally. The issue is complicated on two counts: First, there is no global regulatory authority, so national regulations may diverge, or standards may be implemented at different speeds. Second, the interconnectedness of the investment ecosystem makes it hard to anticipate the consequences, often unintentional, of new rules. An example of regulatory complexity is the difficulty with the interpretation of fiduciary duty.
  • Regulation is focused on balancing financial stability, fair competition, client protection, economic growth, and societal well-being. The direction of travel toward increased client protection and a higher bar to the “social license to operate” is unlikely to change, with coverage of environment, social and governance (ESG) issues increasingly significant in the EU and China.
  • New investor protection regulations in Europe are strengthening fiduciary protections for end investors. The Markets in Financial Instruments Directive II (MiFID II) reforms aim to improve safety, transparency, and competition. The directive’s complexity means analysts, traders, and asset managers will take years to fully adjust, with winners and losers emerging. Sell-side firms are clearly among the losers.
  • As described in Future State of the Investment Profession, pension reform is an evergreen theme among world regulators, which are addressing—to varying degrees—improved investor protections, safe harbors, solvency requirements, and fiduciary duty. Regulatory interest will no doubt also focus on pensions conduct and culture.
  • Interestingly, among large institutional investors, there is moderate appetite for additional regulation. In the CFA Institute study titled The Next Generation of Trust (2018), 64% think the industry is appropriately regulated, 29% think it is under-regulated, and only 7% think it is over-regulated. These findings suggest that industry clients see value from the growing regulation.
  • Value can be created from self-regulation, particularly in areas such as performance, cost presentation, and conduct. Higher standards of fiduciary practice will be critical differentiators.
  • Asset managers will develop their strategies for dealing with regulation in their business models. Leaders must apply high standards of corporate governance to avoid bad outcomes. The industry may be able to come together under a mix of regulation, self-regulation, and culture, with the possibility that the industry might itself unite and become focused on influencing positive outcomes. There is the potential for self-regulation to become more influential as there is greater clarity around the concept of professionalism.