Excessive regulation is choking the development of boutique asset managers and new wealth managers as start-ups cannot support increasingly onerous UK compliance costs, according to New City Initiative, a think-tank.
The “vast and growing” costs of meeting legal and compliance requirements are leading to a narrower choice of asset managers that will prove detrimental to the interests of consumers, the NCI said in a discussion paper due to be published on Monday.
The legal complexity of regulation has led to a doubling of compliance officers (to 2,075) since 2001, even as the total number of other asset management staff has fallen by 8,500 to 37,384, according to the organisation.
The number of UK fund industry chief executives, a proxy for the number of active companies, has also declined from a peak of 1,471 in 2009 to 1,409.
“We need to see more boutique asset management firms coming forward to ensure the market remains competitive,” said Dominic Johnson, chairman of the NCI, which represents about 50 owner-managers in the UK, France and Italy, managing £400bn of assets.
The NCI is calling for the Financial Conduct Authority, the UK regulator, to speed up its complex and time-consuming authorisation process and for the regulator to appoint dedicated staff to provide advice to new managers.
“Compliance has become the new ‘priesthood’ of financial services. Punishment for failure to comply can be so financially crippling that exceeding minimum requirements is now de rigueur,” said Mr Johnson.
He added that the FCA should “explicitly encourage and nurture” start-ups and could do so by dropping restrictions on pre-authorisation marketing and by lowering capital requirements for managers that have more than doubled over the past decade.
A spokesperson for the FCA said that a robust and rigorous authorisation regime was essential to ensure investors were protected appropriately.
“We have also worked with industry to make the fund authorisation process more efficient, reducing approval times and are investing in technology to facilitate faster online applications,” the regulator said.
Applications for Ucits authorisations were typically processed in under six weeks, according to the FCA. Since April, it said it had also met its objective to reduce fund authorisation times for all alternative investment funds to a maximum of three months, due to fall to two months from April 2015.
“Our aim is to further cut any unnecessary delay in the authorisation process,” said the FCA, which added that it was investing in technologies to facilitate faster online fund applications by 2016.
Get alerts on Fund management when a new story is published