At the annual conference in October of the Investment Funds Institute of Canada (IFIC), I was pleased to have the opportunity to sit down with my U.S. and U.K. counterparts: Eric Pan, president and CEO with the Investment Company Institute in the U.S., and Chris Cummings, chief executive of the Investment Association in the U.K. Both associations represent a wide spectrum of investment management firms, from large international entities to smaller boutiques.
The panel discussion I hosted was called “Global Perspectives: Unravelling Megatrends Shaping the Investment Funds Industry.” My guests were generous with their insights into the evolving landscape of the global investment industry, our shared regulatory challenges, the implications of major political shifts, and the impact of ESG considerations. This column is a summary of our conversation.
ESG regulatory challenges
Here in Canada, the Canadian Securities Administrators (CSA) have updated their guidance on ESG matters with the objective of combating greenwashing in the industry by improving transparency in ESG fund disclosures.
New rules from Canada’s federal Competition Bureau that aim to target misleading environmental claims are pending consultation, with IFIC strongly advocating for the oversight of ESG issues to remain within the CSA’s jurisdiction.
Across the pond, a post-Brexit U.K. faces regulatory challenges that are quite distinct from those faced by the European Union (EU). While both regions strive for effective ESG frameworks, there are several discrepancies between the U.K.’s Sustainable Disclosure Requirements and the EU’s Sustainable Finance Disclosure Regulation (SFDR).
“Most of the funds that are marketed to U.K. citizens are domiciled in Luxembourg and Dublin, so they have to conform with SFDR,” Cummings said. “To sell them into the U.K., they now have to carry a warning that says: ‘This fund does not meet the standards of the U.K. market,’ which is a bit of a turn-off for a retail investor.”
To the south of us in the U.S., the ESG landscape is very contentious, Pan said, with debates ongoing about whether financial regulations should drive public policy goals. The Securities and Exchange Commission’s recent folding of its ESG task force reflects a shift in focus amid political divisions.
Pan noted that state-level actions against asset managers for perceived anti-energy policies complicate the regulatory environment further. In addition, he said, a Republican-controlled government will have “a lot less enthusiasm about pursuing sustainable finance regulation, and this is going to mean we will be increasingly separated from what’s happening in Europe and the U.K. That’s really challenging for global asset managers because your investors come from all over the world and you’re investing all over the world.”
Investment trends
In Canada, investors remain well served by financial advisors, but the use of advisors has fallen from 69% of polled investors in 2017 to 61% this year, according to the 2024 CSA Investor Index. While there is a shift toward direct investing, most mutual fund purchases and close to half of ETF purchases are still done through advisors.
We’ve also seen tremendous growth in ETFs in recent years, while mutual fund sales have been less positive.
This year marks the 100th anniversary of the mutual fund, so I asked Pan to share some of his enthusiasm for mutual funds. He is passionate about the “democratization of finance” through mutuals funds and encouraged the audience to appreciate the historical importance of the funds and their ongoing relevance to a broad range of investors.
While acknowledging the U.K.’s claim to inventing mutual funds, Pan credits Americans with turning the concept into a widely used financial solution.
Outlook
Despite some choppy international waters, both my guests expressed cautious optimism about future collaboration between jurisdictions to address these megatrends. They noted that, while the current regulatory environment can be difficult to navigate, there is potential for improved dialogue and alignment as new governments take office in both the U.K. and the U.S.
For me, speaking with my counterparts underscored the crucial importance of cooperation and collaboration among international associations to effectively manage challenges and investor expectations, especially against the backdrop of the complex global landscape.
Andy Mitchell is president and CEO of the Investment Funds Institute of Canada.