Regulators Seek Balance Between Innovation and Risk
As the asset management industry continues to embrace digital innovation and artificial intelligence (AI), regulators worldwide are working to strike a balance between enabling progress and maintaining risk controls. According to the latest edition of KPMG International’s Evolving Asset Management Regulation 2025 report, the regulatory environment is undergoing rapid evolution. The divergence in global regulatory approaches presents both opportunities and complexities for asset managers operating across borders.
Regulators are attempting to foster innovation while ensuring that new technologies do not expose investors or markets to undue risk. As the use of AI expands from portfolio management and advisory services to customer engagement and support, there is growing pressure to establish robust compliance frameworks that can scale with these technologies.
AI Regulation: A Global Patchwork
AI regulation remains in flux across jurisdictions, with distinct policy paths emerging. While some regulators are adopting stringent, AI-specific requirements, others are leaning on existing, technology-neutral frameworks. This divergence is creating a patchwork of rules that complicates compliance for global firms.
“While the specifics may be diverging, there is a clear direction for regulatory travel around digital innovation,” said Jim Suglia, Global Head of Asset Management at KPMG International. “We are seeing greater regulatory support for new and innovative products, better facilitation of technological developments in a regulated environment, and more targeted policymaking.”
Regulators generally acknowledge AI’s potential to deliver efficiencies and enhance outcomes. However, they are also examining AI’s implications for financial stability, particularly with regard to system-wide adoption in asset management. In the absence of unified global standards, firms must remain agile and informed about regional policy shifts.
Tokenization of Funds: From Pilots to Practice
Another area of regulatory development involves the tokenization of investment funds. In recent years, regulators have issued guidance and launched initiatives aimed at enabling fund tokenization. This trend continued over the past year, as authorities sought to clarify the rules and support broader adoption.
Tokenization offers the potential to reduce operational complexity and cut costs for fund managers. By converting traditional fund units into digital tokens, asset managers can streamline processes and improve transparency for investors. Supervisors are increasingly allowing pilot projects to transition into mainstream practices, supported by international coordination led by IOSCO (International Organization of Securities Commissions).
IOSCO has committed to ongoing monitoring of tokenization’s impact on investor protection and market integrity. Regulatory clarity in this space is expected to drive further innovation while safeguarding investor interests.
Digital Asset Regulation Gains Momentum
While the regulation of digital assets, such as cryptocurrencies, is only briefly addressed in the KPMG report, it is an area of significant global activity. Regulatory frameworks are evolving rapidly, with new policies aimed at enhancing market oversight and enabling secure access to innovative products.
Regulators are increasingly recognizing the economic potential of digital assets and are adjusting their approaches accordingly. In many regions, the focus has shifted from restriction to facilitation, as authorities aim to balance market growth with investor protection and systemic stability.
Key Opportunities and Risks for Asset Managers
As regulation adapts to accommodate innovation, asset managers face a range of opportunities and risks:
- Product Innovation: Expanding into private markets can diversify product offerings and counteract fee pressure in public markets. Private assets are gaining traction among asset owners, creating new avenues for growth.
- Liquidity Risk Management: With new global recommendations on fund liquidity, firms must establish future-proof governance and operating models.
- Operational Efficiency: The integration of public and private market activities requires streamlined operating models and enhanced risk and compliance oversight.
- Talent Acquisition: Navigating complex private markets demands specialized skills, particularly in valuation and liquidity management.
- Retail Product Oversight: Firms must ensure appropriate target markets, transparent disclosures, and robust liquidity management for retail investors.
- Compliance Maturity: Regulatory expectations are evolving rapidly, necessitating continuous upgrades in compliance capabilities, particularly in areas like private asset valuation and accelerated settlement cycles (e.g., T+1 transitions).
Preparing for the Future
As asset managers adapt to this rapidly evolving regulatory environment, the importance of proactive planning and agile compliance cannot be overstated. Developing scalable, enterprise-level approaches to technology deployment, while maintaining alignment with global regulatory trends, will be crucial for firms aiming to remain competitive.
The Evolving Asset Management Regulation 2025 report serves as a critical resource for understanding the complexities of today’s regulatory landscape. From AI and digital assets to fund tokenization and private market integration, regulatory strategies must evolve in tandem with technological advancements.
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