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Moody's: Proposed rules for Mexican pension fund managers are credit positive

New rules to be set by Mexican private pension fund regulator CONSAR in an effort to improve the service quality of local pension fund managers are credit positive for investors and asset managers, Moody's said.

In a sector report, Moody's said the proposed rules will shorten customers' wait times and reduce operating costs.

Moreover, Moody's expects client retention rates among Afores, which are Mexican pension fund managers, to rise under the new rules. Current rules encourage these asset managers to focus more on commissions and marketing instead of service quality, which results in dissatisfied customers migrating away from their initial choice of Afores. Better service will lead to a lesser number of workers changing Afores, which will reduce customer acquisition costs.

According to Moody's, the four largest Afores, which account for 70% of the industry's total assets under management, will be better positioned than smaller peers to absorb fixed costs associated with improvements in service quality. Smaller Afores are also more vulnerable to the impact of lower fees, given the downward trend of management fees, Moody's said.

The proposed regulation involves five principles that will standardize and simplify the administrative process, Moody's said. CONSAR also plans to have annual evaluations for the new rules. The proposal will be effective once it is reviewed by regulatory commission CONAMER.