A US investment funds trade body has warned that the EU could be moving towards “new rounds of protectionism” that might see limitations on the delegation of fund management activities outside of member states.
The Investment Company Institute (ICI) said this week’s proposed changes to European financial supervision from the European Commission (EC) may damage the Ucits fund brand should protectionism break-out in the global funds industry.
The EC proposals are for more direct supervision of markets by the European Securities and Markets Authority (Esma), and improved governance of the European Supervisory Authorities (ESAs).
Paul Schott Stevens, ICI president and CEO, said the proposals risked “closing off” Europe to fund managers from non-member states because the EC wants regulators to focus more on the delegation of asset management functions across borders.
In the official press release, the EC stops short of saying delegation will reduce. “They [the ESAs] will monitor authorities’ practices in allowing market players – such as banks, fund managers and investment firms – to delegate and outsource business functions to non-EU countries, to ensure that risks are properly managed and to prevent circumventions of the rules,” the press release says.
More detail is found in a Factsheet: “The ESAs will have a stronger role in coordinating some critical areas of supervision where sufficient convergence has not been achieved to date …
“The ESAs will be notified and asked for an opinion in specific cases when a financial institutional or market participant intends to significantly outsource, delegate or transfer risks to non-EU countries in a way that would allow it to benefit from the EU passport while essentially carrying out its activities outside the EU. This strengthened coordination role will avoid any risk of supervisory arbitrage and ‘forum shopping’.”
Schott Stevens said in a statement: “This provision is offered despite the clear success of the current delegation model. The proposal also puts at risk the success of Ucits, the only truly global investment product.”
He warned of reciprocation from other countries if the EU did close borders to fund managers from third countries.
“Regrettably, the Commission’s approach is likely to inspire policymakers in regions around the world to reconsider terms of access for European managers to their markets. New rounds of protectionism can only harm markets and investors around the world.”
The ICI welcomed more EU supervisory convergence, he said, but the adopted proposals could lead to more influence from “powerful member states”. He acknowledged that the EC recognised this, and said it must be resolved before increased centralisation occurs.
The EC’ adoption of the proposals takes place in the context of Capital Markets Union.
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