We have reflected at multiple points in this report on the challenges and opportunities posed by regulatory adaptation as a driver for change in the funds industry.
To identify where this change agenda will have most impact, the survey asked the question, “Which areas of the funds industry are likely to see tighter regulation during the coming three years?”
Given the huge drive across asset management and asset owner organisations to meet their ESG targets, it is perhaps unsurprising that ESG and climate change featured at the top of the list, attracting over 30% more responses than any other answer (fig 18)
Respondents also highlighted the likelihood of potential reform to the MiFID directive. The European Commission released a consultation paper in March 2020 soliciting public feedback on MiFID II and MiFIR (the Markets in Financial Instruments Regulation). The first part of this consultation paper addressed questions on the overall functioning of MiFID II and MiFIR, while the second section addressed a range of priority and non-priority issues raised by the Commission. Among the ‘priority’ issues were proposals to phase out paper-based investor information, along with ongoing steps to provide access for retail clients to a wider choice of transparent and affordable investment products.
More broadly, the Commission has put forward for public consultation the possibility of creating an EU consolidated tape, an electronic data stream providing real-time exchange data (e.g. price, trade volumes) which is not limited to equity instruments. It is also reviewing plans to promote further unbundling of research and execution services and to deepen research coverage of the SME sector.
To preserve standards of investor protection, while maximising flexibility available to investors, the Commission has also sought feedback on the creation of a category of ‘semi-professional clients’ lying between the existing categories of retail or professional investor. The aim is to make it easier for high-net-worth and sophisticated investors, which may not currently fall within the professional investor category, to participate in the capital markets. Ultimately, this may lead to the creation of a tailor-made investor-protection regime for these ‘semi-professional’ clients.1
The European Commission has also launched a review process regarding a potential successor to the Alternative Investment Fund Manager Directive (AIFMD). This, among other considerations, will assess the competitiveness of the AIF industry in Europe, the effectiveness of the AIFM passport, and whether there is justification to extend the AIFM licence to a wider category of fund managers.2
This also includes plans to clarify AIFMD rules on depositary services and depositary obligation. The Commission recognises the need to address a short supply of depositary provision in certain markets, particularly where there is a concentration of depositary services in smaller EU markets.
More generally, the European Commission continues to explore steps to align AIFM and Ucits Directives, including (i) potential for a single EU rulebook for Ucits and AIFM regulatory frameworks; and (ii) potential for a single licence for AIF and Ucits managers.
1 – https://www.linkedin.com/pulse/paving-way-mifid-iiimifir-ii-ec-consultation-paper-revisal-lachgar/
2 – https://www2.deloitte.com/lu/en/pages/risk/articles/aifmd-ii-european-commission-kicks-review-process-consultation.html
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