June 2014

ASSOCIATION COLUMN: Election expectations

Christian DargnatThis year, Europe will elect a new parliament and commission for a five-year term and the policymakers’ agenda is crucial. Recently, there have been significant discussions about supporting growth in Europe. Now it is time to see action.  We need regulation that provides a stable regulatory framework for asset managers, to enable them to develop products that suit clients’ needs, and for investors to invest in.  Regulation needs to support development that is globally consistent, and does not lead to overregulation, which would make products uneconomical for investors.  The cornerstone for European asset managers is Ucits, a European success story. There has been an ongoing review of the framework: Ucits IV has been implemented, Ucits V has just been adopted and there is talk about Ucits VI being prepared.  Rather than pursuing the Ucits VI agenda, it is now necessary to implement Ucits V and let it have its intended impact on the markets, by further enhancing the investor protection Ucits offers. Only then should additional amendments to the legal framework be considered, if necessary.  The European Securities and Markets Authority will play a crucial part in the implementation process when enacting these measures. On issues, such as remuneration rules, we have to remember that Ucits, while being a European product, serves global investors and asset managers.  Taking only a European perspective could be harmful for the usefulness of Ucits for the international community and, therefore, for the overall global success of Ucits. The Ucits passport is a concept that other jurisdictions are exploring with great interest as they look to emulate European initiatives. There are similar passporting initiatives being developed in Asia.  The cultivation of rival products such as these should be a reminder that there is no room for Europe to be complacent with the Ucits regime, if it wants to remain competitive for global distribution.  To secure ongoing success, regulatory stability for the framework must be provided and we have to keep our international trading partners informed, both about evolutions in EU regulation and their potential consequences.  The industry must support European regulators in their efforts to tackle these issues and the recent activity by the EU to inform the Asian regulators of European developments must be warmly welcomed.  As Europe has developed a global product, we have to take into account the global audience of the regime and the wide range of stakeholders involved. The new EU decision makers will have to find solutions to two key asset management files. The debate on the future regulation of money market funds has been going on for years and this is having a detrimental affect.  A balanced solution needs to be found that provides appropriate regulation to these products, while not causing irreparable damage to existing types of money market funds, many of which have been successfully used by investors for decades.  The regime on European long-term investment funds (ELTIF) will also need to be finalised by the new parliament and commission. While some policymakers believe asset managers are too short-termist and drive their clients to short-term investments, in the ELTIF debate it is essential to understand that asset managers already provide long-term savings opportunities and long-term financing via existing fund structures like Ucits.  Asset managers’ fiduciary duty necessitates us to provide the products our customers want. However, the ELTIF framework, if constructed successfully, could be an additional product framework for asset managers to offer to their clients for long-term investment.  The European Fund and Asset Management Association has supported the ELTIF initiative and has been working alongside policymakers to make this framework, and the other newly introduced regulations, a success.  As the dust settles, asset managers in Europe will be watching as the outcome of the elections come to regulatory fruition. Christian Dargnat is president of the European Fund and Asset Management Association ©2014 funds europe

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