February 2013

ASSOCIATION COLUMN: Rules go in many directions

Jarkko SyyrilaThe tendency for regulators and policymakers is growing towards banning inducements, even though this clearly means less choice and more cost for smaller investors. Many small investors will no longer be able to get any financial advice. This push would be counter-productive to investor protection, despite the good aims of policymakers. Never have the people working in investment management had so much regulation on their hands.
We call for regulation that truly benefits investors and gives them the necessary protection in a cost-efficient way.
Ucits IV has just been implemented, Ucits V is under negotiations at the European Parliament and the Council of Ministers and the Commission is already preparing for Ucits VI.
The Alternative Investment Fund Managers Directive (AIFMD) has more or less been finalised and is approaching implementation.
Much attention has been placed globally by the financial stability regulators on shadow banking, which will impact on investment management. Money market funds are still the focus of this exercise and further regulation can be expected.
Implementing this regulation will bring significant costs to the investment management industry, including adapting business models and operational structures.
With the AIFMD, the whole of the European fund market will soon be under product and or/manager regulation and have a European passport. With Ucits V, the investor protection that Ucits funds offer will rise to a very high level which will bring strength to the whole system.
Specific infrastructure has been developed for European venture capital funds and social entrepreneurship funds. No doubt, these will be niche products. But they still provide opportunities for some managers.
The European Commission is considering an investment fund framework to facilitate further long-term savings - an opportunity our industry must grasp, support and be prepared to implement at the earliest possible opportunity.
Other legislative proposals are going to impact on investment management: the Markets in Financial Instruments Directive II proposals are still being debated; including the proposals on inducements and Ucits as complex/non-complex instruments.
Whatever the final outcome of the MiFID negotiations, it is crucial that the same rules are implemented in the revision of the Insurance Mediation Directive for investment products with an insurance wrapper. Otherwise in the future we will face an even more unlevel playing field between insurance products and investment funds.
Additionally, financial transaction tax, corporate governance, market infrastructure, crisis management and many more regulations will have considerable repercussions for investment managers. The same applies to the waves of regulation from the US such as Fatca, Volcker and Dodd-Frank which are all of great concern to the industry because of their extraterritorial impacts.
The very heart of the issue is that investors need product choice and easily understandable information on the products available. Therefore the European Commission’s packaged retail investment products (Prips) proposal is a credible initiative to help level the playing field in product disclosure for retail investment products.
Packaged investment products or investment wrappers should have the same level of disclosure and transparency in a standardised format to ensure that investors have the tools to compare the wide range of investment possibilities, whatever the legal wrapper used.
We must ensure that Prips is taken forward without any more delays and complications. Negotiations in European institutions seem to be going in many directions, so as an industry we must remain focused. Jarkko Syyrilä is deputy director general at the European Fund and Asset Management Association ©2013 funds europe

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