ALFI is of the view that any change to the current regulatory framework of the European asset management industry should focus on the needs and best interests of investors in order to provide safe, high quality investment products and access to best-in-class professional investment management expertise and related services coupled with strict oversight.
ALFI regrets that, in its Consultation on the Operations of the ESAs in spring 2017, the Commission did not include any questions dealing with “delegation, outsourcing and risk transfer” although this is now considered in the Proposal.
ALFI questions the inclusion of what are effectively new rules on delegation in what is otherwise a result of a consultation on the general powers of the ESAs.
ALFI is further of the view that the Proposal is in breach of the principle of subsidiarity which is enshrined in the European legal framework. NCAs are best placed to know and understand their respective market offerings. Their close oversight of market participants and products guarantees the best and most efficient level of investor and market protection.
The Proposal includes the direct supervision of EuVECAs, EuSEFs and ELTIFs. ALFI does not embrace direct supervision by ESMA, in line with a majority of stakeholders responding to the Commission consultation. The Impact Assessment does not provide any conclusive evidence of the need for ESMA to become the lead regulator for these three investment products, responsible for both approval and supervision.
The UCITS and AIFM Directives explicitly provide for the possibility for investment funds and management companies to delegate certain functions. They require cooperation agreements between EU Member States and third countries in case of delegation. The designation of delegates in and outside the EU today is subject to strict requirements in terms of initial and ongoing due diligence and monitoring of the activities of delegates. Financial institutions making use of delegation arrangements retain decision powers and must continuously monitor these delegation arrangements. The existing framework with the required protections and safeguards is already in place. There is therefore no need, nor is there any justification, to go beyond this.
Delegation of portfolio management is a tried and tested practice which has existed since the first days of the UCITS legislation in the mid 1980’s, and which continues to offer investors access to a broad range of investment strategies. There is no evidence of a market failure due to improper delegation that has been identified in the Impact Assessment. In a globalised economy, delegation is a common practice in many industry sectors outside of finance that serve customers’ interests in obtaining best of breed services and products. The delegation model is a cornerstone of the global success of the European asset management industry today.
ALFI is of the view that the proposed process around the review by ESMA of delegation arrangements to third countries introduces risks, new delays and uncertainty for investors. It creates a de facto split supervision between NCAs and ESMA and will add an additional layer of cost without any evidence of the benefit to investors at all.
Given that the work performed by NCAs will not be reduced and might even increase, it is likely that fees charged by NCAs and indirect fees due to ESMA will increase. This means an additional cost for financial institutions and ultimately for investors in UCITS and AIFs.
Finally, ALFI questions the proposal to transfer significant powers to an Executive Board as it would undermine the role of the NCAs.
ALFI therefore calls for a significant recalibration of the Proposal. ESMA should make efficient use of the existing and extensive set of supervisory and coordination tools at its disposal to achieve regulatory and supervisory convergence rather than embarking on a far reaching review of the current regulatory and supervisor
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