EFAMA warning as regulation piles up in Europe
Europe’s influential fund industry association has warned that regulators across the region risk damaging the long term savings habits of their populations by piling on layers of regulations that will suffocate the financial services industry
EFAMA deputy director general Jarkko Syyrilä said in an interview that the sentiment underlying increasing scrutiny of banks and asset managers was understandable, given the recent crisis, but it was becoming untenable as measures overlapped and duplicated effects, with the result that investors, and especially retail investors, were less well served than before.
“No-one has assessed the combined impact of these moves,” he said. “The competitiveness of the European asset management industry could be threatened.”
Syyrilä joined the Board of the European Fund and Asset Management Association in 2008. He previously worked for Finland’s regulator, the UK’s Investment Management Association, and the Committee of European Securities Regulators (CESR) in Paris as the first Rapporteur of the CESR Expert Group on Investment Management.
Among measures most concerning Europe’s investment managers are increased depositary liability, European Directives on alternative funds, central clearing of OTC derivatives and taxation barriers to marketing and cross border selling of funds. The work of CESR has now been supplemented by the new European Securities and Markets Authority (ESMA), set to start work by 1 January 2011. It is charged with streamlining regulation across Europe, mediating between EU member states and delegating supervisory tasks between them.
Syyrilä noted there was still much detail to be worked out regarding previous regulations, suggesting a further 18 months of uncertainty for the market. Considerable resource would be needed to address the agenda ESMA, or it would have to rely on national regulators to do much of the work, he added.
“What is clear is that from the politician’s point of view the market crisis of 2008 cannot happen again, and also that cost and efficiency is no longer an argument: it is safety first. But safety at any cost? At some point there needs to be a fresh strategic view of retirement provision. Who is going to fund pensions for Europe if all the taking of investment risk is regulated away?”
With increasing regulation, barriers to entry in the asset management sector are rising, he noted, but the end customer’s overall best interests should still be paramount. There is now talk of extending solvency rules to pension funds which would make it more difficult for them to take a truly long term investment view.
A report published jointly in September by EFAMA and KPMG’s European Investment Management practice identified significant tax complications in the new UCITS IV directive (to be implemented by July 2011) preventing a truly efficient European funds industry. It also cites numerous examples of unequal treatment (“discrimination”) and inefficiencies across the 27 EU states.
UCITS IV introduces six efficiency measures which could make the fund industry more competitive and attractive to investors. But it does not address critical tax reforms required to enable effective use of the efficiency measures.