Wave of EU legislation mis-placed and damaging to EU economy, says IMA’s Saunders

Richard Saunders, chief executive of UK fund industry body the Investment Management Association, has warned of a wave of EU legislation that could stifle the financial servies industry, and by implication member states’ economies.

“The wave of European legislation is breaking. At last count I made it 35 separate legislative measures. Much of it is good, for example the forthcoming Packaged Retail Investment Products initiative and many parts of the new Markets in Financial Instruments Directive (MiFID), but others, such as the proposed Financial Transactions Tax and some of the detailed provisions in MiFID, will have unintended consequences and will not achieve their objectives.”

“And why is this? It is partly to do with the sheer volume of measures now coming out – the Commission are not giving themselves enough time to get each measure right. But there is also an element of mis-placed analysis of the financial crisis – an analysis that has underplayed the role of the banks and overplayed that of hedge funds, notwithstanding that it was the banks and not hedge funds which created the crisis.”

“For example, in response to the Madoff scandal, an elaborate fraudulent investment scheme, the Alternative Investment Fund Managers Directive (AIFMD) [seeks] to impose stricter liability on depositaries, instead of asking why investors’ money was invested in the funds in question in the first place”

“Policy-makers’ less than perfect understanding of the markets had led to ill-judged proposals, not least of which is the current proposal for a Financial Transactions Tax (FTT). Far from being a tax on the City this would be a tax on individual savers.”

“Although the stated intention behind the FTT (Financial Transaction Tax) is to increase taxation of financial institutions it will miss its targets. It will be customers, not banks, who will bear the cost. And it risks a flight of trading out of the EU.”

“[The European Securities and Markets Authority banning short selling] is another example of misplaced targeting of hedge funds. Short sellers don’t create volatility, though they may profit from it. Indeed IMA research has shown that short selling bans don’t have any impact on volatility, neither do they lead to falling prices.”

“Much of what is now on the table would be damaging to the EU economy as a whole. It would impact the UK particularly hard, but I for one do not buy the theory that it is a concerted plan to undermine London as a financial centre. Rather I believe that the problems arise from too much haste and insufficient consultation. The need for reform should not be ignored. But it should be appropriate and proportionate. Education of and engagement with policy-makers therefore remains critical.”


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