France’s AFG answers ESMA’s consultations

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The French asset management association (AFG) has answered to the consultations launched by the European Securities and Markets Authorities (ESMA) on share classes of Ucits and on competition, choice and conflicts of interest in the credit rating industry.

The discussion paper on share classes sent by the ESMA contains 14 questions.

Replying to a question concerning the drivers for creating share classes, the AFG said : “Visibly, there are clear synergies between a diversified Ucits product offer – as customised to meet client demands – and the need to increase investors’ participation by committing more of their savings to capital markets.

“Worthy of notice is also the fact that the economic efficiencies additionally remove the regulatory cost of setting up new funds, while allowing existing funds to grow sufficiently so as to reap the advantages of scale, as well as to boost the European asset management industry’s competitiveness abroad.”

The ESMA asked if it should develop a common position on adequate information about the characteristics, risks and return of different classes in the same Ucits. The AFG answered positively.

“It appears important to us to develop a common framework at European level making it possible to align the authorized practices from one country to another. Ultimately, it should be recalled that share classes are a valuable competitive tool for European asset managers.

“It would be detrimental both for worldwide investors and for the European fund and asset management industry to curb share classes possibilities beyond reasonable boundaries,” argued the AFG.

Credit rating agency

Consulted on the credit rating agency industry through 20 questions, the AFG has expressed some concerns from its members.

“AFG has always expressed in favour of reducing reliance on credit ratings. Indeed, we were unhappy when the 2010 elaborated ESMA’s guidelines on money market funds imposed eligibility rules based directly on external credit ratings. These guidelines also imposed that all agencies rating the instrument be taken into account, which had put the asset manager in a captive position,” said the AFG.

The association added it welcome the impact of the CRA’s regulation on “rules that were previously establishing a mechanic link to ratings.”

The AFG’s members see “a clear distinction between the historical activity of CRAs on rating debt instruments, which is a reference in the market, and other developments/activities such as rating of structured finance or funds.”

“It is generally not considered that the traditional debt intruments rating activity would have failed at the end of the first decade of the 21st century. On the contrary, we esteem one should be very cautious when referring to CRAs activities in different domains such as structured finance deals or funds ratings,” assessed the AFG.

Asked on the decrease or increase of the use of credit ratings in the course of its members businesses or in making investment decisions, the AFG replied that recent trends encouraged its members in their internal credit analysis capabilities.

“Mechanistic reliance is now discouraged in the regulation, which is positive, but this should not mean that asset managers are supposed to be replacing the work done at the rating agencies. Investment management and rating is not the same job,” underlined the French asset management association.

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