The European Commission is consulting on potential changes to the UCITS framework with improvements to the regulation of money market funds, short-termism and harmonising the investment industry's approach to fund redemptions among the items on the agenda.
The European Commission is consulting on potential changes to the UCITS framework with improvements to the regulation of money market funds, short-termism and harmonising the investment industry’s approach to fund redemptions among the items on the agenda.
It will also consult the industry on the use of over-the-counter derivatives and fund managers’ employment of efficient portfolio management (EPM) as well as liquidity management rules.
On money market funds, the Commission wants to explore options to maintain investor confidence in the products, their role as a liquidity product and their engagement in the securities lending and repo markets.
The Commission said the use of EPM techniques is “widespread” and essential for generating additional revenue for investors.
“EPM includes securities lending and repurchase transactions as well as the management of collateral that is received or granted to secure these transactions.
“ESMA guidelines and the Commission’s consultation on shadow banking has already raised the general issues that arise in this context and the current consultation aims to deepen the Commission’s insight into the potential systemic and investor implications raised by a fund’s use of EPM techniques.”
It also addresses short-termism in the retail market and asks how to create a culture where investors take a longer-term view.
The UK Investment Management Association welcomed the discussion on the “evolution of UCITS”, particularly the addressing of short-termism, but cautioned against any drastic changes to the existing framework which has proved so resilient in the past.
Julie Patterson (pictured), IMA director of authorised funds and tax, said: “As the Commission itself noted in 2009, the existing UCITS regulatory framework has proved very resilient, including in very difficult market conditions such as the recent credit crisis.
“The Commission is right to focus on creating a European investment culture where retail investors take a longer-term and strategic view when investing in funds. But it is important that we do not place unnecessary additional restrictions or costs on UCITS to the extent that those with modest amounts to invest cannot achieve their longer-term aspirations in a cost-effective manner.
“We must avoid investment strategies being inappropriately limited within UCITS but readily accessed via less regulated products. Also, it is essential that existing, well-regulated delegation practices be allowed to continue. The case for alignment of UCITS and AIFMD rules can only be assessed once the AIFMD Level 2 measures are published.”
This article was first published on Investment Week