Speaking at the Euromoney AIFM directive conference yesterday, FSA director of conduct risk and asset management sector leader Dan Waters said that since the Spanish took over presidency of the Council of Ministers from the Swedish at the beginning of the year, issues that had previously been agreed in the Swedish draft have been reopened, which he said is “unwelcome”.
Among the FSA’s chief concerns are recent changes to the text of the directive on the marketing within Europe of non-European funds.
Waters warned that some of the proposals may be viewed as a protectionist attempt to protect EU funds from competition from outside Europe.
Waters said that a compromise had previously been reached on this aspect of the directive, which meant that funds that were not passporting would not need to meet the same requirements as EU passporting funds.
But Waters said the February draft of the directive introduced a new “unwelcome” requirement, on the marketing of non-EU funds within Europe, which he said would give the European Commission the power to dictate to non-European regulators the terms of their arrangements with EU member states.
Waters said this puts the EC in a “remarkable position” and “offends the principle of subsidiarity”. He said “it could also run contrary to well-established principles of international cooperation between financial regulatory authorities”.
Waters said: “This would enable the Commission to dictate, for example, to the SEC and the FSA, the terms of agreement between them on the marketing by US managers in the UK on a private placement basis of funds that do not have a European passport.”
He added: “This text puts the Commission in the astonishing position of dictating to the supervisors of fund managers the information that they have to receive from the fund managers they regulate.
“There are very limited, if any, precedents for imposing such prescriptive preconditions on non-EU entities and their regulatory authorities in relation to cross-border marketing of financial products to institutional investors.”
Waters warned that the proposals could be seen as protectionism on the part of the EU, by imposing “burdensome, detailed requirements on funds that have no passport”.
He said it “will be seen as an attempt to protect European funds from competition from legitimate funds outside the EU”.
He added: “In the fragile international economic environment in which we find ourselves, post one of the greatest financial crises in modern history, introducing these damaging constraints on international investment flows is surely the opposite of a sensible policy.”
Waters said that in addition to third-country aspects, other parts of the directive, including those in respect of the liability of depositaries, the delegation of activities outside the EU, the requirements on valuers and the rules on remuneration all remain the subject of debate.