Transcript How Asset Managers and Regulators Can Work More Closely

Regulatory Agenda for European Asset
Management and Funds:
EFAMA’s Priorities
Presented by Peter De Proft
Director General of EFAMA
UAIB, 3rd CEE Workshop
“Challenges of Collective Investment Business in CEE”
27 October 2011 - Kyiv
Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
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•
•
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•
AIFMD
Responsible Investment
FATCA
Complex Products
MiFID Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
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"EFAMA Land"
26 Countries:
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22 EU Members, and
Liechtenstein
Norway
Switzerland
– Turkey
56 Corporate Members
19 Associate Members
= Investment Management: EUR 13.8 trillion
of which EUR 8.1 trillion through over 54,000 investment funds (end June 2011)
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EFAMA Membership
26 National Associations + 1 Observer
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Austria: VÖIG
Belgium: BEAMA
Bulgaria: BAAMC
Czech Rep.: AKAT CR
Denmark: IFR
Finland: FFFS
France: AFG
Germany: BVI
Greece: ETHE
Hungary: BAMOSZ
Ireland: IFIA
Italy: Assogestioni
Liechtenstein: LAFV
Luxembourg: ALFI
Netherlands: DUFAS
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Norway: VFF
Poland: IZFiA
Portugal: APFIPP
Romania: AAF
Slovakia: SASS
Slovenia: ZDU-GIZ
Spain: Inverco
Sweden: FBF – SIFA
Switzerland: SFA
Turkey: TKYD
United Kingdom: IMA
Observer
1. Malta : MFIA
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EFAMA Membership
56 Corporate Members
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Allianz Global Investors
Amundi
Aviva Investors
Axa Investment Managers
Banque Privée E. de Rothschild
BBVA Gestion
Baillie Gifford & Co
Banque Cantonale Vaudoise (BCV)
BlackRock
BNP Paribas Investment Partners
BNY Mellon
Capital International
Carmignac Gestion
Credit Suisse
DekaBank Deutsche Girozentrale
Dexia Asset Management
DWS Investment GmbH
Eurizon Capital
F&C Management
Fidelity International
Franklin Templeton Investments
Garanti Asset Management
Goldman Sachs AM International
Groupama Asset Management
HSBC Global Asset Management
ING IM
Invesco
Investec Asset Management
IS Asset Management
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J.P. Morgan Asset Management
KBC Asset Management
La Banque Postale Asset Management
La Française AM
Lombard Odier Darier Hentsch & Cie
Lyxor Asset Management
Mirabaud & Cie Banquiers Privés
M&G Investments
Man Group plc.
Natixis Asset Management
Nordea Investment Funds
Pictet Asset Management
Pioneer Global Asset Management
Raiffeisen Capital Management (RCM)
Robeco
Russell Investments
Royal London Asset Management
Santander Asset Management
Schroders
Skagen Funds
Source
Standard Life Investments Limited
State Street Global Advisors
Threadneedle Asset Management
T. Rowe Price International Ltd
UBS AG – UBS Global Asset Management
Union Asset Management Holding AG
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EFAMA Membership
19 Associate Members
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Arendt & Medernach
CACEIS Investor Services
Clifford Chance
Dechert LLP
Deloitte S.A.
Elvinger, Hoss & Prussen
Ernst & Young
FIFS
Kneip
KPMG
Linklaters LLP
Lenz & Staehelin
Loyens & Loeff
MDO Services SA
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Nomura Bank (Luxembourg) S.A.
Northern Trust
PricewaterhouseCoopers Sàrl
RBC Dexia Investor Services
RBS (Luxembourg) S.A.
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EFAMA’s “Partners in Dialogue” - Europe
EU Commission
esp. Internal Market DG
EFAMA
EU Parliament
esp. Committee on Economic and
Monetary Affairs (ECON)
EU Council
ESMA
Permanent Representations of
EU Member States
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EFAMA’s International “Partners in Dialogue”
IOSCO
IIFA
EFAMA
US Treasury
I.R.S.
S.E.C.
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EFAMA Functioning
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Call for Evidence
Working Groups: all Members
Drafts
Common Position  send for comments
Final Draft  send for comments
Board Approval
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
•
AIFMD
Responsible Investment
FATCA
Complex Products
MiFID Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
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Political Message at EU Level
• After the Financial Crisis, clear political message,
enhanced by Euro-government crisis
– Self-regulation does not work
– Better regulation is necessary to avoid a new crisis of the
same proportion or contain it
– Aim: more efficient monitoring of systemic risks and better
investor protection
– EU Commissioner Barnier for Internal Market:
Agenda: Implementation of G20 Proposals before the end of 2011
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European Parliament: the Untouchables
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New powers after Lisbon Treaty
Post-crisis trauma: taxpayers money
SME statements
Social and budgetary crisis in Europe
Social & Responsible Investment + Corporate
Governance
Financial Sector Revisited
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Everything is on the Move
Regulatory initiatives with direct influence on EU asset managers and their
products:
Single Market Act
Remuneration
FATCA
EMIR/OTC
Derivatives
UCITS
IV & V
Corporate
Governance
Dodd Frank
PRIPs
IMD
AIFMD
ICSD
Responsible
Investment
Supervisory
Framework
Short
selling
CRA
Depositary
regime review
Pensions
3rd CEE Workshop, 27 October 2011, Kyiv
MiFID
Taxation of
Financial Sector
VAT
Audit
Policy
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EFAMA’s Areas of Focus
• EFAMA currently focuses intensively on:
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MiFID II
ETFs
UCITS IV & V
PRIPs
Pensions Green Paper
EMIR / OTC Derivatives
FATCA
Dodd Frank
Responsible Investment / Corporate Governance
AIFMD
VAT / Financial Sector Taxation
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EU Dialogue Partners
• Relations with Commission Services:
– e.g. : UCITS IV & V; Corporate Governance; ETFs;
Shadow Banking; Pensions; MiFID; Solvency II
• Relations with Council:
– e.g. : AIFMD; VAT; FTT; EMIR
• Relations with ESMA:
– e.g. : AIFMD; Structured funds; ETFs; PRIPs
• Relations with Parliament:
– e.g. : UCITS IV; AIFMD; ICSD
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Wave has fully started & will impact industry
even if uncertainty on how this will “go live”
Preliminary consultation
Rule making
National translation/
implementation
Today
Initiative
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UCITS IV
UCITS V
AIFMD
ICSD
Money market funds
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FATCA
Dodd Frank
RDR
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PRIPs
MiFID review
EMIR
Supervision
Short-selling
CSR/social entrepreneurship
Contract law green paper
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Basel III
Solvency II
IMD review
Revision of IORP
Green paper on pensions
Contract law green paper
SLD
CSD
2008
2009
2010
2011
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2012
2013
2014
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
•
AIFMD
Responsible Investment
FATCA
Complex Products
MiFID Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
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AIFMD: Timing
Level 1
• 21 July 2011: Entry into force of Level 1 (20 days after
publication in the Official Journal)
Level 2 and Level 3
• August – September 2011: 2 Consultations by ESMA on
Implementing Measures
• 16 November 2011: Deadline for advice by ESMA to the
Commission
• Early 2012 (expected): Commission to submit proposals on
Implementing measures to European Parliament and Council
• Aim: Level 2 and parts of Level 3 adopted by mid-2012
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AIFMD: Timing
National Legislation in Member States
– 22 July 2013: Deadline for transposition by Member States
into National Law
Deadline for the Industry
– 22 July 2013: New AIFM and AIF must comply with
requirements of AIFMD
– 22 July 2014: AIFM existing before 22 July 2013 must
submit application for authorisation and comply with
requirements of AIFMD
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AIFMD: ESMA Consultations on Implementing
Measures
2 ESMA Consultations covering implementing measures on:
• Scope
• Authorisation and General Operating Conditions
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Capital Requirements
Conflicts of Interest
Risk Management
Liquidity Management
Organisational Requirements
Valuation
Delegation
Depositaries
Leverage
Transparency
Supervision and Delegation of functions to 3rd Countries
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AIFMD: EFAMA Members Priorities
EFAMA Working Group has identified as key
priorities:
• Aim/Benchmark of Regulation
– ESMA Proposals seem to aim at regulating funds for
retail investors. Benchmark should be regulation for
funds for professional investors. Member States may
add additional layer for retail investors.
• Consultation text boxes versus explanatory text
– Important information throughout the explanatory text
should be included into the boxes.
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AIFMD: EFAMA Members Priorities
EFAMA Working Group has identified as key priorities:
• Initial capital and own funds, in particular additional capital
requirements or PII
– Additional Capital should be calculated based on AUM not on Income of the
AIFM
– Additional Capital should be capped
– PII requirements should be better aligned with existing practices in
insurance industry
• Inducements
– Indirect Distribution should not be regulated in the same way as direct
distribution
• Transparency
– Transparency Proposals are designed in a one-size fits all approach with
requirements too detailed, burdensome and frequent.
– Transparency requirements towards investors also apply to (privately
placed) third country AIF and will require disclosure on conditions these
funds do not necessarily fulfil.
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AIFMD: EFAMA Members Priorities
EFAMA Working Group has identified as key priorities:
• Depositary
– Detailed description of safekeeping functions should be pragmatic,
based on best market practices, proportional to the functions and
duties of other service providers and not going beyond the
requirements of the Level 1 text
– Oversight duties should consist in ex-post controls and verifications
of the appropriateness of procedures put in place by the AIFM
– Definition of “financial instruments held in custody” is crucial
– Liability regime: to what extent should a loss of financial resulting
from an act or omission of a sub-custodian be considered an
“internal” event to the depositary?
– Liability regime: the “objective reason” for the depositary to
discharge its liability should not be reduced to a pure formality –
best interest of investors to be taken into account
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AIFMD: EFAMA Members Priorities
EFAMA Working Group has identified as key priorities:
• Delegation
– ESMA Proposals regarding delegation to third countries problematic as they
require MoU between authorities to allow among other on-site inspections of
EU home MS authority.
• Liquidity Management
– Gates and Side-pockets, if properly disclosed to investors, should be
considered as normal liquidity management tools.
• Leverage
– Calculation of Leverage according to several methods considered too
burdensome.
– VAR should be considered as a possible methodology for Advanced
Method. Gross method not meaningful and Commitment method must allow
for hedging/netting.
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
AIFMD
FATCA
Complex Products
MiFID Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
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FATCA: EFAMA’s aim
• Minimising the impact of FATCA through
deemed compliant categories for certain types of
funds
– No or limited reporting
– No passthru withholding obligation at fund level
• A lighter compliance system for appropriate
entities encourages compliance whereas a more
onerous regime encourages divestment from
U.S. assets
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FATCA: Notice 2011-34
• Deemed compliant status for certain investment
vehicles
– Funds where all direct unit holders are PFFIs,
deemed compliant FFIs or, broadly, low risk investors
• E.g. German mutual fund model
– Under continued consideration:
• Funds traded on established securities market
– E.g. ETFs
• Funds with U.S. Person sales restrictions
– All direct account holders must be USFIs, PFFIs, deemed
compliant FFIs or non-participating distributors
– Other direct account holders not permitted
• Low risk investors, in particular retirement plans
– More information requested
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FATCA: Continued concerns of the U.S. authorities
• Use of “blockers” to circumvent FATCA
• Risk of tax avoidance through “deemed
compliant” entities if exemptions are drafted too
broadly
• Due diligence and enforcement throughout the
distribution chain
• Customer identification, especially non-financial
entities
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Key issues
• Deemed compliant category for funds restricted to non-US investors
– Notice 2011-34 required all direct investors to be PFFIs, deemed compliant FFIs
or, broadly, low risk investors
– Direct retail investors?
– Contractual control of distribution chain through deemed compliant FFIs?
– Compliance and enforcement of such contractual controls? Pass-through
withholding?
– Pre-existing accounts? Redemption? Existing selling prohibitions under SEC
rules?
• Deemed compliant category for local distributors
– Extension of "local bank" status to regulated distributors acting in an FFI capacity
– Definition of local? Under EU law unable to exclude EU residents
– Size requirement?
• Deemed compliant category for retirement plans/low risk investors
– What definition would be appropriate?
• Platforms; contractual arrangements; umbrella/sub-funds
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
AIFMD
FATCA
Complex Products
MiFID Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
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ETFs - Regulatory Activities (I)
•
FSB Note on Potential Financial Stability Issues arising
from Recent Trends in Exchange-Traded Funds (ETFs)
– Consultation closed in May
•
Main concerns for FSB are stability risks, as well as some fundspecific issues (use of swaps and counterparty risks, collateral
management risks, conflicts of interest; use of securities lending
and related counterparty, collateral risks), plus transparency
•
Focus for ESMA is on ETFs as UCITS, less systemic risks
•
Consultation launched in July on Discussion Paper on
UCITS ETFs and Structured UCITS links ETF issues to
concerns regarding other UCITS (Structured UCITS,
“complex” UCITS in general) – Deadline: 22 September
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ETFs: ESMA Discussion Paper (I)
• General policy issues:
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Distinction between complex and non-complex UCITS
Restrictions to retail marketing
Systemic risks
Extension to non-UCITS
• ETFs:
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Definition
Index tracking issues
Synthetic ETFs: counterparty risk
Securities Lending
Actively managed ETFs
Secondary market investors
• Structured UCITS:
– Total Return Swaps
– Strategy Indices
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ETFs: ESMA Discussion Paper (II)
Complex – Non-complex UCITS
•
Concerns on ETFs are coming together with concerns on “complex
UCITS” and Structured UCITS
•
Obvious link to MiFID categorisation of UCITS
•
ESMA view from UCITS perspective, with focus on synthetic ETFs,
structured UCITS and other UCITS employing “complex portfolio
management techniques”. Both limitations to marketing to retail
investors and warnings mentioned
•
UCITS Guidelines being considered to split UCITS into complex and
non-complex, but approach would not warrant a Level Playing Field.
NO comprehensive, horizontal proposals for investor protection
•
EFAMA members’ position: no UCITS-specific guidelines. All financial
instruments should be treated equally, UCITS included. If UCITS are
no longer automatically non-complex, criteria in Art. 38 of MiFID Level
2 should apply
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ETFs: ESMA Discussion Paper (III)
EFAMA members’ positions on other issues:
• ETF Identifier
– Should ETF definition be limited to UCITS? How to capture only
true ETFs?
– Identifier should not distinguish between synthetic and physical
ETFs – disclosure in KIID and prospectus
• Collateral for synthetic ETFs – no further regulation necessary
• Agreement to extension of collateral rules for OTC derivatives to
securities lending
• Concern for treatment of secondary market investors and their right
to redeem – investors have right to redeem with the fund and
situation of exchange-traded funds is not different from other funds
3rd CEE Workshop, 27 October 2011, Kyiv
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
AIFMD
FATCA
Complex Products
PRIPS/MiFID Review/IMD Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011,
Kyiv
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PRIPs/MiFID Review/IMD Review: Next Steps
• Legislative approach:
– One horizontal measure (PRIPs) for investor disclosure
only;
– Selling rules included in the reviews of MiFID and
Insurance Mediation Directive (IMD) respectively. MiFID as
benchmark for rules on distribution of insurance products
in IMD.
• Maintaining coherence among legislative proposals
will be very challenging for the Commission and
regulators, especially between MiFID and IMD
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PRIPs – Key Issues
PRIPS Key Investor Information Document (KIID):
• Harmonised pre-contractual disclosure based on UCITS KID.
• Tailored to product characteristics but with common key elements
allowing comparison among PRIPs
Key Issues:
• Scope and PRIPs definition, based on economic elements and
packaging – no fixed lists or legalistic definition, which would allow
loopholes and arbitrage
– Inclusion of insurance products, in particular annuities
– Inclusion of pensions
– Inclusion of structured deposits
• Same key elements as UCITS KID
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MiFID II Draft – Key Issues Directive (I)
• Advice: introduction of advice «provided on an independent basis»:
– Assessment of a sufficiently large number of financial
instruments, diversified with regard to type and issuer, not limited
to instruments issued or provided by entities with close links to
adviser
– No inducements (except for training)
– Proposals in line with Consultation
• Information to clients on advice:
– Whether advice on independent basis
– Whether on broad or restricted analysis of market
– Whether ongoing assessment of suitability will be provided
– How advice meets personal characteristics of the client
– Proposals slightly better than Consultation
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MiFID II Draft – Key Issues Directive (II)
• Among reports on the service provided, «periodic
communications to clients, taking into account the type
and complexity of instruments and the nature of services
provided»
– No details. Difficult to judge whether better than
burdensome proposals in Consultation on « ongoing
services»
• Portfolio Management: NO inducements (from any
source)
– In line with Consultation – no explanation
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MiFID II Draft – Key Issues Directive (III)
• Complex or non-complex? UCITS remain noncomplex, except for structured UCITS
– ESMA guidelines on assessment of instruments with
‘structure that makes it difficult for client to understand the
risk’
– «Complex» UCITS are limited (positive), but assessment
category is arbitrary – no explanation
• Corporate governance: very prescriptive
requirements for management body
– New and extremely detailed (limits to cumulation of
Directorships, diversity requirements)
• Inclusion of structured deposits under MiFID
– VERY positive – part of PRIPs
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MiFID II Draft – Key Issues Regulation (I)
• Clear intent to extend pre- and post-trade transparency
to bonds, structured finance products and derivatives
– Details left to Level 2, therefore difficult to object
• Creation of Organised Trading Facility (OTF) covering all
venues besides RMs and MTFs
– Broker Crossing Networks covered, with trading limited to
crossing of client orders
– Trading against proprietary book falls under «Systematic
Internaliser» definition
• Same transparency rules for all types of venues
– Details left to Level 2
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MiFID II Draft – Key Issues Regulation (II)
• Obligation to trade derivatives on trading venues
(including OTFs)
– ESMA determination of class or derivatives (or subset)
subject to trading obligation
– Proposals in line with Consultation
• Extension of equity transparency to ETFs
– Welcome provision, but definition still a problem, as it will
catch other funds as well
• Data reporting and consolidation provisions
– ESMA Technical Standards on data standards and format
are foreseen
– No mandatory European Consolidated Tape
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MiFID II Draft – Key Issues Regulation (III)
• ESMA powers to temporarily intervene
– Provisions too broad – no Level 2 foreseen
– Possibility to ban distribution or services
– Proposals in line with Consultation
• Product intervention powers by Competent
Authorities
– ESMA only has coordination role
• ESMA powers to set position limits on
derivatives (ref. to position reporting provisions
in Directive)
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MiFID II – Next steps
• Modifications proposed in all areas discussed in
the Consultation
– Issues can be broadly divided into «market-related»
and investor protection
• Drafts currently in inter-service consultation but
public debate has already started in some cases
• Two Working Groups could be used to deal with
proposal: one on Financial Markets and one on
the rest, which could also deal with PRIPs later
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
AIFMD
FATCA
Complex Products
PRIPS/MiFID Review/IMD Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
45
Corporate Social Responsibility
Commissioner Barnier envisages creation of a new 3rd category of
funds (next to UCITS and AIF) instead of labeling existing ones.
European Commission Consultation on Corporate Social Responsibility
ongoing.
Commission’s use of term “Social Responsible Fund” and expectations
show fundamental differences from terminology and expectations in the
industry!
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Corporate Governance
1st Workstream - Green Paper on Corporate Governance in Financial
Institutions:
•
Green Paper by European Commission in Summer 2010
•
Issues addressed:
– Current deficiencies and weaknesses
 Conflicts of interest
 Effective implementation of corporate governance principles
 Board of Directors not fulfilling its role as principle seat of power
 Risk management
 The role of shareholders not fulfilling their function
 The role of supervisors and auditors
•
Legislative proposals to be expected in the second half of 2011/beginning
2012
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Corporate Governance
2nd Workstream - Green Paper on EU Corporate Governance
Framework:
• Consultation at EU Level until end July 2011 regarding Corporate
Governance Framework for all listed companies and potentially all
companies
• Topics of particular interest:
 Board of Directors (including composition, board evaluation and directors
remuneration)
 Shareholders (including in particular the agency relationship between institutional
investors and asset managers)
 “Comply or Explain” Framework – Monitoring and implementing corporate
governance codes
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Corporate Governance
3rd Workstream - EFAMA Code for External Governance:
Adoption of the EFAMA Code by Board of Directors in April 2011
• Self regulation
• High level principles and best practice recommendations regarding
engagement between institutional investors and companies in which
they invest significantly
• Based on the 2006 EFAMA Code of Conduct and inspired by the UK
“FRC Stewardship Code” for institutional investors
• To be implemented on comply or explain basis
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Agenda
1. Presentation of EFAMA
2. Regulatory Priorities
•
•
•
•
•
AIFMD
FATCA
Complex Products
PRIPS/MiFID Review/IMD Review
Corporate Governance
3. Conclusion
3rd CEE Workshop, 27 October 2011, Kyiv
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Asset Managers & Regulators
• Partners in dialogue: an ongoing process
• Scientific approach:
– Respectful & discreet
– Anticipation of possible topics & issues
THE ART OF COMPROMISE & CONSENSUS
3rd CEE Workshop, 27 October 2011, Kyiv
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Contact
Peter De Proft
Director General
EFAMA
Rue Montoyer, 47
B-1000 Brussels, Belgium
Tel. +32 (2) 513 3969
Fax + 32 (2) 513 2643
E-mail: [email protected]
www.efama.org
UAIB, 3rd CEE Workshop
“Challenges of Collective Investment Business in CEE”
27 October 2011 - Kyiv