(Bloomberg) -- Money managers are being taken to task for fear-mongering over post-Brexit regulations.
The fund lobby has been campaigning against a European Union proposal that tightens industry oversight, arguing that it threatens the 9.7 trillion-euro ($11.4 trillion) market for EU mutual funds known as UCITS. That’s a vast overstatement, according to the EU’s top markets regulator, who said the plan would simply help watchdogs reach a shared opinion when supervising funds based in the bloc but managed elsewhere under a process known as delegation.
“Monsters have been made out of these opinions,” Steven Maijoor, chairman of the European Securities and Markets Authority, said in an interview. “I consider opinions on specific delegation arrangements to be relatively light-touch convergence measures.”
Under the EU proposal under debate, ESMA would gain new powers to review a fund’s authorization to delegate business outside the bloc. ESMA would be able to publish an opinion regarding such an authorization and whether it complies with EU law. ESMA’s board of supervisors includes the heads of the national authorities that oversee securities regulation and supervision.
Europe’s national regulators authorize and supervise funds that delegate activities to foreign offices. Since the Brexit vote in 2016, the EU has moved to tighten oversight of asset managers, warning that they won’t tolerate “letterbox entities,” which are nominally based in the bloc but outsource the vast majority of their business to operations in London, New York and elsewhere.
National regulators would retain their supervisory powers and “would have the right to diverge,” Maijoor said. “It’s a reasonably quick, efficient way to get consistency. It increases peer pressure and it is not doubling supervision.”
The investment-management arms of JPMorgan Chase & Co., Axa SA and Standard Life Aberdeen Plc are among firms that have criticized the proposal, arguing that it tampers with an industry practice that has worked well for decades and helps attract investors to Europe. Opponents including the finance minister of Luxembourg, a major home to funds, say it throws up a cumbersome process, increasing costs to investors and discouraging investment in European capital markets.
Maijoor said the proposal would improve the current system of oversight, which can lead to conflicting views across the 28 members states of the EU.
“Assessing outsourcing and delegation arrangements is highly judgmental,” Maijoor said. “Very different judgments could be made by different regulators on the same arrangements. The opinions put flesh on the bones so these judgments are done in a more consistent way.”
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