Speaking at the Lawyer Funds Summit in Brussels, Saunders, chief executive of the UK’s Investment Management Association which represents the views of UK-based investment companies, said the UK Government needs to “raise its game in Europe”.
“The legislation which will shape our financial services industry in the future now comes from Brussels and effectively bypasses the UK Parliament,” he said “The AIFMD illustrates that. The UK has always been good at detail, but less strong in playing the big political game.”
The directive, which saw its text eventually agreed earlier this month after 18 months of wrangling between European States, will introduce a number of new measures.
These will include the introduction of tighter depository rules and the adoption of “fund passports” which will give managers the right to offer their funds across the EU rather than seeking approval on an individual country basis. Initially funds domiciled outside the EU looked as though they would not be eligible for a passport but this rule was watered down and from 2015 these funds will also have the right to sell into the EU.
In addition, a rule limiting the sale of assets within the first two years is also to be introduced in a bid to stop so-called “asset stripping”, where a hedge or private equity fund buys a company and sells its assets for a quick profit.
While the rules have been watered down to some extent from the original draft in April 2009, they are more widespread than was initially suggested by the EU, covering not only hedge funds but non-Ucits funds: hedge funds, private equity funds, investment trusts, real estate funds, institutional pooled vehicles and others.
“The European Commission’s initial consultation paper about hedge funds was very cautious about the need for new regulation, emphasising the need for proportionality and the peripheral role played by hedge funds in the crisis,” said Saunders.
However, he believes politics took over and the original were objectives forgotten.
“The draft directive published at the end of April bore no relation to drafts circulating only weeks before,” he said.
“The promise to address hedge funds as part of the follow-up to the de la Rosière report was forgotten, as was the pledge to respond only to clearly identified market failures and to keep clear distinctions between different types of funds.”
Despite his criticism of the way the negotiations were handled, Saunders said the Coalition Government has made a good start but “must now build on it”.
