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Financing of the EU economy - Reducing fragmentation in the EU funds market

Should the European single rulebook for asset management be further streamlined?

By Caron-Habib Laurence - Head of Public Affairs, BNP Paribas Securities Services

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There is no doubt that the asset management rulebook in the EU has evolved dramatically over the past few years. The consecutive revisions of the UCITS directive and the recent adoption of the AIFM directive have truly increased the level of harmonization in the regulation and supervision of the investment management activities across the EU. Better investor protection and passporting of management activities have been the key drivers for these legislative initiatives. The success of the UCITS brand, in the EU as well as well beyond its borders, is the best testimony of the excellent results borne by the regulatory progress.

Apart from UCITS and AIFMD specifically, numerous other regulations (such as EMIR, MiFID 2/MiFIR, the SFT Regulation and the PRIIPs regulation) and their practical implementation will further streamline the way the asset managers operate, design their products, and market them to the clients. The expected benefits to the investors should be in increased transparency, easier comparison between products, and more confidence in the asset safety.

Despite these harmonization efforts differences persist in the practical implementation. Clearly, there is still room for divergent interpretations and some competent authorities insist on maintaining specific local requirements in place. Another reason for fragmentation is overlapping or inconsistent requirements under different legal texts. All this results in duplication of work and excessive compliance burdens and in practical result inhibits cross-border distribution and increases the costs for the end investor.

This said, the priority for today should be a smart implementation of the recently adopted regulations, and certainly not adding new layers of regulatory initiatives. Industry can hardly afford to be confronted with regulatory measures that are unfeasible, inconsistent with the business reality, or result in unintended consequences. This is particularly important in the context where firms will be facing the need to undertake drastic adaptation of their business models in terms of the distribution channels, product governance and product mix. New trends, such as digitalization, blockchain technologies, and data management should also be kept in mind as potential game changers with significant disruptive potential.

Service providers have constantly adapted themselves to these evolutions and anticipated how they can assist their clients in a moving and fragmented environment. They notably bring added-value in providing both local and global expertise. They will continue doing this with the intention to help their clients face the implementation challenges ahead.