Ensuring consistent application of Mifid II and Priips after the Brexit referendum and triggering of Article 50 are among key issues facing both EU-level and member state-level regulators, according to comments made by Steven Maijoor, chairman of the European Securities and Markets Authority (Esma) at the Alfi European Asset Management Conference in Luxembourg on Tuesday 21 March.
In a wide-ranging speech, Maijoor outlined the many issues filling up his in-tray currently.
One is so-called ‘supervisory convergence’. As Maijoor noted, Brexit makes such convergence even more important, because it is critical to the successful implementation of the Capital Markets Union (CMU), which in turn is linked to what he said would be the policy objective of increasing the use of equity to fund social developments.
Supervisory convergence was defined by Maijoor as ensuring national regulators apply EU law consistently. This is a logical pursuit, because of other changes pending including improved consumer protection, inducements, and the role of asset management amid financial market stability policy objectives. Supervisory convergence is equally important during the Brexit negotiation period, Maijoor stressed, because while asset management firms may be looking to other EU27 locations, it is important to ensure that this does not result in “unhealthy” regulatory or supervisory competition – as member states seek to attract asset management firms from London.
More work is required by Esma in terms of understanding how asset management firms may relocate elsewhere in the EU but maintain delegation of responsibilities back to managers in London. And the EU’s third country policies need to be reconsidered in light of Brexit, Maijoor added.
On a positive note, he said that Priips “signals we are getting are positive ones” from the European Commission.
Regarding Mifid II, he said that Esma was working on more guidance questions and answers around the implementation ahead of the coming into force of the law by 2018. Maijoor argued that the enforced separation of research under Mifid II would benefit portfolio managers who would be better able to use their research budgets.
Discussing the costs faced by fund investors in the EU, particularly at the retail level, Maijoor noted the data showing how much higher EU Ucits management costs average (140bps) versus equivalent US 40 Act funds (84bps), and that the Authority is keen to explore reasons why this is so.
He stressed, however, that this is not just an effort to engage manufacturers, but that there is an “obligation” on all involved, including manufacturers, distributors and regulators, to bring down costs for retail investors. He also noted that despite a larger population in the EU versus the US, only 11% of EU households save via funds, versus 40% in the US.
On financial stability, Maijoor said it was important to recognise that asset managers are not banks – given the policy responses to the global financial crisis. Therefore, regulators need to be mindful that the stability risks linked to asset managers are different to the risks linked to banks. One issue identified by Esma is the wide divergence betweeen EU member states in the use of liquidity tools by market regulators. This raises a convergence question for Esma, he said. In the area of alternatives, for example, he said there was a need to ensure the data collected under the AIFMD was of the right quality to determine the leverage risks of the sector.