European Commission faces criticism for fund distribution proposals

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The European Commission proposed changes to AIFM and Ucits directives on Monday, sparking criticism from industry organisations.

The Commission’s plans, aimed at breaking down barriers to cross border fund distribution, include among others attempts to clarify which national law would apply in disputes over cross border claims.

However, the proposals were met with scepticism by European fund industry association Efama, which warned that adding new rules through a legislative review would add to the hurdles for cross border fund distribution.

Peter De Proft, Efama director general, commented: “The main barriers to the cross-border distribution of funds, as identified by asset managers and investors, are the lack of clarity and transparency of existing rules, along with additional layers of regulatory requirements imposed at national level. [Today’s] proposal unfortunately adds yet a new layer of rules. Efama would strongly support practical solutions at the level of Esma. These will enhance supervisory convergence and legal certainty on the basis of a common understanding among national regulators and can be developed and implemented within a much shorter period of time than a legislative proposal.”

German industry organisation BVI described the proposals as “disappointing”, arguing that it created further barriers to cross border fund distribution. Among others, the BVI highlighted that the ruled made it harder for assets managers to withdraw funds from a certain market.

The BVI is also sceptical of the Commission’s plan to gradually transfer fund market supervision from local regulators to Esma. This proposal is initially limited to European Long Term Investment Funds (ELTIFs) but is set to be extended to European social entrepreneurship funds (EuSEF) and European Venture Capital funds (EuVECAs).

“Instead of dismantling barriers to cross border fund distribution, the current proposals as part of the ESA reforms hand over more power to Esma whilst disempowering local regulators” BVI CEO Thomas Richter argued. “The proposals risk a doubling up on regulatory supervision since the asset managers in question will continue to be regulated by national authorities. Their next step could be to extend supervision to even Ucits and AIF funds.”