28 January 2010

AIFMD hearing on JURI Committee – AIFMD still a polemic directive

Two experts presented their opposed views on the same issue. Anthony Byrne from Deutsche Bank said the AIFMD as drafted will create systemic risk. Sony Kapoor, from Re-define Think Tank, said there is a social cost to the AIFM industry when businesses engage in asset stripping.

The JURI Committee, being the opinion committee. held a hearing on AIFMD. Rapporteur Evelyn Regner (S&D/AT) presented her draft report and amendments to the original Commission Proposal. The deadline for amendments has been postponed to the 23 February in order to give JURI MEPs more time to table amendments.

The first speaker was Anthony Byrne, Deutsche Bank Global Co-head Prime Brokerage. He put forward the industry view and said that though the main purpose of the Commission proposal is to control systemic risk, some areas as drafted actually create systemic risk. Insisting on a single depository would increase the risk as it would limit the choice of fund diversification and create concentration risk. He also warned that the Commission proposal as drafted will not achieve the goal of investor protection. It is critical and good for investors that pension funds are allowed to invest in other funds. Finally, there is a need to distinguish between leverage and risk, as leverage is not a good proxy for risk. Moreover, leverage limits will create a competitive disadvantage for the EU.

Sony Kapoor from Re-define Think Tank presented a completely different view on the current proposal, saying that it does not go far enough. He said the AIFM industry needs to be regulated as a catch-up game with financial sector regulation. It was not the cause of the crisis but it could have been if banks had been less leveraged than certain funds. Furthermore, the AIFMD as drafted does not protect all investors. The US has introduced a stricter definition and scope on AIFM. He also mentioned that there is a social cost to the AIFM industry when businesses engage in asset stripping..

On the AIFMD, Regner said “It is not only an economic hot potato but also a political hot potato. There are a number of positives things for the European population thanks to the Directive”.  She then explained her approach and highlighted the need for a comprehensive European solution to the AIFM.