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The proposed text will threaten the continuance of the open architecture environment which is well known in the fund industry. Open architecture plays in favour of the end investor by driving competition, offering more choice and easy access to the best products available. The current proposal will potentially limit the investors’ choice of the most appropriate investment fund to meet their investment requirements. A ban on the acceptance of monetary inducements for advice “provided on an independent basis” will lead to a reduction in competition among distribution channels and/or a reduction in the number of products offered to investors. It may result in a serious step backwards in terms of transparency and potential conflicts of interest if this leads financial groups to refocus their product offering on internally-produced products, with potentially all key functions such as product design, asset management, administrations, depository and distribution being ultimately controlled by the same group.
The Associaton of the Luxembourg Fund Industry (ALFI) welcomes a clarification and harmonisation of supervisory powers across the Union. However, it is very concerned by the fact that in the draft, ESMA powers are much more limited than those granted to competent authorities at national level, and are conditional upon national authorities not taking any action or not adequately addressing possible threats. Furthermore, ESMA’s powers are temporary in nature, while those of competent authorities have no such explicit limitation. ESMA’s “facilitation and coordination role” in Article 33 seems inadequate.
ALFI understands that competent authorities are in a better position to evaluate problems related to retail investor protection, and propose solutions. However, in view of the pan-European nature of the distribution of financial services and instruments, it seems that if a product or service presents a danger to investors or systemic risk, supervisory measures should be taken in coordination with other regulators concerned as well as with ESMA, rather than undertaken solely at national level. ALFI members would also recommend an equal focus on product governance for all retail products under the PRIPs initiative.
Uncoordinated national measures would also represent a real threat to the Single Market in financial services, and could conflict with other financial regulation, for example the UCITS Directive. The UCITS Directive is based on the principle of the passporting of funds cross-border on the basis of the authorisation by the home Member State authority. This key principle could now be overruled by any host State competent authority under MiFID rules.
MiFID II proposals should therefore be amended to include a stronger role for ESMA vis-à-vis national authorities, providing for a better balance in powers and wider cooperation at European level. Furthermore, any restriction or ban should not change the effect of other existing financial regulation, and a clear process to appeal ESMA decisions should be foreseen.