Speech McCreevy: Innovation in Finance

28 March 2006

On the occasion of the 7th Annual Finance Conference in Dublin Commissioner McCreevy took a look at how innovation is reshaping investment fund markets. Looking at the new development of hedge funds, McCreevy is unconvinced that there is any need for a harmonised regulatory regime for single hedge fund managers. “There are now some very complex retail products out there” the Commissioner said. “The suitability and appropriateness tests in the MIFID should provide protection against their mis-selling to retail investors who seek investment advice”.

On UCITS McCreevy calls for clear investment rules and supports the technical advice CESR provided to the Commission. The Commission is currently working to transform this technical advice into implementing legislation. “Overall, there would seem to be broad support for an eventual move towards principle-based regulation of investment funds”, he said. “My initial instinct is to see where the work on eligible assets takes us. It may be sufficient unto the day”, the Commissioner added.

With regard to standardised disclosures, the simplified Prospectus as currently implemented is not sufficient. “We need to go back to the drawing board”, McCreevy said. “Otherwise, the idea that UCITS can be sold on an execution only basis to retail investors will come under severe pressure”, he continued.

McCreevy also put into question whether the conduct of business rules established in the MiFID Directive will work in practice to regulate the sales processes. Also, the risk controls in management companies have to function properly. “There are some areas where compliance is patchy or Commission guidance is not operational”, he said.

Full speech

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