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The specific focus on shadow banking is a welcome one and one which the funds industry indirectly has been advocating for many years, in that it seeks to eliminate regulatory arbitrage or entities/activities which effectively fall outside the net of regulatory oversight but which are important for the financial system.
ALFI firmly believes that any approach to address these concerns needs to be based on the existing regulatory framework and enhancements thereto rather than seeking to single out specific entities or activities within an already tightly regulated framework, and would support appropriate incremental regulatory changes to address established concerns surrounding systemic risk and financial stability, without fundamentally changing the nature of the products, which could in turn have unintended consequences. ALFI would strongly advocate that the work currently underway by ESMA be allowed to continue, as it relates to the asset management activities contained within the Green Paper, and ALFI would welcome the opportunity to support development thereof to ensure any concerns raised in the Green Paper are appropriately addressed therein. Introduction of a separate regulatory regime not only runs the (in ALFI's view, significant) risk of damaging unintended consequences, but is also not the most effective means to address entities and activities which are already well supervised within the regulatory universe.
Further, ALFI believes the reference/application of the term "shadow-banking" to the regulated funds space is inappropriate and misleading, giving the impression that there is an opaque and risky activity out of sight of the current regulatory regime. ALFI would argue that the opposite is in fact true, and that the regulated funds industry provides a level of restriction and transparency which exceeds that found in other parts of the financial sector industry today, and will already be further elaborated through future pronouncements from ESMA. As such, focus should be on those activities not already caught within the asset management regulatory framework, ensuring that what exists in the asset management sector is both responsive to the concerns of the Commission and effectively replicated elsewhere. European funds – especially in the form of UCITS – have a globally recognised and respected brand; to label any UCITS as “shadow banks” is inappropriate and potentially damaging to the brand both within and outside of Europe.