Prompted by Britain’s vote for Brexit, Brussels has proposed a range of changes to the “delegation” rules that allow investment companies to manage money for clients in different countries.
One of these was a requirement for national regulators to wait for approval from the European Securities and Markets Authority (Esma), the EU financial regulator, before granting delegation rights to individual asset managers, removing oversight from national regulators and making the process more onerous.
This requirement has now been removed, a concession that will be welcomed by the UK’s asset management industry, which is one of the most vulnerable parts of Britain’s financial services industry to changes caused by Brexit.
While reforms to delegation rules pose a particularly large risk to the UK, which manages £2.6tn for overseas clients, they also threaten to disrupt the global asset management industry. About 90 per cent of the EU’s assets under management use delegation arrangements and there has been concern in Washington about proposed reforms.
The concession “makes it slightly more palatable” for asset managers, said a person briefed on the changed position, but added there was still a great deal of uncertainty. “This latest step is typical EU tinkering and is likely to lead to more negotiations.”
Several other proposals for reform are still on the table, including that ESMA be given the power to recommend delegation rights are removed. Commentators have argued that changes are unnecessary because delegation is covered by other fund industry regulations.
The European Fund and Asset Management Association wants all changes to delegation rules scrapped. It plans to lobby member states ahead of an EU meeting on May 23 where the proposed changes are due to be discussed.
In a note EFAMA sent to its senior members on Thursday, the group said: “The amendments proposed . . . are insufficient and [we] reiterate our position that the proposed [changes] will damage the industry and need to be entirely struck out.”
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Related article on IPE: Asset managers warn on delegation oversight plans amid talk of relief
[...]A report in the Financial Times over the weekend suggested that ESMA’s proposed oversight of national regulators’ authorisation of delegation agreements could be scrapped. One person close to the process confirmed to IPE that the report was accurate, but warned that any move had yet to be “set in stone”.
Peter de Proft, director general of EFAMA, said there was no justification for giving ESMA any additional powers of oversight.
“We believe this would lead to a more bureaucratic, costly and inefficient process regarding delegation and outsourcing, especially into third countries, and would materially weaken the time to market for relevant activities,” he said.
A spokesperson for the European Commission said no decision had yet been taken. [...]
EFAMA’s de Proft said: “Our view is that delegation is already a reliable, well-functioning and tested model, central to ensuring investor choice with the ability of EU investors to access world leading investment expertise and the associated improved investor outcomes.”
A spokesperson for the Commission confirmed that under its proposals, ESMA should be able to carry out “ex-ante analysis of planned delegations into third countries by EU asset managers” to ensure compliance with EU rules.
At present, the measures are under review by the European Parliament and Council. [...]