Regulation of financial services was once again under the spotlight during Business for New Europe’s recent event on UCITS, held in conjunction with the European Parliament office in the UK. The discussion focused on the future of the EU’s asset management industry and brought together Sven Giegold – the German Green Party MEP responsible for steering UCITS through the European Parliament as Rapporteur – Julie Patterson from the Investment Management Association and Gareth Shaw from consumer group Which?
Francine Lacqua from Bloomberg expertly chaired what turned out to be a lively debate on a very important piece of European legislation. The event was also well attended by representatives fromLondon’s business community.
Sven Giegold opened the discussion by noting that it was only right that he start his wide-ranging consultation on UCITS in London, given the British capital’s status as the ‘most important place’ for UCITS.
He made it clear that he saw the event as an opportunity to actively engage with interested parties and ensure that UCITS worked well for industry bodies, consumer groups and European citizens.
As a policy maker, his personal view was that UCITS should broadly be used to promote long term growth, but just how to achieve this was open to debate. Over the coming months, therefore, Mr Giegold said he would be posing questions on a range of issues including ‘Is there a need to create UCITS subsectors?’ ‘Should there be separation between UCITS and alternative funds? ‘Would insurance-based solutions work or should consumers assume all the risk when they invest?’ By addressing these issues, Mr Giegold asserted that the EU would inevitably be able to make progress on broader points over the role of ESMA, for example, and the significance of diverging taxations regimes.
Julie Patterson from the Investment Management Association followed Sven Giegold, firstly drawing a clear distinction between fiduciary industries and transactional ones. She said one of her primary concerns was that so many UCITS-related issues were ending with litigation, particularly as so many investors are ordinary European citizens. Developing this point, Ms. Patterson discussed the inherent tension with any legislation of UCITS – investors ranged from managed funds, with high levels of capital and the capacity to perform their own due diligence and risk modelling, to individuals risking a large portion of their savings. This reality means that rules designed to protect the consumer would necessarily be a thorny issue for some investors.
In her opinion, a lack of consistency has also been a major problem for the EU up until now – UCITS, she said, remained the only product which had been regulated for 30 years. Thus, any new regulatory frameworks should aim to correct the imbalance.
Gareth Shaw from Which? Bemoaned the ever-increasing complexity of ETFs and argued that many consumers did not understand the full implications of their investments. As a result, full disclosure was rarely enough – consumers needed better information to help them understand the sophisticated nature of their purchases. Although Mr Shaw liked the idea of an ‘insurance scheme,’ there was an implicit risk that taxpayers would be liable should things go wrong; an unacceptable situation and one which should be avoided. On the other hand, regulators had to be careful that they did not endanger UCITS through over-legislating – they remain a powerful brand, especially in Asia.
According to Mr Shaw, distinguishing between types of investments could be the most productive way to help consumers make better decisions about risk, perhaps through some kind of ‘complex’ and ‘non-complex’ labelling. Yet, he also noted that many ‘small’ investors were happy to take on extra risk, and in fact liked investing in complex products.
The event concluded with a Q&A session, during which attendees were given the opportunity to grill panellists on their positions over UCITS. Business for New Europe would like to thank all participants and attendees for their involvement, as well as the European Parliament for hosting and co-organising the event.