Wednesday, November 29, 2023

France calls for changes in the supervision of European asset managers

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France’s main financial regulator has called for a reshuffle of the supervision of the European asset management sector of 17.6 billion euros, a move that could have big implications for fund groups with entities in the EU after Brexit.

Robert Ophèle, chairman of the Autorité des marchés financiers, said the expansion of the fund industry in recent years had created challenges for regulators that required a new approach.

Asset management in Europe is an increasingly cross-border activity. Groups frequently set up funds in back office centers such as Luxembourg, manage them from financial centers such as London or Paris, and sell them to investors elsewhere in the EU.

But they are supervised by the authority of their home country, which creates a fragmented regulatory environment.

“We want an appropriate supervisory framework for the asset management industry,” Ophèle told the Financial Times. “The cross-border nature of asset management is increasing and it is clear that we are likely to see more concentration and cross-border commercialization of funds in the future.”

Brexit added complexity due to the widespread practice of delegation – where an EU fund outsources portfolio management to an entity outside the bloc – involving the UK.

British groups such as M&G and Columbia Threadneedle have transferred billions of euros to Luxembourg or Irish fund ranges due to Brexit. But more than £ 2 billion in European fund assets are still managed from the UK on a delegated basis, according to the Investment Association trade body.

Mr. Ophèle’s comments underline the profound challenges pending UK financial sector. Britain has lost its ability to influence the development of European financial regulation at a time when France is pushing for a tightening of the oversight framework for asset managers across the bloc.

While an EU effort led by France three years ago to limit delegation failed, the European Commission recently floated the idea of ​​stricter rules on delegation rules as part of a review of EU regulations on asset management.

Mr Ophèle said the AMF was not against the delegation, adding that concerns about the framework were “only a small part of the story”. He called on the EU to clarify the remit of financial regulators in the region in order to minimize gaps and overlapping responsibilities.

“The robustness of asset management could be called into question in difficult times,” he warned. “We need to be able to know what is within our competence as a supervisor, especially in times of crisis.”

Mr. Ophèle suggested giving the status of “principal supervisor” to the regulator in the EU country where a fund management company is based, reflecting the model that exists in banking and insurance.

“It would be useful if the supervisor of the management company, who has a perfect understanding of the activities and risks of the asset management group, is the main supervisor and is in close collaboration with all the other supervisors,” he said. said.

Julie Patterson, head of regulatory change in asset management at KPMG, said if the AMF’s proposal is passed, it could lead to further scrutiny of fund group outposts in Luxembourg and Ireland. “This reinforces the focus on management companies that need to have a minimum amount of substance,” she said.

The Irish regulator recently reproached asset managers for “significant gaps” in the governance of their local entities, indicating insufficient staffing and due diligence of delegates.


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