Chris Flood and Siobhan Riding
One of France’s top financial regulators has called for sweeping changes to Europe’s investment rules in a speech that emphasised the profound challenges awaiting the UK’s finance industry after Brexit.
The UK will lose its ability to influence development of European financial regulations at a time when France is pressing for a tightening of the supervisory framework for investment companies across the continent.
Robert Ophèle, chairman of the Autorité des Marchés Financiers, the French financial regulator, said Europe’s financial landscape would be “profoundly transformed” by the UK’s exit from the EU.
“As a new European legislature opens and as the UK leaves the EU, the time is ripe to think about the main areas of work and principles that should guide the action of EU legislators and regulators for the coming years,” said Mr Ophèle, speaking last week at a conference in London hosted by the Futures Industry Association.
The French authorities have previously criticised the European rules covering delegation, where asset managers domicile funds in one country and locate investment functions in another.
Paris is believed to have been behind an EU push two years ago to make the delegation rules stricter in a bid to capture a slice of the UK’s £7.7tn asset management market. This failed after resistance from other EU countries. Mr Ophèle’s speech has revived the spectre of a fresh push by France to win business from the City of London.
Mr Ophèle said the forthcoming reviews of the Ucits retail fund rules and the Alternative Investment Fund Managers Directive “provide opportunities to strengthen the consistency of regulations”, including the rules covering the practice of delegation that sits at the heart of global asset management operations.
Large asset managers selling funds in Europe frequently delegate portfolio management functions to London or New York.
The UK will become a so-called third country after Brexit and will no longer be able to use the EU system of passports that allows UK managers to sell financial products and services across the whole of Europe.
Brexit meant that it would be “essential to review existing third-country regimes,” said Mr Ophèle.
Dozens of global asset managers have expanded their operations in Dublin and Luxembourg in moves that threaten to undermine London’s role as Europe’s finance capital.
Mr Ophèle said national supervisors needed to develop “a more collegiate approach” to prevent financial players exploiting gaps in regulations by “jurisdiction shopping”.
The scale, complexity and cost of regulations introduced in the decade after the global financial crisis prompted frequent complaints from the asset management industry.
Reforms introduced in January 2018, known as Mifid II and Priips, which affect asset managers, banks and insurers, have raised questions about the processes involved in designing, implementing and evaluating pan-European financial regulations.
The regulatory framework, said Mr Ophèle, was “difficult to understand”, particularly because the implementation of the rules could vary from one member state to another.
He called for a redesign of the European rules governing asset management to ensure “greater readability and convergence”.
Julie Patterson, the leader on asset management regulatory change at KPMG, the professional services provider, said: “We are seeing the AMF growing in stature, looking to lead the debates and discussing regulatory wider issues.”
Mr Ophèle also called for the rules governing eligible assets — the securities that retail funds are permitted to invest in — to be “reviewed and modernised”.
The Ucits rules impose a strict list of assets and diversification requirements on funds, as well as capping their exposure to illiquid assets at 10 per cent of their assets.
His comments came in a week when the dramatic exodus of assets from Woodford Investment Management provoked a debate about whether open-ended funds should be permitted to invest in hard-to-sell assets.