I WOULD like to respond to Syed Kamall’s article in City A.M. last Tuesday on the European Commission’s draft measures to implement the EU directive on alternative investment fund managers (AIFMD) [The EC is now run by City-sceptics: An insider’s view].
The issue at stake is a European directive on alternative investment funds, adopted by European legislators in 2010, following a clear call from G20 leaders to improve the regulatory framework for hedge funds and other investment funds. An overwhelming majority of MEPs voted in favour of it and EU member states, including the UK, unanimously agreed on the text.
What the European Commission is doing today is developing implementing measures – technical details on the who, what, how and when of putting this legislation into practice.
In no way are we trying to call into question or alter the substance of the political agreement reached two years ago. This is not the time to re-open battles that were settled then. Instead, the Commission is making the law work in practice.
The measures we are developing will be in full respect of the agreement reached to ensure financial stability and investor protection, while at the same time maintaining efficient and open financial markets in the EU. These measures are still work in progress and no final decisions have been taken.
Europe’s Securities and Markets Authority (Esma) has provided extremely useful technical advice to the Commission. Contrary to what I have read in some papers, the Commission has largely followed Esma’s advice. However, when drafting legislation, the Commission must translate technical recommendations into legal language which is sufficiently clear to ensure legal certainty. This is in the interest of all market participants so they benefit from a level playing field.
Let me mention a couple of specific points which have been misconstrued: the draft measures do not include any provisions that would make it harder for managers to use leverage. This was not foreseen in the AIFMD, and can therefore not be introduced now. Implementing measures cannot alter the substance of what was originally agreed. If you want to change that, you need to change the original directive.
What has been suggested are clear and operational transparency rules on the use of leverage. The implementing measures specify the methods of how leverage will be calculated, and the frequency with which the extent of leverage has to be reported.
On the issue of liability, the measures we propose will not go beyond what is already stated in the AIFMD, in terms of the custodian remaining liable for the loss of financial instruments that are lost by a third party to which the custody has been delegated. On a wider point about how we work, contrary to statements made, the European Commission is accountable. We answer to the European Parliament, and to the EU’s member states. They have the power to reject any implementing measures we put forward. We are also answerable to the European Court of Justice, where the legality of any of these measures can be challenged.
I also dispute assertions made that the European Commission is run by City-sceptics. We have had hundreds of meetings with industry representatives in this area. And it is only right we should do so because we of course need their input. And I can assure you that we will remain open and continue to listen and engage with all stakeholders. Blaming the Commission for rules agreed by both member states and the European Parliament is easy and common practice, but it does not do justice to the real state of affairs.
As EU commissioner responsible for the single market, I have a duty to promote financial stability, and to protect investors. We can’t allow another Madoff affair to happen. The EU’s financial market needs a strong regulatory framework in place for hedge funds and private equity, to boost investor confidence. This can only benefit Europe’s financial centres, in particular the City.
A strong and healthy EU financial services market needs a strong City. That is why I care about the interests of the City. The City of London is essential to the European economy: it is one of Europe’s key assets on the global stage. I need your input. I value it. It is only by working together that we can put Europe back on the path to recovery.
Michel Barnier is the European commissioner for internal market and services.