Asset management II (debate) 
President
The next item is the report by Wolf Klinz, on behalf of the Committee on Economic and Monetary Affairs, on Asset Management ΙΙ.
Wolf Klinz
rapporteur. - (DE) Madam President, since the adoption of the UCITS Directive in 1985, European fund markets have experienced meteoric growth. The directive has since been updated twice to take account of new market developments, and further modernisation is right at the top of next year's agenda.
Not least among the sources of the Commission's present reform project is the first resolution on asset management (Asset Management I) adopted by the European Parliament in April 2006, which set out the main elements of the reform package. I am grateful to the Commission for having adopted these recommendations and for its intention to have them implemented in a legislative instrument in the new year.
The present draft resolution, entitled Asset Management II, is similarly designed to pave the way for future initiatives on the part of the Commission. To this end the draft provides for numerous measures which go beyond the content of next year's planned revision package but which we deem necessary if the European funds industry is to become more competitive. The following are the main points:
Firstly, the Commission should consider an extension of eligible assets to cover property funds and hedge funds. Both products help to diversify the risk exposure of portfolios and offer attractive returns on investment. Besides scope for adding these products to portfolios, consideration should also be given to a European depository passport, which would give private investors direct access to these products. We welcome the establishment by the Commission of an expert group on open real-estate funds (OREFs) and its decision to conduct a study on non-harmonised retail funds.
Secondly, not only retail investors but also professional providers and institutional investors should be able to benefit fully from a single European market. There has never been any scope for these groups, who can effectively do without the traditional consumer protection mechanisms, to operate across borders without very public notification procedures. A European private placement regime can remedy that situation. It must be designed in such a way that it does not restrict the existing schemes, some of which are very liberal, in individual Member States. In order to guarantee this flexibility, Parliament is proposing that the CESR, the Committee of European Securities Regulators, should formulate recommendations for the organisation of such a regime. The next step would then involve examining whether that was sufficient or whether there was a need for a universally binding directive.
Thirdly, the range of investment products for retail investors is constantly increasing, but the available product information does not permit comparison of the relative merits of products. This is due in part to the highly fragmented legal framework in Europe. If individual investors are to make informed decisions, however, information requirements and disclosure obligations must establish some degree of comparability between competing products. The various industries should be able to compete on a level playing field under the same rules. For this reason we call on the Commission to review the existing legal frameworks for the various product categories and to present proposals as to how the situation can be improved.
The aim is not to make products fully comparable. Life assurance policies, certificates and funds differ intrinsically in their legal status and structure. The aim is rather to establish equivalent information requirements. Even maximum transparency, however, will count for nothing if investors do not possess at least a minimum level of knowledge about diverse financial products and the way they work. It is therefore the responsibility of the Member States to encourage education initiatives in this domain.
Fourthly, investors should be able to benefit not only from a wide range of products but also from low costs. At the present time, however, the European fund landscape is extremely fragmented, which breeds relative inefficiency and excessive costs, especially by comparison with competitor countries. The Commission is planning to create a legal framework next year for fund mergers. That is to be welcomed. The Commission, however, is disregarding one of the main obstacles to cross-border mergers, namely taxation. We therefore call for cross-border mergers to be treated in exactly the same way as national mergers for tax purposes; in other words, they should not create any additional tax liability for investors. We are not asking for any measures to be taken on tax rates or the like. We are merely asking for cross-border mergers not to be treated differently from domestic mergers.
Fifthly, Parliament will produce a separate report assessing the potential utility of a European legal framework for hedge funds and private equity. The Commission, however, should prepare itself to engage actively in the international discussions on these matters.
Lastly, I should like to thank my fellow committee members, especially the shadow rapporteurs from the other groups, for their close cooperation. I hope that the Commission, as it did the first time, will again embrace our proposals so that we can make the opportunities of the single European market fully available to both investors and the fund industry.
Charlie McCreevy
Member of the Commission. - Madam President, I would like to commend the Economic and Monetary Affairs Committee and, in particular, the rapporteur, Mr Klinz, for taking the initiative to elaborate an own-initiative report, and for the hard work put into that report. I would like to take this opportunity also to thank the European Parliament for its valuable contribution to the asset management debate. Parliament's previous report on asset management was also an excellent contribution to our work on the UCITS Directive.
A long process of analysis and consultation has, we believe, succeeded in building a strong consensus on what needs to be done and how. We should not overload our agenda, but we are not blind to other issues and problems. Today's report testifies to the wide range of other issues confronting the European funds industry. We have already started work in many of the areas highlighted in the present report. The aim is to build a robust body of evidence on which to base future decisions. We are glad to see that a careful impact-assessment-driven process is endorsed by Parliament. We strongly believe in that approach in the Commission. It would ensure that future initiatives respond to real needs and provide effective solutions. We are also applying this approach in our work on private placement. By May 2008, we plan to present a Commission communication assessing the need for, and the feasibility of, the European private placement regime.
The report before us today calls for speedy solutions to facilitate the cross-border passporting of retail non-harmonised funds. We are also looking carefully at this important issue, and will report to the Council and Parliament in autumn 2008. We hope that this report will bring some empirical basis to this complex discussion.
Sometimes, listening to this debate, we might have the impression that solutions are identified before a problem has been properly specified. We would caution against rushing to further enlarge the EU retail fund framework. UCITS 3 already permits a wide range of innovative strategies, including some types of alternative investment. We need to be clear about what is currently possible, and on whether risk management controls across the industry are up to scratch, before contemplating further enlargement of the retail fund framework. We understand the European funds industry's desire to explore its lead in innovation and financial creativity, but not at the price of investor confidence in the UCITS brand.
We acknowledge the concerns raised in the report with regard to the divergent regulatory requirements applicable to the distribution of substitute products, and stress that the Commission has an open mind on whether there is a substantive issue that needs to be tackled. Responses to the call for evidence launched in October will allow us to assess whether the existing regulatory patchwork results in a real and significant risk of investor detriment. In the light of responses and further follow-up work, the Commission will issue a communication in autumn 2008 on the need for EU-level action.
We welcome the report's acknowledgement of the positive contribution that hedge funds provide to the functioning of markets and corporate efficiency. Some recent industry-led initiatives to develop voluntary standards on best practices are a welcome and proportionate response to the demands for greater disclosure. We appreciate that Parliament also considers that international responses are needed in these highly globalised businesses.
In summary, a lot has been achieved in the area of asset management. There is a long road ahead. New challenges constantly appear in this fast-moving business. However, we will do ourselves no favours by rushing into hasty and ill-prepared responses. We are glad to see that the Commission has, in Parliament, a valuable partner working towards the same goal, which is an integrated and efficient European fund market delivering for both industry and investors alike.
Astrid Lulling
on behalf of the PPE-DE Group. - (FR) Madam President, in relation to this important own-initiative report on the Commission White Paper on investment funds, our position is that we have decided by general agreement to focus on the non-legislative aspects, given that the legislative proposal for revision of the UCITS III Directive will be tabled in early 2008. That said, the issues we have decided to address are vitally important to undertakings for collective investment in transferable securities.
There is a risk that extending the range of eligible assets to include open property funds and alternative funds could mar the excellent worldwide reputation of UCITS products and negatively affect their distribution both within the European Union and to third countries. To avoid any detriment to the investment fund industry in Europe, Parliament has asked the Commission to conduct an in-depth study of the possible consequences of including these non-harmonised retail funds among the assets eligible for branding as UCITS.
Investments in UCITS total thousands of billions of euros and account for around 80% of the investment fund market in Europe. The sector is impatiently awaiting revision of the UCITS Directive. To prevent any unnecessary and counter-productive delay with that revision, however, Parliament has clearly proposed that no extension of eligible assets should take place until legislative reform of the UCITS Directive is complete. On behalf of my group, I have consistently urged that line and I welcome the rapporteur's readiness to compromise.
The report also calls for the creation of a harmonised framework for private placements within the Union, and I fully support its recommendations on that point.
The private placement regime needs to be based on an accurate definition of qualified investors, as provided for in the MiFID Directive. Properly informed and qualified investors eligible to practise private placement should not, under any circumstances, face a bureaucratic surcharge as a result of rules that are not only unnecessary but actually counterproductive.
I have to oppose the Socialists' amendment calling for equivalence between Member States' systems of regulation and supervision in the context of applying the private placement regime, which would entail permitting reciprocal access to markets. This kind of equivalence across Europe is simply unrealistic.
I must also highlight one point on which my group and I disagree with the rapporteur. It concerns paragraph 19 on the question of so-called 'guarantee funds'. The very concept of these funds is controversial and we tried to protest at the mistaken definition of them. I hope we shall manage to lose that paragraph. I must nonetheless congratulate the rapporteur on the quality of his work, which enables us to prepare properly for the legislative proposal. It means we can now look forward with equanimity to the work that lies ahead next year.
Harald Ettl
on behalf of the PSE Group. - (DE) Madam President, may I say to Astrid that she should not always assume that Socialist motions will be untenable. Let me begin by warmly thanking the rapporteur, Mr Klinz, for his balanced report. I must tell the Commissioner that he need not always be so wary of overloading the agenda.
It is against the backdrop of the US financial and mortgage crisis that we are now dealing with the report on asset management. Not even the European Central Bank is able to assess the full extent of the damage this crisis has caused to the European financial system and to European banks. And there may - indeed there will - be more to come. The global financial market is already so closely intertwined that there was no way of protecting the Union from such speculative escapades, for which all of us must ultimately carry the can. Greedy bank executives, focused solely on shareholder value, still enjoy celebrity status, and the US rating agencies continue to do a roaring trade and to lead us up the garden path. Knee-jerk legislation, however, is never warranted. Nevertheless, there is a lot to be done in this field, and the Commission cannot leave the issue to resolve itself and let the market be.
One message I wish to highlight from the report is that more information and transparency lead to more consumer protection and greater consumer security. That is a very sound starting point. Another good thing is that the report refers to hedge funds and private equity, because more and more asset managers are investing in alternative investment products. Hedge funds, open real-estate funds and other retail products should therefore be included in the UCITS III Directive - a task that still lies ahead.
To my mind the very concept of asset management implies steady development, whether through investment certificates, pension funds, life assurance companies, banks or private asset management. Since 2003 we have had a directive on insider dealing and market manipulation. Its implementation has been totally inadequate. The fund industry in particular is always citing costly overregulation and refuses to extend its transparency and liability rules.
What we need here, Commissioner, is a clearly structured system that provides legal certainty. I am pleased that my proposal for an improved corporate governance clause has been accepted but regret the rejection of my motion on EU supervision of financial markets. We could and probably must think a bit further in this direction too, Commissioner.
It is nevertheless gratifying that a cross-party compromise was reached on the issue of guaranteed funds. When all is said and done, we should and must make every effort to ensure that speculation by asset managers is restricted and that Parliament, the Commission and the Council do not distinguish themselves by collective inertia. Commissioner, that was addressed to you. Go to it, and do it well!
Margarita Starkevičiūtė
on behalf of the ALDE Group. - (LT) I would like to point out that this report, though well-balanced and generally acceptable, does not in fact reflect true reality. The problem is that most of the financial institutions, as appears to be the case, judging from the data supplied, are not adhering to the rules and regulations we have recommended.
The main problem appears to be the abuse of the discrepancies occurring in these regulations. For this reason we must examine the report in the context of the other reports and documents, like MiFID, with the aim of finding some kind of compatibility. Another point that I would that like to highlight is that I support Mrs Lulling's opinion: UCITS is a good name, and we therefore need to be very careful about including new products in the portfolio.
Why is that? Because we do not know what these products are like. I am very sorry, but in this document, as well as in the Commission's proposal, the portfolios and interests of a retail investor and an institutional, professional investor appear to be slightly jumbled. Retail investors should have clear definitions and regulations. However, when we have both UCITS and alternative investment funds, the reality is that in my country, for example, they are mixed together and presented to the retail investor, who then does not understand what he is investing in.
That is why we must have clearer definitions and a document that is structured unequivocally. I do hope that next year the Commission will produce a document that is structured more clearly. We really must protect retail investors. Of course, private investors should have more rights, but these should be defined separately. We should not advise people to invest in alternative funds that have not even been defined. In my country any fund is branded alternative at present.
Piia-Noora Kauppi
Madam President, first I would like to thank the rapporteur, Mr Klinz, for his own-initiative report and also for taking on board all the proposals and opinions of the other groups.
Harmonising the environment for asset management and products on the fund market can bring huge benefits to the European economy, as proven also by the 1985 UCITS Directive.
The UCITS Directive has become a huge brand globally. It sells well abroad. UCITS represent the basis for a robust fund market in Europe and they make the economy more buoyant through increased stability and the productive reinvestment of savings.
However, the topic of this report is not the UCITS revision, which is forthcoming and which we welcome. The report addresses, instead, non-harmonised retail funds that are outside the scope of UCITS, calling for a number of important measures.
I would particularly like to welcome the private placement regime, which was also mentioned by the Commissioner. Initiative is very instrumental in achieving the European market in non-harmonised funds.
Second, fee transparency is a long-due and underrated feature for increasing investor information. Other measures in the report go in the right direction as well, removing market distortions.
However - and coming back to UCITS' success - we must not get greedy here or mix things up hastily. I am, of course, referring to the debate on extending UCITS' scope to new asset classes such as open-ended real estate funds or funds of hedge funds. I do not think the time is right now to discuss these sensitive matters. We might end up with a more rigid regime, and we would probably find ourselves in a different financial market environment.
I also think it is very important to discuss the role of guaranteed funds. There is no such thing as a guaranteed fund. Our group wanted to have some flexibility. We do not think that having a capital adequacy regime for funds solves the problem. Guaranteed funds do not exist, and this kind of definition should be removed from the regime. That is why we have both put forward a proposal from the PPE-DE Group.
Pervenche Berès
(FR) Madam President, Commissioner, I should like to thank the rapporteur for his text. The issues it tackles are recurring ones. For example, what exactly divides institutional and professional investors from private investors? Some people would have us think there is a sort of 'Great Wall of China' between the two. I am unconvinced, and recent events have shown the extent to which financial innovation spreads from one category of investor to another, right down to the individual saver. The fiction that we can design legislation entirely around the existence of two types of investor - enlightened, professional investors on the one hand and small savers on the other - is, in my view, a dangerous one. We are well aware of the gradual slippage of investment products. The notion of two kinds of investor is all very well but we need to recognise very clearly how we apply it.
The second question I would like to raise - which is also reflected in other texts concerning the financial markets - is about information for investors. This is obviously of key importance, yet we are starting from scratch because the complexity of financial innovation is something new that has not yet been properly acknowledged or confronted. To leave it at that, however, is not good enough: there is no substitute for responsibility on the part of those engaged in product placement and we need to remember that.
Thirdly, Commissioner, I have to say that I think you slipped up with regard to the connection between implementation of the MiFID Directive and the UCITS Directive. Does it make sense for the MiFID Directive to be implemented in the Member States before we even know how it will relate to the UCITS Directive? I think the current situation would be more balanced had we had proceeded otherwise.
With regard to taxation, the rapporteur has mentioned the implications for fund mergers. I think we also need to bear in mind the implications for product placement, which could be complicated by obstacles of a purely fiscal nature.
I should also like to say something about the Socialists' amendment because the reality of the market in these products differs between countries that produce them, countries that buy them and countries that both produce and buy them. We have introduced the concept of reciprocity, which would apply not only to opening markets and to market access but also to the nature of regulatory provision and supervision. I think these elements are essential because the idea of a non-EU country which only produced these products having access to our markets on any sort of terms simply because we had access to its market (which might well be of no interest to European consumers) seems either unrealistic or purely theoretical and I cannot accept it.
The rapporteur has suggested more than once that reciprocity would be in breach of WTO rules. But Commissioner, I ask you: what did we do when we recognised equivalence rules with the United States? That is precisely the approach we are asking you to take here. It is also suggested that the concept is unrealistic because we do not have harmonisation inside the European Union. If, however, negotiating equivalence with third countries encouraged us to establish a common standard of regulation and supervision inside the Union, would that not constitute substantial progress?
Zsolt László Becsey
(HU) Thank you, Madam President. I hope I will be brief. As an Easterner, from an area that is poor in capital, I am not enraptured by the fact that everyone is now biting their nails to see what will happen with hedge funds or private equity when the UCITS is extended because this does not affect our own region at all, or at least will not for a good few years. Perhaps we will even experience something of this from the human side with property funds. But I would perhaps emphasise what I might expect from the audit, as an Easterner. One thing is that the banks, which very often operate as distributors within this mechanism and receive very large sums, should nevertheless be examined for some reason, since the sale cost currently accounts for 60% of total costs, and I note that in my region the banks are unbelievably profitable in this way. If we achieve something in this, we have taken a step forward.
The second thing is that the case of the MiFID inducement has also not said very much for transparency of costs since, for example, if a bank has the fund manager and the seller, we do not know what is going on in the in-house deal, and interestingly not even such in-house deals have been able to break down the different sale prices.
Thirdly, however, some Member States are doing a great deal or implementing provisions that virtually ensure that the custodian, the fund manager and their management keep their feet on the ground. In my country, or our countries, there are very many capable young people, and they are able to perform management activities, for example, at a good price and to very high quality, if they can, and I feel that relocation is in everyone's interests with a view to them coming onto the free market.
Finally, consumer protection. I acknowledge that training really is very important, but alongside it we must highlight tax matters. It cannot be that if I want to take out UCITS in another country, I will end up in a worse situation than if I did it in my own country. Thank you very much.
Gay Mitchell
Madam President, I would like to thank Mr Klinz for this report. The European fund industry has made some big strides in recent years, and the UCITS Directive has been instrumental in this. But, while the fund industry has experienced rapid growth, it has much more potential. This potential can be unleashed through increased competition and mobility in the industry across the EU.
I would like to make some observations about the report. I can see merit in the recommendation to extend the scope of UCITS to invest in open-ended real estate funds and funds of hedge funds, but this should be dealt with, in my opinion, in a separate directive or legislative instrument. I also see merit in proposals to enhance the EU private placement regime and agree that the definition of eligible investors is crucial. It is important to note that, while the definitions contained in the MiFID and the Prospectus Directive offer a good starting point, there may be some additional issues which might also need to be addressed.
With regard to investment policy and risk management, I want to remind the Parliament that, while CESR is conducting a review of how the risk management process requirements of the UCITS Directive are implemented across Member States, it is not CESR's intention to harmonise these requirements. Certain key areas where divergent practices exist could be explored with the objective of a more harmonised approach. Guaranteed funds should be backed by capital advocacy requirements and this should be addressed by only allowing funds to be called guaranteed if they are backed by an adequate guarantee arrangement. I have concerns regarding any call for a depository passport that would result in the depository being established in a different state from that of the UCITS. This would create a regulatory gap because a UCITS and its depository would be subject to separate regulatory regimes, and complex legal issues might arise in the event of difficulties within the UCITS.
I thank my colleague for this report, which is a very useful one, and I hope that the Commissioner will be able to respond to the points I have raised.
Charlie McCreevy
Member of the Commission. - Madam President, Parliament's report shows that both our institutions' approaches to moving forward in the area of asset management are very much aligned. We also need future decisions to be based on a thorough analysis of impacts.
We both want efficient markets that respond to the needs and expectations of the European fund industry and European investors. Important efforts have been made in that direction. More important efforts are ahead of us. We are committed to delivering, but we should be cautious. We need to preserve the reforms and the repute of the UCITS brand. We need to take the time to involve and consult with all stakeholders, and we need to avoid unnecessary intervention that risks distorting the market but does not bring about noticeable benefits.
Only when all those conditions are met can we be confident that our decisions are up to the challenge. We look forward to further cooperation between our institutions in this very important area.
President
The debate is closed.
The vote will take place on Thursday, 13 December 2007.
