Asset management industry faces regulatory crisis

17 June 2009

Speaking at an Association of the Luxembourg Fund Industry event today, Jarkko Syyrilä, Director of International Relations at the Investment Management Association, issued a call to arms to deal with what is the beginning of a regulatory crisis for the asset management industry. He said:

"One would have hoped that the policymakers would have had the wisdom to concentrate on the true causes of the financial crisis i.e. the banks, their business models and the way they have been regulated and supervised. But no, the EU has decided to fix (read: tamper) with everything and as a result we face severe risks for the business model of asset management as we know it."

Commenting on the draft Alternative Investment Fund Managers (AIFM) Directive, Mr. Syyrilä acknowledged it would provide opportunities for the funds industry in the form of a European passport to market alternative investment funds to professional investors, but warned against its current approach. He said:

".... the one size fits all approach drafted by the Commission fits ill with the different fund structures. Running an international asset management business from Europe is made very difficult if not impossible imposing European rules to the whole value chain. Many provisions are copied from the UCITS Directive but made stricter, which makes no sense as AIFs (alternative investment funds) are funds for professionals."

Mr. Syyrilä pointed out that some protectionist Member States had also succeeded in introducing a three year delay to allowing third country funds to be distributed in Europe. He continued:

"But this is not the only bad news around. Commissioner McCreevy stated at the end of May his intention to raise the liability of UCITS depositaries at least to the level of AIFM as a reaction to the Madoff losses in some UCITS based in Luxembourg and Ireland. Talking to the UK depositaries, if the proposals on the AIFM will go through as such, this might force many players to stop providing these services any more, or at least raise the fee levels to unprecedented levels and make many emerging markets funds impossible to run as UCITS."

Mr. Syyrilä cautioned against policymakers' good intentions to protect investors and financial markets leading to "regulatory overkill with grave consequences." He said:

"The whole of the European investment management industry is about to pay a very high price for the Madoff incident. It is time therefore for the industry to mobilise itself on lobbying the governments, regulators and the European Parliament on these issues to make the new rules workable for the industry as well as for the investors. Otherwise let me assure you, your business model of today might not be there tomorrow."

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