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The size, location and leverage of funds to be covered by the proposed EU directive on alternative investment fund managers, which would subject them to a mandatory authorisation and supervisory system, were debated by the Economic and Monetary Affairs Committee on Tuesday.
In discussion of the 1,669 proposed amendments to the report, a number of issues were raised by rapporteur Jean-Paul Gauzès (EPP, FR) and also by the shadow-rapporteurs of the political groups and other MEPs.
Scope
The draft report removes the €100 million threshold exemption from the directive’s application and suggests replacing it with a proportionality rule. At the meeting, Mr Gauzès added that this rule would need to be "very well defined, so as to avoid catching funds which need not be over regulated". Peter Skinner (S&D, UK), agreed: "we will lose the battle with the Council if we go back to the thresholds approach", he said.
The report also broadens the scope to cover EU-located offshore fund managers and limits the exemption possibility for pension funds, insurance firms and credit institutions. In his intervention however, Mr Gauzès emphasised that he would be working to clearly define what is not to be considered a fund and hence will not fall under this directive. Robert Goebbels (S&D, AT), agreed that exemptions should be kept to a strict minimum.
Marta Andreassen (EFD, UK), said that investment trusts like those in the UK must be excluded. Sharon Bowles (ALDE, UK), warned that if only private equity companies had to comply with this directive, it would place them at a disadvantage vis-à-vis other private companies.
Marketing rules and non-EU domiciled AIFs
The rapporteur's draft proposes granting a "European passport" to allow any EU-domiciled fund to be marketed throughout the EU. It agrees with the European Commission that the marketing of non-EU funds within the EU should be subject to authorisation by individual Member States, but removes the initially proposed three-year wait before this takes effect.
Mr Gauzès said he would work on the idea of a dual period whereby permission to market would be granted after a transition period in which equivalence of supervisory standards in third countries would be ascertained, possibly by the Commission. If after such a period it were found that equivalence did not exist then the marketing of the non-EU funds concerned would be prohibited.
Robert Goebbels (S&D, AT), warned against the risk of putting funds outside the EU in a more favourable position than those within it. By contrast, Syed Kamall (ECR, UK), observed that "we must avoid discrimination against third country funds. The new position proposed by Mr Gauzès is good provided it is clear to third country jurisdictions what the equivalence rules are".
Leverage
AIF managers should define in advance the leverage limit which they will use for each AIF, according to Mr Gauzès' draft, which also provides that the Commission may set leverage limits on advice from the European Systemic Risk Board (ESRB), if the EU Securities and Markets Authority (ESMA) considers that the leverage being used is excessively risky.
"Defining leverage is more difficult than it may at first appear", said Wolf Klinz (ALDE, DE), who felt that Member States should nonetheless have the option of laying down certain conditions.
Sven Giegold (Greens/EFA, DE), felt that the report's leverage provisions were too weak. "This issue will need to be cleared up quickly", he said. Ms Andreassen replied that hedge funds' use of leverage has declined considerably and that therefore "leverage caps today are outdated. The industry has moved on."
Short-selling
Mr Gauzès would subject short selling to a harmonised regulatory framework, so as to reduce its potential destabilising effect, and proposes that the ESMA be empowered to restrict it.
"It is immoral to influence markets through the practice of naked short-selling and such scandalous practices needed to be eliminated", said Mr Goebbels. The directive needs to be strict, so as to protect companies from such practices, agreed Mr Giegold. By contrast, Mr Kamall, called for a distinction to be made between naked and covered short-selling with the latter being a valid activity which increases liquidity.
Remuneration of managers
The rapporteur proposes applying the principles of the G20's Pittsburgh Declaration on the remuneration of executives of banks and other financial institutions to AIF managers. Pay should be commensurate to risk and would need to be disclosed. Mr Kamall, observed that it would be unwise to follow the remuneration philosophy applied to the banking sector because fund managers are rewarded on their performance and their priorities are often the same as those of investors.
Next steps
Mr Gauzes presented his draft report to the Economic and Monetary Affairs Committee members in December 2009. A further discussion of the amendments will take place on 17 March. It is expected that this report together with the amendments will be put to a committee vote in mid-April and a plenary vote in July.
