NEWS

Alternative sought to EU manager directive

Antonio BorgesThe UK Treasury has taken aim at the European Union directive to impose equivalence tests upon foreign alternatives managers, urging institutional investors to join the debate – and for managers to curb inflammatory remarks and stick to the argument at hand.

Speaking to fund managers in London last week, Paul Myners, UK financial services minister, reinforced the government’s clear opposition to the EU directive, which aims to force funds managers and custodians domiciled offshore to register their businesses in the region and become subject to new rules governing investment and marketing of their products.

The proposal has also been criticised from within the continent. Speaking at the International Corporate Governance Network annual conference on Tuesday, Antonio Borges, chairman of the organisation’s hedge fund working group and the European Corporate Governance Institute, said the directive was misguided and would not benefit investors in the EU.

“This is a poor piece of legislation and if it gets up it will prevent alternative investments managed outside Europe to be sold inside Europe,” Borges said.

He said regulators should concentrate on ensuring that banks build more robust foundations.

Alternatives managers in the City of London have reacted with hostility, telling the press they would promptly relocate to the continent if the directive became enforced.

Brevan Howard, a $22 billion manager based in London, told the UK Financial Services Authority it would leave the City “at the flick of a switch” if the directive was passed.

Asking the gathering of managers to refrain from using “angry tirades,” Myners said the logic of the UK Government’s position should be enough to overcome the EU proposal.

“Quotes in the press from managers threatening to quit the UK will make my job harder” and there should be no need to deploy such threats because of the strength of the argument,” he said.

The directive would produce unfavourable outcomes not only for the City and the UK financial services industry, but for institutional investors as well.

“There has been no call from end users for these regulatory measures. If institutional investors can make clear which regulatory safeguards they want to see applied to their fund managers and which they find to be costly and unnecessary, this will send a powerful message to policymakers.

“Submissions coming from European clients would add a powerful voice.”

If passed, the directive held the capacity to “deny our institutional investors a global choice of fund manager would come at a direct cost to pension savers and others who rely on the returns from institutional investment funds”.

“It would lead to the EU industry becoming less efficient by removing the discipline of global competition.”

He said any directive should only impose requirements that were necessary to mitigate genuine risks, and there was no need for centralised equivalence tests because the Marketing in Financial Instruments Directive and Undertakings in Collective Investments in Transferable Securities measures already enable regulators to control delegation.