ESMA’s proposals cautiously welcomed

Trade associations across Europe have welcomed proposals by the European Securities Markets Authority (ESMA) to increase investor protection and transparency on UCITS, but concerns remain over consistency of approach in relation to non-UCITS funds.

The European Fund and Asset Management Association (EFAMA) says it supports  ESMA's proposals and is in favour of increased investor protection through more transparency and additional requirements for securities lending, collateral management and the use of strategy indices.

Peter De Proft, Director General, said EFAMA acknowledged the consultation paper as a “well-thought and nuanced approach that will contribute to the continuous improvement of the already robust UCITS framework in order to make all UCITS even safer for investors, which is at the heart of EFAMA’s priorities.”
 
However, EFAMA draws attention to what it perceives is a current paradox, which is that UCITS in general – and UCITS ETFs in particular – seem to be under more scrutiny from regulators than other non-UCITS exchange-traded products (such as ETNs, for instance) which are much less regulated.

“EFAMA is concerned with such an imbalanced focus and therefore strongly encourages ESMA and other regulators to focus their attention on such other products. In this vein, EFAMA reiterates its demand for a real level playing field and its support for a PRIPs Directive that would treat equally all retail financial products.”
 
The Director General says his association will now carefully analyse ESMA’s proposed guidelines in order to provide a detailed answer to the Consultation Paper. It’s seeking input from its members for this response.
 
A response from the Investment Management Association (IMA) also expressed agreement with the proposed guidelines “for all UCITS funds to improve disclosure and to tighten rules on collateral, stock lending and use of ‘strategy’ indices.

A spokesperson said, “We urge national regulators across the EU to adopt the UK’s approach to investor protection and to apply the UCITS rules and final guidelines consistently. The European Commission's Packaged Retail Investment Products’ initiative seeks to ensure that all retail products are subject to similar rules on disclosure and selling, but we are concerned that this important principle will be eroded if different pieces of legislation apply to different products.  In particular, the issues highlighted by ESMA are relevant to all exchange-traded products, not just exchange-traded UCITS.”

The IMA added that whilst it recognised that regulators shared a concern that some retail products are overly complex, it pointed out that, “...complexity does not necessarily equate to risk. Sophisticated investment strategies can maximise returns while minimising risk. Removing so-called complexity could lead to investors not having access to the investment returns they seek within the UICTS framework.”