ESA Review

The Commission’s proposal to review the role of the three European Supervisory Authorities (ESAs) has attracted an unprecedented number of negative reactions from a broad range of public and private stakeholders in the vast majority of EU Member States.

On 20 September 2017, the European Commission published a package of proposals to strengthen the European System of Financial Supervision, reference COM(2017)536. According to the Commission, the proposals aim to improve the mandates, governance and funding of the three ESAs and the functioning of the European Systemic Risk Board. This should ensure stronger and more integrated financial supervision across the EU.

ALFI is of the view that any change to the current regulatory and supervisory framework of the European asset management industry should focus on the needs and best interests of investors to provide safe, high-quality investment products and access to best-in-class professional investment management expertise coupled with strict oversight.

The proposal includes the direct supervision of EuVECAs, EuSEFs and ELTIFs. ALFI does not embrace direct supervision of funds by ESMA, in line with a majority of stakeholders responding to the Commission’s consultation in spring 2017.

The proposal further foresees that delegation arrangements to third countries should be reviewed by ESMA. Delegation of portfolio management is a tried and tested practice, which has existed since the first days of the UCITS legislation in the mid-1980s, and which offers investors access to a broad range of investment strategies.

The UCITS Directive and AIFMD explicitly provide for the possibility for investment funds and their management companies to delegate certain functions. The existing framework with the required protections and safeguards is already in place and clearly set out in both directives.

In its impact assessment, the Commission has failed to provide any conclusive evidence of the need for ESMA to become the lead regulator for certain investment products and of the perceived benefits for investors. Similarly, the impact assessment does not provide any evidence of a market failure due to improper delegation that would back up the proposal.

The proposal contains other far-reaching changes in regard to the corporate governance of the ESAs and their funding, which have met with criticism as well. ALFI takes the view that proportionality, subsidiarity and accountability are key principles that must not be jeopardised by the proposal.

No fewer than 58 organisations, including ALFI, have voiced their concerns by publishing a feedback statement on the website of the Commission.

UCITS are by far the premier global framework for investment funds worldwide. It therefore comes as no surprise that asset managers, but also supervisory authorities from third countries that have traditionally used UCITS, have expressed strong reservations against the plans of the Commission as well.

While the asset management industry has always been a strong supporter of regulatory convergence, notably through a “single rulebook”, and while there is certainly more scope for direct supervision in relation to market infrastructures which have a significant cross-border dimension, investment products that are marketed to retail investors must be supervised at domestic level. National supervisory authorities guarantee the best and most efficient level of investor and market protection.

Throughout the year, ALFI has given top priority to this file. There have been numerous discussions and meetings with a number of public and private stakeholders, and with other trade associations, in Luxembourg, in Europe and beyond. ALFI’s feedback statement can be downloaded here.

Neither Council nor European Parliament have come up with an official position yet. It would not come as a surprise if the negotiation went into the next legislative period, given that the next European elections will be in spring 2019 – despite the Commission’s strong push on this file.


Marc-André Bechet
Director Legal & Tax, ALFI