The European Commission should ease the regulatory burden on boutique asset managers and tackle any remaining protectionist measures acting as barriers to a single market, a think tank has urged.
A joint report by the New City Initiative (NCI) and Open Europe said laws including the Alternative Investment Fund Managers Directive (AIFMD) and the revised Markets in Financial Instruments Directive (MiFID) were imposing an “onerous” regulatory burden that was hindering growth in the sector.
It added that the UK government had previously said the benefits of AIFMD and UCITS rules would only be felt by those in the industry that availed themselves of EU-wide passports to sell products overseas.
Dominic Johnson, chairman of the NCI and chief executive at Somerset Capital Management, also noted that, even in the case where managers wished to be active cross-border, they faced hurdles.
He cited member state regulators drawing out compliance procedures or other member state-specific rules acting as barriers even when an EU passport has been acquired.
“You’d expect you’d be able to hitch up your wagon filled with prospectuses and drive around Europe trying to sell your wares,” he said.
“Lots of countries, they either don’t know how to apply the rules, don’t understand what the rules are – or there is still deliberate protectionism to stop financial services companies going from country to country.”
Johnson compared the European situation with that of the US Securities and Exchange Commission.
He acknowledged that registering and compliance did involve costs, but he argued that, once initial hurdles were overcome, asset managers had access to the entirety of the country’s market.
He also questioned the lack of distinction between retail and institutional clients in much of the recently enacted European regulation – arguing that only one of the two groups justified the amount of regulation.
“If I were trying to sell my product to Slovenian pensioners, then I fully understand there needs to be a high degree of regulation, possibly even over-regulation,” he said.
“But if you’re trying to do institutional work across Europe, it’s completely ridiculous that you have to comply with so many of these regulations.”
Asked whether certain countries – such as the UK and Ireland, where pension trustees are often non-professionals – did not still warrant such protection, he said: “The difference between an institution and a non-institution is that the institution is a sophisticated investor. You have to say, just because you’re a badly run institution, that doesn’t excuse you.”
The report by the NCI – backed by asset managers worth £400bn (€546bn) – said that, while the industry was susceptible to crises, they were “different and possibly more easily [managed]” than those that could face the banking sector.
“While there were examples of different types of asset managers getting into trouble during the recent financial crisis,” the report says, “these seem to be largely isolated incidents rather than systemic flaws.”
In an effort to allow for the growth of boutique managers, the report recommended that the AIFMD exemption be increased to €500m, up from its current €100m.
It also criticised the idea of a financial transaction tax, being discussed by a minority of EU member states, as “hugely harmful” and called for it to be dropped.