The latest attempts by the Commission to tighten up the criteria for who can invest in financial products may come under scrutiny by fund managers for being too restrictive and burdensome.
The Commission’s latest recommendations for the Markets in Financial Instruments Directive, formerly the Investment Services Directive, say that the level of education and previous professional experience of the investor should be taken into account when selling him or her financial products.
This would appear to fly in the face of the advice put forwards in May by the Committee of European Securities Regulators, which recommended that suitability requirements should be “proportionate” to the risk profile of the product being sold.
A spokesman for the Association of British Insurers said that the proposals, on the face of it, sound too cumbersome and could limit the number of people that are able to make investment decisions, which may make it harder for some smaller fund managers to operate.
The draft document, which is still subject to change, will now be discussed by the European Securities Committee in the Council before going to EU ministers for approval.

A comparatively weak euro, which fell to a 14-month low against the dollar at the start of July, is good news for Euro-zone pension investors, which have recently been moving towards more international diversification of funds, say analysts.
In its latest Market Insight report, Mercer Investment Consulting notes that Irish pension funds grew by 6.5% over the second quarter of 2005, largely due to a buoyant equities market but also because of much higher returns from US stocks.
Tom Geraghty, partner at the firm, said that the typical holding
of US investments for an Irish pension fund at the moment is 14%.
He suggested that up to 10% of
the relative performance of the average pension fund in Ireland could be attributable to this currency relationship.
He added that he expected to see a similar pattern elsewhere in Europe, depending of course on the relative size of overseas investments.

TThe Organisation for Economic Co-operation and Development, a Paris-based research institute, is at the moment looking at the growing diversification of European pension funds into foreign markets. Although the data currently available is weak, researchers in the institute suggest that more and more pension funds may be hedging their risks by investing in foreign markets, particularly in the US.
At the same time, though, there are signs that US fund managers are looking at Europe as a good place to invest in. A new report by consultants Greenwich Associates, suggests that projected international equity assets held by US institutions rose by almost 30% over the past 12 months, with a large share going to Europe.
During a recent visit to Paris, Charles Valdes, chairman of the largest pension fund in the US, the Californian Public Employees Retirement System (CalPers), said that he saw “a great many opportunities in Europe”, despite economic difficulties in certain member states such as Germany and France, which he perceived as only temporary. Valdes said that Calpers may invest as much as e1.2bn more in European buyout investments this year, on top of the e19bn that it already has invested in European private equity.

The Commission is expected to unveil its financial services strategy for the next five years by the end of the year, and many market participants feel that it should pay more attention to the unsatisfactory pan-European market for pension products at the moment.
At a wide-ranging ‘exchange of views’ held in Brussels on 18 July, Wolfgang Mansfeld, former president of the European Fund and Asset Management Association (EFAMA), said that a level playing field for occupational pension schemes was “crucial” to increase the efficiency of the pensions arena.
Sheila Nicoll, deputy chief executive of Investment Management Association in London, highlighted the role that investment funds could play in rising to meet the pensions challenge. She welcomed the recent steps that the Commission has taken with respect to asset management, although said that the industry still remained highly fragmented.
Gérard de la Martinière, president of the Comité Européen des Assurances, suggested that one possible way forward could be the so-called ‘26th’, which seeks to define a basic set of pan-European pension rules that combine maximum creativity with adequate consumer protection.