Alternative Investment Draft Directive 'Needs Major Surgery' - Paul Myners

Paul Myners, the UK Financial Services Secretary to the Treasury, speaking at an Alternative Investment Management Association (AIMA) event this morning in London, said, “the UK is not in the business of blocking more stringent regulation, contrary to what some in Europe may say.”

Lord Myners said the UK government’s aim was “a framework which allows efficient, well run and well regulated fund managers to compete for business without restriction across the EU and to make the EU a base from which to compete in global markets.” But he said that the draft directive, “needs major surgery before this can be delivered”.

He also expressed concern about the protectionist impact of the directive and argued that, “to deny 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”. He said of the custody elements of the directive that “imposing strict liability for delegated custodians would impose large capital costs, make investing in some emerging markets impractical and increase costs to investors”. And on the leverage caps within the directive, he argued that “systemic risks posed by the leverage of any one fund can only be assessed in the context of wider market conditions so capping leverage on a fund-by-fund basis cannot be an effective protection”, adding that it could even be counter-productive.

Lord Myners said that the UK government was, “reaching out bilaterally to leverage natural alliances and win over others” in Europe. But he pointed out that managers threatening to quit the UK “will make my job harder” and would not be well received in Europe. And he called on institutional investors to make their voices heard on the directive. He said, “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”.

The UK Financial Services Secretary to the Treasury concluded by arguing that, “an open single market in fund management must be a major opportunity for Europe and we must all do our bit to ensure we deliver the best possible result for EU investors and for the future of the EU funds industry”.