EUROPE - A proposed revision to the Investment Services Directive (ISD) is unnecessary and would constrain the investment industry by imposing expensive client reporting standards and removing regulator flexibility in applying requirements, according to the managing director of Beachcroft Wansbroughs Consulting.
The European Commission has drafted the Markets in Financial Instruments Directive (MiFID) to update the 11-year-old ISD and given the proposals to the Committee of European Securities Regulators (CESR) for comment and consultation.
But the planned directive’s requirements are flawed by a lack of costing and are insufficiently flexible, and would therefore constrain the investment management industry, said Oliver Lodge (pictured), MD of Beachcroft Wansbroughs Consulting.
“There are many aspects of the proposal that look like nice to have items, but which go way beyond the essentials of consumer protection,” Lodge said.
“On the flexibility side, the difference is that FSA requirements can be changed fairly straightforwardly by the FSA board, and there is scope for issuing a waiver to disapply any of them to a particular firm if certain criteria are met. With the European version there will be no scope for waivers and it would take years to get them changed.”
Lodge particularly objected to stipulations requiring fund managers to send reports after every stock valuation and to the fact that, if the directive is passed, European legislation would supersede national regulations in certain aspects.
But a CESR official said that the new directive was necessary, as it addressed aspects of trading that weren’t covered in the 1993 legislation, including legislation regulating alternative trading systems and internalised trades, such as crossing to improve transparency.
Alexander Karpf, a legal advisor to CESR disagreed with Lodge’s conclusion that MiFID would constrain flexibility, saying: “There are provisions that require full harmonisation, but there will still be sufficient flexibility in the member states.
“Since the MiFID provides for a European passport for regulated entities, which means that, for example an investment firm authorised in one member state can provide its services in all of the 24 other member states, there is a need for a certain degree of harmonisation. This guarantees investor protection and market integrity.
“Nevertheless, national regulators will still have considerable discretion in applying the law in their respective member states, in particular taking account investor protection issues.”
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