Learn the lessons of AIFMD, Richard Saunders of IMA says

Speaking at the Lawyer Funds Summit in Brussels, Richard Saunders, Chief Executive of the Investment Management Association, called on the UK Government to learn the lessons of the Alternative Investment Fund Managers Directive (AIFMD) in future negotiations on EU legislation.

Richard Saunders said:

"We need the UK Government to raise its game in Europe. The legislation which will shape our financial services industry in the future now comes from Brussels and effectively bypasses the UK Parliament. The AIFMD illustrates that. The UK has always been good at detail, but less strong in playing the big political game.”

Commenting on the original version of the AIFMD in April 2009, Richard Saunders said:

“The UK seemed oblivious to what was going on behind the scenes, playing by the rules of cricket, while everybody else was playing by the rules of ice hockey. To make matters worse, the UK Government had given up its leverage by pledging support to Mr Barroso for his reappointment as President of the Commission some six months previously.”

He paid tribute to the European Commission’s initial approach:

“The European Commission’s initial consultation paper about hedge funds was very cautious about the need for new regulation, emphasising the need for proportionality and the peripheral role played by hedge funds in the crisis.”

But this was undermined by political considerations:

“Politics took over. The draft Directive published at the end of April bore no relation to drafts circulating only weeks before. The promise to address hedge funds as part of the follow-up to the de la Rosière report was forgotten, as was the pledge to respond only to clearly identified market failures and to keep clear distinctions between different types of funds.

“Instead, we had a proposal which applied equally to all non-UCITS funds: hedge funds, private equity funds, investment trusts, real estate funds, institutional pooled vehicles, and many others. What is more, it was blatantly protectionist, and had the extraordinary effect that pension funds and other institutional investors would in future be banned from investing in many vehicles which were now commonplace.”

He praised the Treasury’s efforts to salvage the situation:

“Although the new Coalition Government did an admirable job at the final ECOFIN Council in standing up for the industry’s interests, undoing the very bad starting point of the Directive was beyond its powers. And that reflected a long history of failure to deal effectively with European legislation. Our new Government has got off to a promising start in this respect. They must now build on it.”

Richard Saunders concluded that the final Directive represents a missed opportunity:

“Institutional investors like pension funds really needed a better set of EU wide private placement rules, which would have enabled them to get access to the most suitable products for their needs. They missed out with this Directive.”

A transcript of Richard Saunders’ speech at the Lawyer Funds Summit can be found here.