French watchdog has called for EU probe into funds delegation By Reuters

By Huw Jones

LONDON (Reuters) – France’s markets watchdog said on Thursday it has asked the European Union’s executive body to examine whether investment funds are circumventing limits on delegating stock picking to asset managers outside the bloc.

Asset managers in London manage assets worth over 2 trillion pounds ($2.8 trillion) in funds listed in the bloc, and delegation arrangements have allowed this to continue after Brexit.

“There are certain types of delegation arrangements where so much activities are delegated outside of the firms that you might question what is inside the firm,” Natasha Cazenave, managing director at French markets watchdog AMF, told a Politico event.

“We are calling on the European Commission to look into that. You are not supposed to delegate more than what you actually oversee yourself,” she said, without mentioning any country or firm.

EU securities watchdog ESMA last year called on the European Commission to hardwire into EU law its guidance for avoiding “empty shell” investment firms being set up by UK firms in the bloc ahead of Brexit.

Brexit and the market events of last March have intensified scrutiny of the EU’s 18.8 trillion euro funds sector just as the bloc’s fund rules are up for review.

Global regulators are due to consult in the summer on potentially stricter rules for money market funds after central banks had to inject liquidity into markets to stop them freezing up when economies went into pandemic lockdowns last March.

“Industry must find a business model that is sustainable without the intervention of central banks,” said Francesco Mazzaferro, head of the European Systemic Risk Board at the European Central Bank.

“We need to reinforce liquidity buffers, considering perhaps having some counter cyclical buffers,” Cazenave said in reference to an extra buffer required of banks for drawing down during market stresses.

Eric Pan, CEO of global funds industry body ICI, said that many parts of the market suffered stress last March and that stricter rules for funds and crimping delegation would lead to higher costs for end investors.

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