30 January 2020 ICMA's AMIC and the IA have written to Executive Vice-President Dombrovskis of the European Commission, on behalf of their members, expressing concerns about the potential bond market impacts of the CSDR mandatory buy-in provisions (due to come into force in early 2021). The regulatory initiative is widely expected to have negative implications for European bond market efficiency, liquidity, and stability, creating additional, and largely unwarranted risks for investors. Representing European and global buy-side institutions, the Asset Management and Investors Council and the Investment Association encourage the European Commission to undertake a robust market impact assessment of the mandatory buy-in provisions before attempting implementation. In the absence of such an analysis, as a minimum, the associations request a cautious, phased-in approach to minimize potential disruption to the European markets.
AMIC responds to Central Bank of Ireland consultation on ETFs
ICMA's AMIC has submitted a response to the Central Bank of Ireland’s Discussion Paper on Exchange Traded Funds (ETFs). AMIC has long taken an interest in the development of ETFs. AMIC has long taken an interest in the development of ETFs. In 2011 AMIC published a short general paper on ETFs with a description of different types of ETFs, the state of the ETF market, assessments of market trends in ETF development and usage, the future development of the ETF market and the value of the ETF brand. More recently, AMIC’s interest in ETFs is limited to their relevance to the debate on systemic risk. We have already been active in the global debate on the possible systemic risk related to asset managers.
The AMIC response on ETFs addresses certain topics in the consultation, in particular potential systemic risks in ETFs and the impact of ETFs on corporate bond liquidity.
To view the response, click here.
AMIC and EFAMA publish report on fund liquidity risk management
The International Capital Market Association’s (ICMA) Asset Management and Investors Council (AMIC) and the European Fund and Asset Management Association (EFAMA) have joined forces to write a report on the legislative requirements and market based tools available to manage liquidity risk in investment funds in Europe.
This report is written in response to public concerns that liquidity has become more fragmented, whether as a result of the reduced role of banks as market makers and liquidity providers or the prolonged accommodative monetary policy of the world’s most prominent central banks.
The report illustrates that the existing EU regulations and tools available in most European jurisdictions prove both comprehensive and appropriate for liquidity management in both normal and exceptional circumstances and have proven their merits throughout various market conditions, in line with the IOSCO findings in its December 2015 Report on Liquidity Management Tools in Collective Investment Schemes.
The report puts forward three recommendations that should lead to improvements in the general liquidity management environment in Europe. Firstly, we encourage the wider use of available market-based tools in all European jurisdictions. Secondly, we strongly encourage the use of existing data already currently reported to national authorities in Europe to improve the analysis of liquidity risk by ESMA and the ESRB. Finally, we encourage the continuing efforts by European and national trade associations to develop further guidelines for best practice in liquidity risk management.
Please find the report here, and an executive summary here.
ICMA AMIC's Bail-In Working Group sends discussion letter to the ECB to set out views on the operation of the bail-in mechanism
The Bail-In Working Group has sent a discussion letter to the ECB which sets out views on the operation of the bail-in mechanism. The discussion letter explores some of the investors’ concerns and information needs that arise from the implementation of the bail-in regime, how investors should evaluate the risks of investing in bank unsecured paper and what can be done to increase the transparency of the mechanisms of regulatory intervention.
To view the discussion letter, click here.
The Bail-In Working Group has sent a further letter to the ECB in which it reiterates views on the operation of the bail-in mechanism which were previously articulated to the ECB on 31 July 2015, and welcomes engagement with regulators, with the ultimate goal of ensuring an efficient and open market and long-term stability of the financial market.
To view the letter, click here.
Response to FCA Discussion Paper DP14/3 – the use of dealing commission regime
DP 14/3 follows consultation CP 13/17 and position statement PS 14/7 on changes on the use of dealing commission rules. AMIC’s response to CP13/7 can be found here. DP14/3 discusses the FCA’s policy on banning use of dealing commission for research and ramifications of MiFID 2 introducing similar rules.
AMIC members had the following general points to highlight:
- The international dimension of the change of rules in the UK, and global level playing field: it is welcome that the FCA has devoted its attention to this issue which we and others raised in CP13/7, in particular with regard to the introduction of MiFID II. Nevertheless, members still feel that there is insufficient concern in the FCA about the effect on UK-based international managers operating sub-advisory arrangements internationally outside the EEA will be left at a regulatory disadvantage in other markets, particularly the US and Asia.
- The impact on choice and availability of quality research: while AMIC members share the goal of the reforms outlined in the DP, namely more relevant and higher quality research, they are concerned about potential impact on the availability of quality research for SMEs, damage to small and medium fund managers, and independent research firms in the transition period.
- Need for transparent pricing: AMIC members continue to urge greater pressure on sell-side firms to develop transparent classification and pricing of research.
Response to FCA Consultation CP13/17 – the use of dealing commission rules
This CP forms part of the FCA wider asset management strategy. In particular, as part of the investment managers’ agency responsibilities, the FCA highlighted that it wants to ensure that they seek to control costs to clients with as much rigour as they pursue investments returns. The proposals are intended to clarify the criteria for research under the rules to help firms make better judgements about what can be paid for with dealing commission charged to the fund. Although CP13/17 is a UK paper, it may set global standards in this area for the industry. AMIC members had the following general points to highlight:
- The international dimension of the change of rules in the UK, and global level playing field: The proposed rules changes provide a level playing field to asset managers operating solely within the UK. However UK-based international managers operating sub-advisory arrangements internationally will be left at a regulatory disadvantage in other markets.
- Incremental cost of compliance: The introduction of a more prescriptive analysis of eligible research will result in additional administrative costs by virtue of demonstrating compliance with the four, cumulative, evidential tests for every piece of commissionable research. The costs associated with the changes proposed in this consultation are not considered in paras. 8 and 9 of Annex 1.
- Corporate access: AMIC members do not oppose per se the proposed ban on corporate access being paid for with dealing commissions; however, the main concerns relate to how this ban manifests itself in an international context and its impact on smaller asset managers.