National regulators such as France’s AMF or the Central Bank of Ireland will not be able to authorise a manager if that manager plans to outsource or delegate a material part of its activities to a non-EU country without notifying ESMA in advance and giving ESMA an opportunity to review the proposed delegation. For these purposes, a manager includes a MiFID-licensed company, an alternative investment fund manager or a UCITs management company. Esma will also be authorised to review the delegation arrangements of existing managers.
From a Brexit perspective, in particular, it is worth considering the following before giving a four-person executive board in ESMA the final say on matters that are now within the remit of the 28 regulators on the board of supervisors: First, according to the commission’s own impact assessment, the regulators who make up the board of supervisors in ESMA do not support these proposals, as they believe the current structure is appropriate. Second, will ESMA have the capacity to review, in a timely manner, delegations outside the EU by every manager who chooses to do so? Third, the establishment of a four-person executive board is a move towards an SEC commissioner-type model. The chairman of the executive board will have the casting vote on split decisions. In contrast, the chairman of the board of supervisors does not have a casting vote and decisions are based on simple majority. Fourth, recently there have been concerns about ESMA’s interpretative guidance changing the meaning of primary regulation. While this needs to be monitored carefully, EU member states need to be wary of the invisible hand that sometimes manages to influence ESMA’s output.
Similar changes are being proposed in relation to the governance of the European Banking Authority and the European Insurance and Occupational Pension Authority. EU member states and their regulators should not be rushed on these proposals, as they represent a huge power grab that could change the financial regulatory landscape in the EU completely. The Esma reform proposals could precipitate a hard Brexit as well as disenfranchise regulators on important issues affecting the asset management industry in the EU.
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