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19 June 2015

ALFI responds to draft EBA guidelines on limits on exposures to shadow banking entities

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ALFI strongly disagrees with EBA proposal to include all AIF’s and all MMF’s (including UCITS) under the definition of shadow banking entities which carry out banking activities outside a regulated framework.

The EBA proposes, in the absence of a definition of “shadow banking entities”, to include alternative investment funds and money market funds under the definition of shadow banking entities which carry out banking activites outside a regulated framework. ALFI urged EBA to revisit their analysis, taking due care of all the legislations that were introduced/implemented in Europe in the Asset Management sector (UCITS, AIF and MMF) since the shadow banking discussion arose and which fully address the concerns typically associated with the shadow banking activities.

Whilst the consultation paper does not specifically define the term “exposure”, ALFI is deeply concerned with the potential implications of limiting European credit institution interaction with AIF’s and MMF’s. Many fund sponsors are part of banking group and it is therefore market practice to “seed” new fund launch –this is even a requirement to access certain market which impose minimum size and track records for distribution. If such possibility was withdrawn (or significantly limited) for AIF’s and MMF’s, it would have a severe negative impact on fund launch in Europe and thus capital market in Europe. This appears to be in contradiction with the EU ambitions for the Capital Markets Union.

Restricting access of AIF’s to bank financing might have the perverse effect to force private equity or real estate projects outside the sphere of regulated entities, increasing lending risks, decreasing investors protection and being counterproductive in term of capital market union.

Full response

© ALFI - Association of the Luxembourg Fund Industry

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