In light of the fact that asset management activities constitute by their very nature an “agency” business, the existing prudential requirements for investment firms sit oddly within the prudential CRD/CRR rules applicable to credit institutions. Hence, ALFI does not agree with EBA’s statement in the submitted discussion paper (on page 6) that it will also be relevant for UCITS management companies or AIF managers authorised to conduct certain MiFID investment services or activities. ALFI’s members are convinced that for asset management companies an effective and risk-based prudential regime is already in place under the respective UCITS Directive and AIFM Directive. Therefore the scope for a new prudential regime should be limited only to investment firms providing MiFID services or activities as their core business, currently falling within the prudential scope of CRR/CRD.
ALFI therefore welcomes the European Commission/EBA proposal to define a more proportionate and tailored self-standing regime for investment firms that are not to be considered as “systemic and bank-like”. Accordingly, its response to the Discussion Paper is limited to those questions related to “Class 2” firms as presented under Section 4.2.2 of the Discussion Paper. With regard to those “Class 3” investment management firms whose core business is to manage portfolios on behalf of third-party clients, ALFI would welcome the proposed single prudential regime, completed with the necessary built-in proportionality. ALFI recognises that, in view of designing a single rulebook for these firms, the EBA may “borrow” some relevant concepts and requirements from the CRD/CRR framework. ALFI insists, however, that the EBA proceed cautiously by duly recognising the key differences between banks’ versus non-banks’ business models.
With regard to “size” as a firm categorisation tool to determine whether it deserves a “systemic” label, as well as a reliable proxy to calibrate its intended capital requirements – to the extent that size refers to an investment firm’s total assets under management (AuM) – ALFI would caution the EBA of the fact that there is no obvious and linear relationship between the size of a firm’s AuM and the risk it poses to the broader financial system, let alone its “systemic” importance. In this regard, size should be assessed as one amongst other relevant factors, in particular, those identified as operational risks in the EBA’s December 2015 Report on Investment Firms (EBA/Op/2015/20).
Finally, ALFI considers that an appropriate remuneration regime, which is proportionate and tailored to the “agency” nature of the asset management business, should naturally accompany the proposed “new” prudential regime for asset management firms, marking a necessary departure from the application of bank-specific remuneration principles (i.e. those under CRD) to non-banks.
© ALFI - Association of the Luxembourg Fund Industry
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