By Ilonka Oudenampsen
The European Commission (EC) today launched an in-depth consultation on a future framework for investment funds.
The consultation focuses on the issue of money market funds and how such funds should be regulated; the fund industry’s involvement in securities lending and repurchase (repo) arrangements; and the fund industry’s exposure to certain OTC derivatives that, in future, will be subject to central clearing and the fund industry’s approach to investors’ redemptions.
It builds on and is complementary to the European Securities and Markets Authority's (ESMA) guidelines on ETFs and other UCITS issues of 25 July.
The EC said the consultation raises a series of issues and policy options aimed at maintaining investor confidence in money market funds. The main issues are the role of money market funds in the management of liquidity for investors, their engagement in the securities lending and repo markets as well as their systemic involvement in the overall financial marketplace. Issues such as the various methods for calculating the net asset value for money market funds are also addressed.
Furthermore, it also focuses on so-called efficient portfolio management (EPM) techniques that Ucits fund managers use. The use of EPM techniques is widespread and, in the industry's view, they are an essential tool for generating additional revenue for the fund and its investors. EPM includes securities lending and repurchase transactions as well as the management of collateral that is received or granted to secure these transactions. The above-mentioned ESMA guidelines and the Commission's consultation on shadow banking has already raised the general issues that arise in this context and the current consultation aims to deepen the Commission's insight into the potential systemic and investor implications raised by a fund's use of EPM techniques.
Lastly, it seeks advice on how to create a European investment culture where retail investors take a longer-term and strategic view when placing their savings with the providers of fund products and have access to products suited to this. This would also include exploring ways for Ucits to participate in social businesses.
Responses to the consultation are welcomed until 18 October 2012 at the latest.