The European Securities and Markets Authority (ESMA) is calling for greater oversight powers over fund managers, which would allow regulators to better protect retail investors, amid concerns about the risk of regulatory arbitrage.
European regulators will have new product intervention powers starting in 2018 that will allow them to temporarily restrict, or limit, the distribution of products that are deemed to pose risks to retail investors, market integrity, or financial stability.
However, regulators are concerned that these powers are limited to investment dealers and don’t extend to fund managers. ESMA says it’s “concerned about the potential for regulatory arbitrage and the potential reduction in effectiveness of future intervention measures.”
In particular, regulators are concerned that a product that is restricted, or banned, for investment firms could still be distributed directly by fund managers. As a result, ESMA says European policymakers should address this issue.
“ESMA believes that including fund management companies in scope of the … intervention regime would ensure a harmonized framework across entities and instruments,” says Steven Maijoor, ESMA’s chairman, in a statement. “This would create a level playing field between [investment] firms and fund management companies, ensuring we appropriately address risks to investors and financial stability.”