McCreevy told to relax fund rules

Major investment banks are lobbying Charlie McCreevy, the European commissioner for the internal market, to give them more freedom to outsource their operations in an update of fund management rules.

The banks fear that McCreevy will defend Irish interests by maintaining at least partial restrictions.

A revision of the UCITS directive (undertakings for collective investment in transferable securities) is expected in April, and the banks, which include JP Morgan and BNP Paribas, want it to allow them to scatter important accounting and administration operations across the EU.

Current rules compel firms to retain such operations in the country in which they are registered. Ireland and Luxembourg, which host a significant share of companies specialising in accounting, administration and legal services, have subsequently become hubs for the investment industry.

Jarkko Syyrila, head of international affairs at the London-based Investment Management Association (IMA), which represents major funds, said that Ireland and Luxembourg had a vested interest in preserving the status quo. "Most of the cross-border marketing is done by Ireland- and Luxembourg-domiciled fund vehicles," he said.

Syyrila said that Ireland and Luxembourg were taking advantage of turbulence on the financial markets to argue their case. "At the moment, lots of concerns over supervisory elements are being raised. It is timely for them to benefit from concerns," he said. "People are using the turmoil to argue that they can’t allow for regulatory gaps."

The IMA stepped up its campaign for full-scale liberalisation after McCreevy published an exposure draft of new rules last year. The draft was less ambitious than they would have liked, leaning towards a ‘partial’ rather than a ‘full passport’ for investment firms. The latter would lift all restrictions on outsourcing.

Kieran Fox, of the Irish Funds Industry Association (IFIA), said that Ireland would not necessarily be opposed to full liberalisation. "The industry in Ireland is constructed from domiciled and non-domiciled funds in almost equal measure and therefore it is not clear what effect, if any, liberalisation might have," he said.

But an IFIA position paper released last year outlines a clear preference for the ‘partial passport’. "The partial passport will deliver a large proportion of the expected cost and resource efficiencies without compromise to the clarity of the regulatory remit. Given the compromise nature of the partial passport it should be possible for it to be introduced without delay," it says.

Patrice Debono, a senior officer at the Committee of European Securities Regulators (CESR), on which the member state regulators are represented, acknowledged that there were "different streams of thinking on...passports". While careful to point out that CESR did not have any specific preferences, he said that the ‘full passport’ would not bring the dramatic changes feared by Ireland and Luxembourg.

Either option, he said, would raise "crucial co-operation questions" for regulators, who are already trying to strengthen cross-border co-operation under an ongoing reform of supervisory networks within the Lamfalussy process, itself set up in 2000 to speed up financial integration. "Whatever the solution, regulators will have to enhance co-operation and understanding," said Debono.

Syyrila said that billions of euros were at stake. "We are talking about big numbers," he said. "The success story of UCITS has been the success story of Luxembourg and Ireland. But they have taken a defensive position on the question and are opposing any change."

According to Syyrila, the common perception is that McCreevy is bowing to national interests. "We don’t think there are real arguments being put forward for delaying the introduction of the passport," he said.

A spokesman for McCreevy said: "It is absolutely clear that there are no conclusions yet at all. A lot of respondents in the consultation made an issue about supervision. Many of their concerns addressed legal and technical problems. We need to obtain more detailed advice from CESR and come to further conclusions."

• McCreevy said on Thursday (7 February) that US insurers may have to comply with new EU solvency rules if they want to operate in Europe. Solvency II, a set of rules governing how insurers factor in risk on their books, is to be approved by MEPs and member states by the end of this year. McCreevy has in the past tried to soften US solvency requirements applied to EU firms.

Major investment banks are lobbying Charlie McCreevy, the European commissioner for the internal market, to give them more freedom to outsource their operations in an update of fund management rules.