Peter De Proft of the European Fund and Asset
Management Assocation (EFAMA) reflects on the period of change
in Europe, supporting a regulatory pause and discusses where
the future focus should be for the European asset management
With new mandates for both the European Parliament (EP) and
European Commission (EC), 2014 marked an inflexion point in
Brussels and the European Union as a whole. It is the beginning
of a new phase for the EU.
In June 2014, citizens from all 28 EU Member States decided,
with their democratic vote, who would represent them in the
European Parliament. 751 Members of the European Parliament
(MEPs) were elected. The outcome of the European Parliament
elections influences the final composition of the EC. A new
Commission President, Jean-Claude Juncker, was appointed, and
Commissioner-designates appeared before MEPs in public
hearings. The final Commission team was approved by the
European Parliament, and began its new mandate on 1 November
With the new European Parliament and EC, Brussels encounters
a period of change, a period of new faces wanting to do things
differently, or where things will happen differently. Remarks
made by Sir Jonathan Hill, new EU Commissioner for Financial
Stability, Financial Services and capital markets union, on
social media on 6 November, just six days after taking on his
new job, were telling: "We should do smaller number of bigger
things better at EU level and stop bigger number of smaller
things intruding in national life".
Let us begin with the new European Parliament. The European
elections brought a rather significant shift in the political
composition of the European Parliament, with far right and far
left parties gaining seats. This has never been seen
Within the European Parliament, the Economic and Monetary
Affairs (ECON) Committee – the key EP Committee for
the asset management industry – is now a bigger house.
Its size has increased by 27% compared to the previous
parliament. In other words, it has grown to 61 full members
from the lower number of 48. And around 50%, or 30 out of the
61 Members of the European Parliament in the ECON Committee,
are newly elected. Not only are they new to the somewhat
complex political Brussels landscape, they are also new to the
numerous technical files going through one of the Parliament's
most prolific Committees. The chair of the Economic and
Monetary Affairs Committee is no longer in the hands of the
liberals. Italian Roberto Gualtieri, from the Group of the
Progressive Alliance of Socialists and Democrats, will no doubt
leave his own imprint on this Committee's work and
From a political point of view, new political composition
means a new balance of power, which will no doubt affect, maybe
politicise even further, legislative discussions. What is clear
is that we can expect to see dynamics within the EP that have
never been seen before to achieve majorities and complicated
alliances that are not yet tested. Political analysts explain
that there might be two ways to agree in a parliamentary
session and secure a majority vote. One would be through a
grand coalition of the two main political groups: the Group of
the European People's Party/Christian Democrats (EPP) and Group
of the Progressive Alliance of Socialists and Democrats
(S&D). The second would be through a coalition among the
centre-right and the liberals, i.e., four European political
parties would need to ally: the Alliance of Liberals and
Democrats for Europe (ALDE), Group of the European People's
Party/Christian Democrats (EPP), European Conservatives and
Reformists Group (ECR), and the Europe of Freedom and Direct
Democracy Group (EFDD). It would be unwise to pre-empt how this
may function, how politicised technical discussions will become
and how Trojan horses might play the game. The challenge has
contribution that the fund management industry can have
in the financing of the economy and long-term saving is
crucial and needs to be encouraged"
The European Parliament, as far as the area of financial
services is concerned, has a full agenda for these first months
of mandate. But nothing like the last months of the previous
mandate, when regulatory frenzies were at its peak. In the
asset management arena, a number of key files already feature
on Committee agendas, including the Regulation proposed by the
European Commission (EC) on Indices used as benchmarks in
financial instruments and financial contracts; an EC proposed
Regulation establishing a European framework designed for money
market funds (MMFs); a draft Regulation on reporting and
transparency of securities financing transactions; the proposed
Bank structural reform and the draft Directive revising a
previous one on the activities and supervision of institutions
for occupational retirement provision (IORP II). More work
between the European institutions includes the commonly
referred to trilogue negotiations between the European
Council, the European Parliament and the EC, which will soon
begin on the proposed Directive on insurance mediation (known
as IMD II).
In the new EC, the Juncker Commission, there are new faces
and winds of change. A UK Commissioner for Financial Stability,
Financial Services and capital markets union, Sir Jonathan
Hill, was an unexpected novelty. Allegedly, a clever one in
times of much Euro-scepticism in the UK. In principle, new
institutional players bring a renewed thinking on building
Europe and setting new priorities for Europe. Many questions
hang: who are they?; what are their plans and priorities?; and
what will they do?. Now is the time to find out the answers.
New ideas have started unfolding on how to build on the single
market. The concept of a capital markets union or Commission's
investment plan, which was released at the end of November, are
two such examples. It is too soon to tell what this will bring
concretely, but the feeling is one of change.
With certain caution, EU policymakers speak of a somewhat
regulatory pause. The avalanche of regulation in the previous
Commission has paved the way for calmer times, and the shift in
focus is said to be on:
- The completion of what was started. A number of
legislative files, proposed by the previous Commission,
remain under negotiation with the Council and European
Parliament and still need to be finally adopted.
- The appropriate implementation of legislation adopted. In
practice this means that the Commission will have to deal
with the impressive number of 414 Level 2 measures that flow
from adopted legislation (mainly under CRD4, BRRD, and MIFID
2) since the financial crisis. Out of these 414, 177
empowerments are legally due for adoption in 2015.
Our industry agrees with the need for a regulatory pause,
which has been acknowledged in higher circles in Brussels. It
is important to bed down the regulatory regimes that have been
put in place, take stock, and allow them time to work as
intended. We also agree that appropriate implementation
avoiding gold-plating, consistent enforcement, and appropriate
supervision of existing legislation are crucial. And that the
cumulative effects of EU regulation should be appropriately
assessed. All of these aspects are equally fundamental.
The Commission plans to focus on what they believe matters.
The final EC Work Plan was approved on 16 December 2014 and
presented at the European Parliament in Strasbourg. With it,
the new Commissioner for Financial Stability, Financial
Services and capital markets union, unfolded, before the
Christmas break, his vision and priorities in financial
- There are key words, in this new era, in everyone's
mouths: Europe wants to build a capital markets
union. This is a relatively new concept in Brussels that
mirrors the single market motto. In 2015, the Commission
plans to consult stakeholders about what needs to be done at
EU level. Are there remaining barriers to the EU internal
market to tackle? How can regulation make markets more
efficient? The consultation will launch a debate to seek and
unfold ideas around the concept of a capital markets union.
After taking stock of stakeholder views, the Commission will
decide on its Action Plan, which is expected to be published
around summer 2015.
- More immediate priorities for the new Commission will be
proposing a European regulatory framework for the resolution
of central clearing counterparties (CCPs) and other
non-banks. Commissioner Hill believes a legislative framework
in this area needs to be adopted rapidly, given their
capacity to be the next Too Big To Fail. Clearly
this is a political priority.
- Simple and transparent high quality
securitisation will also be material for EU legislation.
The EC hopes a regulatory framework will facilitate
investments into high quality securitisation and ensure a
fully consistent approach to the treatment of high quality
securitisation across sectors.
- The Commission will also seek views from interested
stakeholders on two further key topics: (1) revising the
European Supervisory Authorities, with regard to their
funding and governance; and (2) on EU actions to improve the
current market situation for retail financial services and
insurance in the single market. Both are far-reaching enough
to open the door to further legislation.
- We await with anticipation and interest another big plan
of the new Commission: the long-overdue assessment of the
cumulative impact of regulation. Needless to say, this is a
major task requiring considerable efforts and resources.
Without this, the new Commission is bound to fall short of
its objective of 'better regulation' with a clear risk of
proposing regulatory pieces either not fully consistent with
each other or which overlap existing requirements, or worst
of all, which inadvertently create an un-level playing field
among financial sectors.
Growth, saving, and financing the economy
In the new institutional environment, the trend that started
in the previous Commission towards growth, long-term savings
and long-term financing of European citizens and projects will
become increasingly important. The asset management industry is
at the heart of this debate.
The European asset management industry stands ready to help
understand the particular business model of its industry and
the technicalities that go with it, and to constructively
engage in the discussions.
Number one challenge: explaining the role of the investment
The asset management industry is the first to acknowledge
that it will be crucial to increase understanding and trust in
this industry, and address negative perceptions openly and
constructively. More efforts will be put into better and
clearer explanation of the role and value of our industry, and
our distinct business model.
Indeed, the investment management industry plays a vital
economic role from which the 'real economy' benefits. And they
can provide solutions to the financing gap that exists in
What is this role?
- The asset management industry acts as a link between
savers and the financing needs of the real economy. Asset
managers channel savings of firms and households towards
investment in companies, infrastructure projects and public
needs. They bring together supply (capital from investors)
and demand for that capital from companies and
- Asset managers act on an agency-based model. They have a
legal obligation to act in the best interest of their
investors. This fiduciary duty is the backbone of our
- The limited balance sheet risk assumed by asset managers
is based on the fact that they do not provide credit, custody
or relevant functions, and they do not use their balance
sheets to leverage or to fund day-to-day operations. There is
no asset-liability mismatch on asset managers' balance
- Clients' assets are protected as they are entrusted to
depositaries with responsibilities going beyond safekeeping.
Based on regulatory safeguards, investment funds' assets
remain out of the reach of the creditors of the asset
The contribution that the fund management industry can have
in the financing of the economy and long-term saving is crucial
and needs to be encouraged. It is worth noting some other
facts, possibly relatively unknown, on the contribution of the
European asset management industry to the European economy.
- The European investment fund industry is one that is
growing at a fast pace. It is much larger today than it was
ten years ago, as it has more than doubled in size to reach
€93.8 trillion of assets under management at the end of
2013. Demand is there.
- Europe is the second largest market in the global asset
management industry, holding 37% of the market share. The US
held a 45% market share at the end of 2013.
- With over 3,200 companies, the European asset management
industry provides 95,000 direct jobs, and 530,000 full time
- The UK is the largest market in Europe, with a market
share of 35%, followed by France with 19% and Germany with
- European investment funds assets stood at €10.6
trillion at the end of June 2014.
- The demand for investment funds in Europe increased in
2013 – overall, investment funds domiciled in Europe
ended 2013 9% higher. European investment funds attracted
€2,420 billion over the last 10 years
- The share of cross-border funds in Europe in 2013 stood
at 40% of total European investment fund assets, an increase
of 13% in the last decade.
More challenges ahead: growth and financing
In the midst of these institutional changes, Europe faces
fundamental challenges, including a financing and a pensions'
gap. The long-term nature of these challenges mirror the
fundamental long-term nature of our industry and, as a result,
asset managers have an important part to play to fill both
In relation to financing, as banks gradually reduce their
lending activities and ageing societies look for ways to fund
retirement, the asset management industry has an even greater
role to play in developing non-bank financing to Europe's
businesses. Asset managers are filling the gaps left by the
banks safely, and without bailouts. We welcome the potential
seen in the asset management industry as part of the solution
to the financing gap: by channelling the savings of millions of
firms and households to companies and governments into concrete
retirement plans and projects, the asset management industry
finances a sizeable share of economic activity.
With regard to the savings gap, the EFAMA FactBook,
published in 2014, shows that households in Europe park 42% of
their financial wealth in bank accounts. The figure for the US
is a mere 15%. What stems from this is that Europe has not yet
found an optimal way to unlock capital and shift it
appropriately towards long-term saving and financing.
When it comes to retirement savings, more can be done, and
we need to encourage European households to save more for
retirement. To achieve this goal, we believe tax incentives are
useful. Our industry is highly supportive of initiatives
towards a European single market for personal pension products.
We are convinced the creation of such a single market would
create the potential for scale economies in the pension market,
lower cost and higher return, and therefore stronger demand for
pension products. This is why EFAMA proposed in 2013 a
European brand of personal pension products: the
Officially Certified European Retirement Product (OCERP) for
insurance companies, banks, pension funds and asset managers to
A final word of caution is required. An appropriate legal
framework can help incentivise long-term savings and
investments, but an excessive or too prescriptive one will
undoubtedly and unfortunately hamper it.
An overarching theme: financial education
It is widely recognised that many people lack the level of
financial education required to decide how much they should
save to prepare for retirement and how they should manage their
savings and investments. EFAMA's research on investor education
highlights Europe's financial literacy crisis, with millions of
people struggling to cope with even basic concepts, such as
savings and investment (see EFAMA report entitled Building
Blocks for Industry Driven Investor Education Initiatives,
As responsibility for financial provision increasingly
shifts from the state to individuals, urgent action by public
administrations seems a must.
The fund industry plays a role in enhancing the quality of
financial training of staff and financial intermediaries
– brokers, advisers, sales people and others. We
believe this will help them enable potential investors to make
better-informed investment decisions. This is a contribution to
improved investor education that has been welcomed by consumer
A global debate
Peter De Proft
The European Fund and Asset Management Association
47 Rue Montoyer
1000 Brussels, Belgium
T: +32 2 513 39 69
F:+32 2 513 26 43
Many of the issues above are also burning topics being
discussed at global level, namely by the Financial Stability
Board (FSB) and G20.
The asset management industry is, by its own nature, a
global industry, much more so than other sectors. As such, our
organisation plays close attention to such global discussions
and engages with relevant organisations. EU-US relations are
also central to our industry, as are relations with other parts
of the global environment, such as Asia and Latin America to
name a few.
The International Organisation of Securities Commissions
(IOSCO) is an important partner of the FSB in developing a
global regulatory architecture and plays a central role in
discussions regarding the investment management industry, and
EFAMA has been an affiliate member since 2012.
For all of the above, asset managers have a contribution to
make in the ongoing and upcoming debates in the European Union.
We will continue contributing to the European debate on how to
build and strengthen an overall framework to ensure Europe's
efficient and attractive investment environment.