Prior to tomorrow’s IMA Dinner in London, Mr. Godfrey tells us why the FCA is an international thought leader, what will the next big regulatory impact on the UK market be, and how much he believes in the rugby team of Tonga.
How can EFAMA impact ESMA so the new directives are applied in the same way and at the same time in all European countries?
ESMA’s role will be particularly interesting in the next five years, as the European Commission maps out the ‘Capital Markets Union’. This Union is clearly not just about the structure of wholesale markets, but the experience of the ordinary citizen in consuming financial services.
What also matters here, is that policy makers have a full and accurate appreciation of the role that asset managers play – as distinct from banks but also as distinct from the ‘asset owners’, such as insurance firms, pension funds and retail clients whom the manager serves. The EU is rightly looking to market-based finance to play more of a role, reducing historic over-reliance on banking. This is not only good for funding the economy but also begins to address the ‘savings deficit’: the fact that individuals can take on more responsibility for their pensions and — with governments facing financial constraint — may have to.
Does EFAMA have the same impact on ESMA, as the British IMA on FCA or Luxembourg ALFI on CSSF?
As regards consistency of application of rules, in recent years more of the legislation that the European Commission has brought forward has not taken the form of Directives, where national implementation can vary, to the detriment of the Single Market, but Regulations, which are directly binding on market participants and must be enforced by national supervisors as written. Even here, ESMA has a role to play and so the IMA shares the widely held view that ESMA should always be given a fixed and reasonable time period to carry out its ‘Level 2’ legislative work thoroughly, rather than sometimes getting the green light quite late, because of delays in finalising the primary-legislation work at ‘Level 1’.
Given the regulatory changes, do you observe hedge fund managers ask IMA for help ? How can you support them?
We support members who manage money in various forms, including AIFs. We pay close attention to legislation across the piece, looking at everything from the initial public policy debate to the implementation of authorisation procedures. Naturally, the bulk of assets under management in the UK are in the form of simpler funds, such as UCITS, or so-called segregated mandates, where our members manage within parameters set by an institution that itself gathers retail savings, such as a pension scheme.
What will be the next big regulatory impact on the UK market?
It is hard to predict, but it will not necessarily be legislation that is specific to the UK. Clearly, debate continues about the regime governing research payments, but this is an issue that may soon be conclusively addressed at EU level under MiFID II, taking effect in 2017. MiFIR, meanwhile, will affect the structure of wholesale markets, on the same time scale and with some danger that market liquidity will decline further, to the detriment of investors.
There are discussions at global level as to whether to designate some collective funds as systemically important, though those discussions are still at a relatively early stage and the consequences are hard to gauge.
Would you perceive FCA as a thought leader across Europe and even beyond?
Yes. Although they are not the only regulator that I would see in this way. In the FCA’s case, for example, they are dealing with Retail Distribution Review (RDR). The rest of Europe and beyond are watching with keen interest and, as the largest investment market in Europe, their views carry great weight.
Should market effectiveness drive regulations or the other way round?
It’s symbiotic. While regulators should perhaps ‘first do no harm’, regulation can and in many cases clearly does provide investors and others with confidence that markets can function effectively, allowing capital to be put to work. It is sometimes forgotten that financial-services providers generally welcome the certainty and level playing field that regulation can provide for their activities.
Who will win the 2015 Rugby World Cup?
My personal view hopes are with Tonga.