European Outreach

Vision for Europe
The European Commission published on 27 May 2009 its proposal for an integrated and consistent system of financial supervision in the European Union. The proposals are a result of the complex negotiations and extensive redrafting since the formation of the “de Larosière” consultative group in October 2008 and the group’s report (PDF) published in February 2009. Throughout the process, the Centre’s EMEA staff has been actively involved through both written communications and by holding high-level meetings with the European Commission and other key decision makers.

The Commission’s proposal calls for the creation of a European Systemic Risk Council, centered around the European Central Bank, that would be responsible for macro-supervision and early warning, as well as for a reform of the current framework for the design, implementation, and monitoring of micro-supervision and regulation. This aspect of the European Commission proposal is of major interest to many CFA Institute members. The Centre has supported the reform of the micro-framework, including such steps as upgrading the status of three committees — Securities, Banking, and Insurance — to be recognized as “Authorities”; consolidating community legislation in the field through the creation of a single rulebook; and a wider use of regulations. The result of this process should be a more coherent functioning of EU financial markets.

The Centre will continue with its active engagement in the definition of this legislative package in the crucial coming months and will make sure that investors' interests are fully taken into account.

EMEA Regulator Engagement
The Centre team recently submitted a number of consultations, including those to:

International Organization of Securities Commissions (IOSCO) on hedge funds oversight (PDF)

Issue: The IOSCO consultation addresses the risks posed by hedge funds; the current level and scope of hedge fund regulation; and preliminary recommendations of possible principles to mitigate the risks.

Centre Position: The Centre advocated for a combination of hedge fund manager registration, effective self-regulation (based on an industry standard code of best practice), and oversight of regulated financial counterparties, such as prime brokers. Combined, these measures should provide supervisory authorities with the information they need to monitor the buildup of risks and provide for the protection of investors.

Committee of European Securities Regulators (CESR) on technical issues relating to Key Information Document (KID) disclosures for UCITS (PDF)

Issue: The aim of the KID is to provide investors with clearer, more concise, and relevant information about the essential characteristics of a UCITS fund, over a two-page document (to replace the ”Simplified Prospectus”). The CESR consultation addresses technical issues relating to (1) risk and reward disclosures, (2) past performance, and (3) charges.

Centre Position: The Centre was broadly supportive of CESR’s recommendations. Throughout, the Centre advocated that generic information should be largely removed from the KID and sign-posted to a common website. The Centre also advocated for consistency with the GIPS standards when presenting performance information.

Additionally, the Centre reached out to the following influential figures:

• Dilwyn Griffiths: head of Market Monitoring, Markets Division (FSA)
• Emil Paulis: director of Financial Services Policy and Financial Markets (DG Markt)
• Maria Velentza: head of unit, Securities Markets (DG Markt)
• Patrice Berge-Vincent: Regulation of Financial Disclosures & Corporate Financing (AMF); the Centre also assisted the CFA Society of the UK and CFA France with their respective submissions on short selling to the FSA and AMF.

DG Markt-Alternative Investment Funds
In May, the Centre compiled a summary of the DG Markt-Alternative Investment Funds directive, in which we concluded that the directive is generally positive and will be good for investors. Charles Cronin was interviewed by a Brussels-based correspondent of the French publication L’Agefi on the subject.

Poll Results: Executive Compensation and Retail Investment Products
In recent months, the Centre has conducted CFA Institute member polls on executive compensation and on retail investment products as part of its drive to increase the member voice before the regulatory community in the European Union. At the end of April, the Centre published the poll results through press releases that were covered in the U.K. and German media, among other venues.

Regarding executive compensation, 64 percent of respondents believe that executives in practice receive the majority of their variable compensation no matter what the company’s circumstances may be. This demonstrates an industry perception that despite the economic crisis, executives are still receiving rewards, and many investors feel that the variable element of executive compensation is received as an ”entitlement.” Read more.

Results of the retail investment products poll reveal that almost three-quarters (73 percent) of respondents based in the European Union believe fee structures of investment products drive their sales to customers rather than their actual suitability. Read more.

Swedish Presidency of EU
Martin Sjöberg, the Centre’s manager of European Affairs, met in May with Charlotta Erikson, financial attaché at the Swedish permanent representation to the European Union. One of the main topics discussed — and an issue in which Sweden has kept a high profile — was financial supervision. Sweden, and its minister for finance, Anders Borg, is relatively supportive of a pan-European structure, whereas the United Kingdom is a strong opponent. If such central issues as determining the power accorded to the new EU authorities are not solved under the Czech presidency of the EU, they will clearly be top priorities during the Swedish administration beginning 1 July. The Commission’s new proposal on alternative investments was also discussed.

EMEA Society News: Ethics Seminar in Stockholm
At a recent event hosted by CFA Sweden, Mr. Sjöberg spoke to more than 60 attendees about ethics and financial market integrity. He also shared information about the CFA Program and the work of CFA Institute. Following the presentation, Mr. Sjöberg visited the Finansinspektionen (the Swedish Financial Services Authority) to enhance the Centre’s regulatory outreach and advocacy work on the national level. The representative who met with Mr. Sjöberg, Per Håkansson, was clearly interested in the work of CFA Institute in this area and described his organization’s work with consultations and working groups and explained how CFA Institute may get involved.