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sector, by setting out a framework of enhanced monitoring, supported by reporting obligations and potentially certain defined intervention powers.
Particular thanks to Ben Kingsley (Slaughter and May) for his work on this submission.
6. RESPONSE TO ESMA CONSULTATION PAPER: GUIDELINES ON SOUND REMUNERATION POLICIES UNDER THE AIFM DIRECTIVE
The Committee responded to certain of the specific questions raised in the consultation paper and also raised two general issues relating to the interpretation and application of the relevant parts of the AIFM Directive on which ESMA did not invite responses, but which are relevant to the issues.
On proportionality in general, the Committee agreed
that the
proportionality principle may lead to a tailored application of some requirements in Annex II of the AIFM Directive, but was concerned that AIFMs may not be permitted to “neutralise” any provision in Annex II, even if that may be justified in accordance with the criteria set out by ESMA. In the Committee’s view, the approaches under the AIFM Directive and the Capital Requirements Directive (2006/48/ EC and 2006/49/EC) (CRD), which each contain substantially similar requirements, should be consistent.
The Committee also expressed its concern as to the practicality of the bifurcated approach given that the remuneration guidelines under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) will also apply to AIFMs when they provide the portfolio management investment service and certain non- core services mentioned under Article 6(4) of the AIFM Directive.
Particular thanks to James Perry (Ashurst LLP) for his work on this submission.
7. RESPONSE TO FSA CONSULTATION PAPER CP 12/19 (RESTRICTIONS ON THE RETAIL DISTRIBUTION OF UNREGULATED COLLECTIVE
8 • City Solicitor • Issue 80
INVESTMENT SCHEMES AND CLOSE SUBSTITUTES)
The Committee responded to the specific questions posed in the consultation paper and also raised a number of serious concerns about the FSA’s proposals generally. In terms of the scope, the Committee considered it unhelpful to introduce another categorisation of instruments (i.e. non-mainstream pooled investments (“NMPI”)) into what is already a complex area. Moreover, it also expressed that the FSA had not articulated the policy justifications for its proposals. For example, the Consultation Paper is not clear on whether the FSA is concerned about a particular product, but if that is the case, then its response should be tailored accordingly and more clearly articulated. Moreover, the definition of NMPI proposed in the paper is extremely wide, creates serious legal uncertainties and risks being as poorly understood by regulated firms as the current definition of “unregulated collective investment scheme”.
The Committee expressed its impression that the driving force behind the proposals appeared to be a number of specific enforcement cases, rather than a consideration of the broader market which may be covered by the uncertain definition. The Committee considers that it would be more proportionate for the FSA to focus on improving the training standards of firms which give advice (as is being done under the RDR), and identifying and disciplining firms which give unsuitable advice, rather than
depriving all private investors from access to products which may be suitable for them. If there is concern about a particular competence the regulatory response should be aimed at that, (for example, restricting advice on unregulated CIS unless the adviser holds a suitable qualification).
In the paper, the FSA does not seem to recognise the narrowness of the exemptions which permit promotions to be made to sophisticated and high net worth investors. Accordingly, the Committee noted that most of the investments caught by the new definition (of NMPI) could not be promoted, even to these investors, depriving them of access to some investments which might be suitable for them in the context of their overall portfolios.
The Committee suggested that if the FSA’s proposals are advanced in any form, the FSA will need to create a new category of customer who can afford proper advice and enter into fully advised transactions. The Committee does not support the proposition that customers should be forced into a discretionary management service in order to invest in a wider range of assets, if they prefer the control and independence that can be achieved through an advisory relationship.
Particular thanks to Tamasin Little (SJ Berwin LLP) for her work on this submission.
Margaret Chamberlain, Chairman, Travers Smith LLP
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