On 17 September 2009, the FSA published a speech that Sally Dewar, Managing Director, Wholesale & Institutional Markets, FSA gave at the FSA Asset Management Sector Conference. The purpose of the speech was to highlight current FSA thinking in response to the draft Alternative Investment Fund Management Directive.
Whilst the FSA broadly supports the aims of the Directive, it believes that there is scope for improvement, and that a risk-based, global approach is needed.
A key requirement is a more joined-up framework for collecting the information necessary to assess and mitigate the systemic risks to financial stability. Harmonising the procedures for the collection and sharing of such information by the FSA and the SEC (US Securities and Exchange Commission) will benefit fund managers by reducing their compliance burden.
Ms Dewar outlined four key issues:
- The need to correctly identify and proportionately address weaknesses in the current regulatory arrangements.
- The need to differentiate between types of alternative investment fund management. The diverse nature of the industry mitigates against a standardised approach.
- The need for a risk-based approach. Currently the Directive’s approach is too broad to enable proper focus to be brought to those alternative funds and managers posing the significant risks to financial stability and market efficiency.
- The need for a global - not just European - approach which won’t create arbitrary geographic boundaries that would cut legitimate business models and restrict investor choice.
She went on to warn, however, that, realistically, the UK’s vision of how the eventual regime should be shaped might not be shared by everyone and it was therefore important for stakeholders hoping for particular outcomes to actively contribute their views to those involved in the legislative process.
Ms Dewar concluded by explaining that, because of the risk of disproportionate regulatory responses damaging European markets, investors and capital raising, restricting investor choice and increasing costs for no discernable benefits, the FSA had commissioned an independent study into the potential impact of the Directive which would provide evidence to present to policy makers.