Sally Dewar, Managing Director, Wholesale & Institutional Markets, FSA gave a speech at the FSA Asset Management Sector Conference in order to highlight current FSA thinking in response to the draft Alternative Investment Fund Management Directive.

While the FSA broadly supports its aims, it believes that there is scope for improvements in the Directive, and that a risk-based, global approach is needed. Organisations need to work together to ensure that what is ultimately introduced will work equally for practitioners, investors and for financial stability.

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) would also benefit fund managers by reducing their compliance burden.

A further benefit of having what Ms Dewar sees as the correct regulatory framework in place would be the extension of the single market into the alternative investment market space. That a pan-European regime for “private placement” would be far better than the current patchwork of national regulation is plain to see and that underscores the need for cooperation in getting the right framework in place.

Ms Dewar outlined four key issues:

  • The need to correctly identify and proportionately address weaknesses in the current 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.

View FSA Asset Management Sector conference on the EU Alternative Investment Fund Management Directive, 17 September 2009