Memorandum submitted by Fidelity International
1. Fidelity International is grateful for
the opportunity to contribute to the Treasury Select Committee
Inquiry into European Financial Services Regulation.
THE OPERATION
AND DEVELOPMENT
OF THE
LAMFALUSSY ARRANGEMENTS
2. Though still in their infancy, the Lamfalussy
arrangements are a distinct improvement on the previous set-up
in the European Union. But there is clearly still room for improvement.
3. Of principal concern to us is the UCITS
Directive (Undertaking for Collective Investment in Transferable
Securities). Although this is not strictly speaking a Lamfalussy
Directive, the arrangements envisaged under the Lamfalussy process
have been brought into play. CESR (The Committee of European Securities
Regulators) has undertaken work on a number of areas emerging
from the 2001 Directives. Their recent publication on eligible
assets has gone a long way to clarifying the rules governing the
asset classes into which UCITS funds may invest. These new rules,
if implemented consistently, will clear up a number of differences
that have emerged between national regulatory authorities in the
EU. This process has shown CESR willing to listen to consultation
by changing a number of its original suggestions following constructive
feedback from the industry. But it was dealing with an issue that
was already causing problems for firms in the marketplace. The
time it has taken to resolve has caused confusion and significant
additional costs for firms.
4. The CESR work on the Notification Process
has also raised concerns. When a firm wishes to sell a UCITS across
borders in the Single Market it has to register the fund with
the Regulator in those markets it intends to target. The process
has become a costly administrative nightmare, with each Regulator
imposing different requirements on the fund. CESR has been charged
with clearing up the mess and arriving at a uniform system. It
recently published a consultation paper outlining a proposal for
a new harmonised system.
Though a welcome step in the right direction,
the proposals lack detail. For example, the paper fails to specify
where responsibility lies for verifying translations of legal
documents required in the process. Also host states retain the
right to question a firm's marketing plans but the paper fails
to specify what is included in the definition of marketing. There
is thus scope for national regulators to impose individual requirements.
5. In the case of the Markets in Financial
Instruments Directive (MiFID), we feel that there is still far
too much detail at Level 2 which is likely to create a great deal
of adjustment in the FSA regime and indeed other European regimes,
with no clear understanding of the possible benefits and probable
costs.
6. The timescale around Lamfalussy is also
troubling—as directives typically only have between 18 and
24 months from going on to the books until implementation. It
is clear that this is an inadequate length of time for any complex
topic to be dealt with properly. In the case of MiFID—Directive
out April 2004—the EU will struggle to have final text of
Level 2 by the original implementation date of April 2006 and
countries will struggle to have made new laws and new rules by
a mere eight months after that. We believe that the industry should
have a full year from the date final rules are agreed to implement
the necessary changes.
BETTER REGULATION
7. The FSA and others have promoted the
principle and importance of cost benefit analyses (CBA) in Brussels.
On the face of it this is encouraging. However, we have had occasion
in the past to questions the effectiveness of the FSA's own CBAs.
We believe that the position should be that unless demonstrable
benefit to the investor can be established new rules should not
be considered. We have no examples of better regulation affecting
financial services.
MIFID IMPLEMENTATION
8. The FSA has stated publicly on many occasions
that it will not "gold-plate" MiFID and we thus expect
to see the FSA's rule book slimmed down considerably when MiFID
is implemented. However, the FSA's emphasis on principles-based
regulation, particularly in the area of Treating Customers Fairly
(TCF), means that it has the ability to use the somewhat fluid
character of a principles-based system to extend the effect of
MiFID beyond its intended scope. We would urge the Committee to
probe the FSA as to what plans it has to prevent this type of
gold-plating.
CONSUMER INTERESTS
9. A final issue which we would like to
bring to the attention of the Committee is that we believe the
Commission could and should listen more to the consumer. They
are careful to include consumer representatives in their public
consultative activities but the mess over the UCITS Simplified
Prospectus (SP) is evidence of how much room there is for improvement.
The SP is a testament to the tendency of both regulators and consumer
lobbyists to insist on every conceivable piece of information
being included. As a result it contains so much information that
it is both confusing and, crucially, uninformative. In the case
of an umbrella fund with a range of sub-finds, the SP can run
to well over 100 pages.
Even in the case of simpler products the SP
can be more than 10 pages. In our experience the document could
be reduced to two pages and still be effective in giving consumer
the information they need. With the SP the investor is like someone
who asks for directions to a house around the corner and is given
a large scale ordinance survey map of the entire county.
8 December 2005
| 
