Since the financial crisis began, the European Commission, European Council and European Parliament have taken urgent action to safeguard the stability of the financial system. They worked on comprehensive financial reform to address short–termism, poor risk management, lack of responsibility of certain areas in the financial sector and the underlying weaknesses in the supervisory and regulatory framework. The objective is to provide a sounder, more transparent and more responsible financial services framework and significant progress has already been made.
The following are some of those measures:
The Alternative Investment Fund Managers Directive (AIFMD) – the range funds falling within the scope of AIFMD covers hedge funds, private equity funds, real estate funds and any other European non–UCITS. It also affects offshore funds, if managed in the EU by an AIFM or marketed into the EU. EU investors will be able to continue to invest in EU and non–EU AIF at their own initiative and EU AIFM will be able to passport their funds domiciled in the EU.
UCITS IV – This imposes a requirement on managers of UCITS to produce a Key Investor Information Document (KIID) to replace the existing simplified prospectus. The KIID sets out the key elements of a fund allowing an investor to understand the nature and the risks and take investment decisions on an informed basis. All KIIDs must be updated at least annually, allowing for easy comparability across different fund ranges.
UCITS V – Following the Madoff fraud, public concern was raised by EU member states over the controls exercised by depositories over the funds for which they act and over the lack of consistency of European regimes. The key issues are the extent to which the depository should be liable for assets held in custody and contracting out of its liability when it appoints a third–party sub–custodian.
Packaged Retail Investment Products [PRIPs] will improve retail investor protection and create a consistent framework with regard to the provision of information for all retail investment products through a cross–product regulatory approach focusing on: product disclosure, sales and process, and the avoidance, management and disclosure of conflicts of interest in the sales or advice process.