Money Managers Win New Round in Brexit Fight Over EU Control
Money managers scored another point in their drive to prevent European Union regulators from gaining more control over their operations after Brexit.
Lawmakers in the European Parliament voted to water down a bill that would have given the European Securities and Markets Authority additional oversight of the industry’s global operations. The draft law endorsed by the Economic and Monetary Affairs Committee instead gives regulators a more limited role to make recommendations on the oversight of firms.
At issue are delegation and outsourcing, which mutual funds routinely use to run their business across borders. EU national regulators authorize and supervise funds that delegate activities to offices outside the bloc. Since the Brexit referendum in 2016, the EU has moved to tighten oversight of asset managers, warning that they won’t tolerate “letterbox entities,” which are based in the bloc, but outsource the vast majority of their business to operations in London, New York and elsewhere.
The move is part of a broader overhaul of the EU’s financial supervisors, which also incorporates a response to recent money-laundering scandals in the bloc. Lawmakers agreed to hand the European Banking Authority additional powers, including the ability to intervene in the supervision of banks if EU rules aren’t being followed.
The goal of the overhaul is to prepare financial supervisors “for challenges including globalization, digitization, money laundering and Brexit,” Othmar Karas, one of the lead lawmakers on the file, said in a statement. Sven Giegold, another member of the committee, said the bill will allow authorities to “improve supervisory convergence across the single market.”
The fund industry had warned against tampering with delegation, which it said has worked well for decades and helped attract investors to Europe. Firms argued that the proposal to expand ESMA’s role would upend the 10 trillion-euro ($11.5 trillion) market for EU mutual funds known as UCITS.
The legislation approved in Brussels on Thursday makes clear that national — not EU — regulators are ultimately responsible for the fund industry’s operations, as is the case now. Talks on a final version of the legislation will begin when EU member states have settled on their own position.