Supervisory colleges risk adding complexity without significant improvements
The European Fund and Asset Management Association (EFAMA) today reiterates its long-standing opposition to EU centralised supervision of asset managers, whether through direct ESMA supervision or supervisory colleges. The current supervisory model remains the most suitable for the asset management industry.
In its Savings & Investments Union (SIU) Action Plan, the European Commission committed to exploring centralised supervision for capital market participants with a significant cross-border presence. For large cross-border asset managers specifically, they floated three alternative models that could disrupt the current supervisory set-up: supervisory colleges, joint supervisory teams, and direct ESMA supervision.
To address these ideas, EFAMA has published a report entitled “Asset management supervision: why passporting remains the best supervisory model for Europe”. The report highlights the significant contribution of the current supervisory framework, based on the UCITS and AIFMD passporting regimes, to building an effective Single Market for investment funds. Although some cross-border barriers remain, centralised supervision would not address them, as they stem from national rules and market differences rather than supervisory divergences.
Moreover, the report demonstrates that supervisory centralisation will not fundamentally enhance the quality of supervision in the asset management sector for at least three main reasons:
ESMA lacks the necessary resources and expertise to supervise (large) cross-border asset managers effectively. Some national supervisors have built deep expertise over many decades, which would be very difficult for ESMA to replicate.
Direct ESMA supervision would result in a double layer of supervision if management company supervision migrates to the EU level, while product supervision remains at the national level.
Diverging views across supervisory college members would delay the decision-making process and negatively impact asset managers’ ability to respond to market demands and market stress. Any potential minor improvements in supervisory coordination for firms with subsidiaries across the EU would not mitigate this.
On the contrary, what would improve asset management supervision, and is desperately required, is simplifying and improving reporting and data sharing across the EU. Creating a single, modular reporting template for UCITS and AIFs and ambitious data-sharing arrangements would enable national supervisors to further improve the effectiveness of their risk-based supervisory practices, while also reducing the reporting burden on asset managers.
The focus should be on improving cross-border fund distribution rather than changing a well-functioning supervisory system. Improving ESMA’s use of its existing supervisory convergence toolkit could address some of the barriers to cross-border fund distribution.
The Commission is now preparing a legislative package for the end of 2025, seeking to further integrate capital markets through various measures. We call on policymakers to prioritise efficient, competitive EU markets over complex supervisory ‘constructs’ with unclear rationales.
Vincent Ingham, Director of Regulatory Policy at EFAMA, commented: “There is a strong consensus among asset managers – large and small – to preserve a supervisory model that has contributed to building the Single Market for investment funds. Our report clearly shows that increased centralisation of asset management supervision would not lead to better supervisory outcomes, nor would it substantially contribute to the SIU objectives. That is why EFAMA strongly recommends prioritising other policy initiatives that have the potential to scale up EU capital markets and boost retail investments, and focusing on targeted improvements to the current supervisory framework, notably through better data-sharing and more effective use of existing supervisory convergence tools.”
Marin Capelle, Policy Advisor at EFAMA, commented: “Even though the Commission has been speaking about supervisory colleges for the last two years, they have failed to this day to articulate how these would help facilitate asset managers’ cross-border operations. Asset managers are unanimous. Supervisory colleges would add complexities without leading to better supervisory outcomes. In the spirit of better regulation, we urge the Commission to pause and reflect on the merits of this idea.”
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Notes to Editors
Find out more about the European Commission’s proposed supervisory approaches here.
For further information, please contact:
Hayley McEwen
Head of communications and membership development
