On January 30, MFA filed comments to the European Commission (the “Commission”) on its Call for Evidence in relation to the EU regulatory framework for financial services, which was issued in connection with the EU Capital Markets Union (“CMU”) project. The CMU is the European Commission’s comprehensive plan to mobilize and unlock capital in Europe by creating deeper and more integrated capital markets. As one part of this initiative, the Commission’s Call for Evidence sought stakeholder input on the interaction of the individual rules and the cumulative impact of various pieces financial legislation as a whole, including potential overlaps, inconsistencies, and gaps.
MFA’s comments will help inform the Commission’s review of existing rules and provide a basis for concrete and coherent action where required.
MFA’s letter encouraged the Commission to consider a number of issues and consider alternative approaches that would:
- Eliminate unnecessary regulatory constraints on financing by modifying proposed legislation to ensure that professional investors, including asset managers, would be able to engage in transactions involving the transfer of non-performing loan (“NPL”) portfolios from bank balance sheets, which would benefit the European economy by allowing banks to de-leverage and divest risk, freeing up capital for other lending activities.
- Address rules that adversely impact market liquidity by (i) taking a pragmatic approach to equivalence with regard to third country CCPs, swap execution facilities, and non-EU firms doing business in the EU; (ii) calibrating the need for transparency so as to avoid damaging liquidity; (iii) ensuring that investment research should not be required to be unbundled from other costs; and (iv) establishing a single channel to disseminate information on short selling bans.
- Reduce excessive compliance costs and complexity, through the harmonization of regulations, such as the Short Selling Regulation and the Alternative Investment Fund Managers Directive (“AIFMD”), by creating a single EU-wide portal for filing disclosures and reports, and through the development of multiple approaches for EU investors to invest with non-EU asset managers.
- Create more effective and efficient reporting disclosure obligations through the harmonization of similar reporting obligations that are required by multiple pieces of legislation EMIR, REMIT, MiFID, and SFTR and by moving toward single-sided reporting.
- Amend regulations that create barriers to entry by implementing rules or guidance under MiFID II that would address the current “two-tier” market structure of dealer-to-dealer and dealer-to-customer markets that currently creates barriers to entry and inefficiencies that are harmful to liquidity.
- Ensure data security through enhanced procedures that protect sensitive proprietary information that market participants are required to provide to regulators.
- Address links between individual rules and their overall cumulative impact by addressing the impact of the leverage ratio rules on central clearing of derivatives and the impact of “shadow banking” proposals on capital markets-based financing.
- Eliminate overlaps, duplications and inconsistencies, including conflicting requirements under Article 13 of EMIR that would require many alternative investment funds and counterparties to comply with both EU and U.S. rules.