Opinion of the AMF on the future challenges (post Brexit) for the EU27 financial regulations

A week ago, AMF published its vision of the challenges EU 27 capital markets regulations need to meet

The French regulator is quite dubitative on the success of the Capital Market Union in its current configuration, underlining the fact that the listed markets is eroding while asset management and indexes increase their respective weight. To remedy to this situation, AMF suggests EU to make a full diagnostic of the role and needs of each financial market stakeholders in order to address the weakness and future needs. A focus is made on the availability of market and non-financial data and their costs.

In a second chapter, the French financial market authority notices the important effort to be deployed to make the European ambitions in sustainable finance a success by proposing 6 angles, consisting in the finalisation of EU taxonomy and implementation of the new provisions included into the EU sustainable finance package released by the EU Commission in March 2018, the creation of conditions for the market to take advantage of new standard and labels, elaborating a more unified related European reporting framework, addressing the availability and trust in ESG data, clarifying the offer of sustainable product and lastly monitoring the gap trend between corporate progresses and investor needs.

To favour the emergence of European digital champions and keep competitivity amongst financial markets participants, the French market authority praises for rapidly propose a set up of the rulebook related to the digital assets, introduce more proportionality to rules applicable to certain financial intermediaries, adapting GDPR to AI and the DLT type technologies.

The fourth chapter focuses on third country and equivalence regimes that are diversely applied within different EU financial regulations, some allowing non-EU entities to be used by EU entities to fulfil their compliance obligations. In its communication, AMF wishes European legislators to reconsider the discretion given to EU Members in certain areas such as AIFMD National Private Placement Regime. AMF suggests reviewing the third country regimes carefully on a case by case basis, reviewing national discretion regimes that could lead to more favourable regime for non-EU players and defining adequate conditions for the analysis and the maintenance of the regulatory laws and supervisory practices.

The multiplication of decentralised interlinked entities located in different countries deriving from Brexit, AMF, while referring to the newly adopted ESAs review, suggests enhancing supervision mechanisms between home and host regulators, reinforcing the spread of market information and increase transparency in the field of sanctions.

In terms of EU passport, AMF underlines the asymmetric application leading to “jurisdiction shopping” across Member States operated by regulated entities. Among others, AMF proposes to combat situations where an entity choose a home Member State from which it carries no substantial activity but from which it targets markets in other MS via the passport. Another important topic in the eyes of the French regulator that requires clarification is the territoriality connection criteria for service rendered to retail investors especially in the field of internet channels.

Considering the last decade and the development of numerous financial regulations, AMF underlines the need provide quick response to issues appearing on the application of financial regulations. It suggests to more resort on the development of tools like ESMA Q&A’s and ensure more coherence between the different levels of or related legislations during their review or in their drafting phase. AMF also asks for more transparency during inter-institutional negotiations at European level as well as a better consideration of the stakeholder voice and avoid mismatch between entry into force of level 1 and implementation of Level 2 regulations with sufficient time for implementation.

Considering the forthcoming review of certain legislations, AMF underlines this opportunity to strengthen their coherence. Typically, for AIFMD, a focus should be put on conflict of interest management, reporting, delegation, definition of leverage and provision of ancillary services. As far as UCITS Directive is concerned the Eligible Asset Directive should be modernised and transformed into a Regulation to guaranty a uniform application across the European Union.

The French authority also formulated a special remark on PRIIPs regulation that in its opinion missed its initial objective and created number of misunderstandings and issues. AMF asks to reconsider this regulation in order to introduce possible sectoral adjustments that will benefit to the understanding of the product rather than focusing on the comparability principle between products of different nature. One can mention the cost indicator and performance scenarios, the reintroduction of the past performances typically for funds. A clarification of the PRIIP definition is also put in the spotlight.

Finally, MiFID must be assessed in order to be readjusted to the new market dimension of the EU 27, especially in matters related to the financial markets rather than those related to the investor protection. One can list position limits, European consolidated tape and more proportionality in the application of certain principles applicable to firms.

We cannot affirm that we are sharing in all points the AMF opinion. As far as investment funds are concerned, we are aligned with the AMF perspective on the AIFMD and UCITS review but in terms of delegation principles we do not think a restrictive approach that could limit the offering of competitive products to European investors will be desirable. The transformation into a Regulation of the UCITS eligible Assets directive will ease the life of investment managers and those of management company’s compliance officers.

Concerning the PRIIPs review however, the arguments and proposals presented by the French regulator on a global perspective make sense but must not lead to having the PRIIPs Regulation being meaningless in terms of comparability. Sectoral arrangements will be needed and coherent with the arrival of a PEPP KID inspired by the PRIIPs KID but answering to its specificities.

This opinion of the future of the post Brexit regulation in European Union provided by the AMF shows us the attempt of the French authority to shape the financial markets and services in such a way that France would expect moving on, but will probably encounter significant obstacles to be addressed to become reality. Institutional and national reluctances to change some business models currently well implemented will, for sure, constitute big challenges. It will be interesting also to observe the new distribution of influence within the different implicated institutions once United Kingdom will have left the European Union.

EU2024: Shaping EU27 capital markets to meet tomorrow’s challenges – Focus areas and initial proposals of the French AMF