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After Britain voted in 2016 to leave the EU, the European
Securities and Markets Authority (ESMA) issued guidance on
minimum "substance" or senior boots on the ground at EU funds
whose portfolio management has been "delegated" to London.
"Moreover, in light of the withdrawal of the UK from the EU,
delegation of portfolio management functions to non-EU entities
is likely going to further increase," ESMA said in a letter to
the bloc's financial services chief Valdis Dombrovskis.
ESMA said there was merit in providing "clearer legal drafting"
in the bloc's laws on substance and delegation requirements in
line with its earlier Brexit guidance.
The EU may want to back up the "qualitative" criteria on
substance with clear quantitative criteria, or provide a list of
core or critical functions that may not be delegated at
alternative and mutual funds, ESMA said.
A pending review of EU alternative fund rules that cover hedge
funds and private equity funds was an opportunity to consider
"greater harmonisation" with regulations governing mutual funds
known as UCITS, ESMA said.
Alternative funds must report exposures to real estate and
corporate debt to enable authorities to assess if they have
enough liquidity in a market crisis.
ESMA said it was "sub optimal" that it does not have access to
similar data on UCITS without extensive ad hoc data requests
that slow down analysis.
ESMA is already checking on liquidity at UCITS.
"This assessment should be based on the analysis of how funds
have reacted since the onset of the COVID-19 pandemic and their
current situation, and on an estimation of their resilience to a
future shock," ESMA said.
(Reporting by Huw Jones; editing by Philippa Fletcher)
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