A Better Grasp of Non-financial Risks

The European Fund Management Industry Needs a Better Grasp of Non-financial Risks — December 2010

2. The Rise of Non-financial Risks in the Fund Industry

information document (KID), a crucial document, as it alone, a homogeneous European document, need be translated into the language of the target country in the accelerated notification procedure that automatically authorises the distribution of funds in target countries. Since the domestic supervisor opens the European market by validating the prospectus or the KID, countries may try to attract funds by facilitating validation. And supervisors in target countries will have reduced means of controllingthedistributionofforeignfunds. 12 So we argue that the ESMA should be responsible for the direct supervision of funds or at least have very clear direct authority over country supervisors.

12 - Country supervisors, however, still have some control over any marketing material used. The Delmas-Marsalet (2005, 5) report argues that “product advertising should be monitored more systematically to ensure it is correct, clear and not misleading, balanced in its presentation of the risks and benefits of the product, and consistent with its characteristics”, and that, likewise, the suitability of the advice given to the client should be better monitored. The reinforcement of the control of product advertising and advice on products could be the primary way for country regulators and supervisors to control the distribution of foreign UCITS in their territory.

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An EDHEC-Risk Institute Publication