Shedding Light on Non-Financial Risks – a European Survey

Shedding Light on Non-Financial Risks – a European Survey — January 2012

3. The Need for Change in Regulation and Risk Management Practices

Figure 3.6.2: Country group average of regulation on judicial powers of investors How much do you agree with the following regulations on the judicial power of investors regarding non-financial risks?

“Fr” is France, “UK” is the United Kingdom, “Ge+Au+Nl” is Germany, Austria and the Netherlands, “Lux+Irl” is Luxembourg and Ireland, and “RoE” is the rest of Europe. Answers are coded in the following manner: -2 for Strongly disagree, -1 for Disagree, 0 for Unsure, 1 for Agree, 2 for Strongly agree. [1] Investors should be able to launch class action suits to get fair compensation. [2] Investors should be able to launch class action suits to get fair compensation and additional penalties. [3] Because of diverging national laws, class action suits in Europe only make sense if they are brought to a pan-European authority or court. [4] A European savings protection authority (rather than just a savings regulation authority) should be created. [5] An ombudsman/mediator for the European Securities and Markets Authority should be created.

Only 38% agree that a European savings protection authority (rather than just a savings regulation authority) should be created (30% disagree) to complement the powers of the ESMA. This appears to be more positively seen by the respondents from France, and significantly less by those from the United Kingdom. On the whole, UCITS directives rely partly on country regulations, so European regulations should be reworked to close loopholes in the definition of depositary duties and liabilities and to ensure that non-financial risks are taken into account. We believe that the ESMA should be given extremely clear direct authority over country supervisors. The role of the ESMA could be more than supervisory, i.e.

Those class actions would have to be defined within a European framework to be consistent across countries. This is a necessity especially when funds are recognised across Europe under AIFM and UCITS directives. A significant 52% of respondents agree that because of diverging national laws, class action suits in Europe only make sense if they are brought to a pan-European authority or court (19% disagree). As for other ways to refer matters to supervisors, a majority of respondents (52%) agree that a European ombudsman/ mediator should be created (20% disagree) to settle cross-border cases — a role which could be played by the European Securities and Markets Authority (ESMA).

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An EDHEC-Risk Institute Publication