Shedding Light on Non-Financial Risks – a European Survey

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

5. Limitations of Regulation and Alternative Solutions

Figure 5.1.3: Regulatory views by type of respondent firm How much do you agree with the following statements?

Answers are coded in the following manner: -2 for Strongly disagree, -1 for Disagree, 0 for Unsure, 1 for Agree, 2 for Strongly agree.

5.2. Secure UCITS Funds UCITS were designed as a simple and unique framework for European investment funds, and have managed to become a staple. However, it lacked transparency on non-financial risks, so much as in practice it offered differing degrees of investor protection according to geographies of sub-product specificities: “experience has shown that the UCITS framework is in fact fragmented. Sophisticated UCITS or NewCITS contribute to a de facto fragmentation, and UCITS funds are not solely basic retail funds as once was the case. The crisis has also led to the understanding that depositary rules and supervision practices vary across countries and, as a consequence, so does the degree of protection in UCITS funds” (Amenc and Sender, 2011, p. 6). So, on the whole, UCITS is not a sufficiently clear framework, as it does not explicitly tackle any of the regulatory objectives

of assets at a reasonable cost and that a depositary cannot guarantee the restitution of assets that are not under its custody and control), while pension funds have a significantly more neutral stance on these statements. These mixed views may be due to the objectives of regulations having been ill-defined. Amenc and Sender (2010b) underlined that the practical definitions of UCITS were so undetailed that it contributed to undermining the product; some respondents also underlined that in practice, many restrictions had been evaded by financial innovation which at the time was not dedicated to improving the fund risk profile and the services provided to investors, and economically inefficient. In addition, as underlined in Amenc and Sender (2010b), many of these innovations contributed to the opacity of UCITS products – structured products, and more generally derivatives, were good examples.

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An EDHEC-Risk Institute Publication