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

In addition, respondents are uneasy with the definition of a subset of UCITS. 50% agree that this secure subset might confuse the definition of UCITS funds and thus be detrimental to the UCITS brand (20% disagree). The countries which most rely on the UCITS brand, such as Luxembourg, are the most worried with this detriment. Respondents are also very divided on whether the concept of secure UCITS would be applicable. Around 31% agree that secure UCITS might be inapplicable given the sophistication of operations even in traditional assets, while 28% disagree (again, a considerable 41% are unsure). If implemented, such a segment would undoubtedly restrict the investment universe, and 45% believe this would generate large opportunity costs for investors (27% disagree). This lets suppose that the notion of secure UCITS would be best defined and implemented on a contractual basis.

Interestingly, French respondents appear to believe, more than average, that secure UCITS are a good way to clarify responsibilities and information regarding non-financial risks, while the United Kingdom as well as Luxembourg and Ireland less so. French respondents, after all, are more attached to the idea of unconditional restitution they have enjoying until recently due to stringent depositary liabilities. The notion of brand confusion, we believe, is intimately linked to a confusing construction of the UCITS regulation. UCITS was once coined the European framework for investment funds, but with AIFMD, this can no longer be considered the case. A subset of contractually secured UCITS is worth investigating.

Figure 5.2.4: Country group average of secure UCITS: How much do you agree with the following statements?

“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.

78

An EDHEC-Risk Institute Publication