MiFID: challenges and opportunities for the Asset Management industry October 24, ECMI Seminar Jean-Baptiste de Franssu CEO INVESCOEurope Vice-President of EFAMA

2 Agenda Section01 Strategic scope of MiFID Section 02 Recent challenges Section 03 Opportunities for the Asset Management industry Section 04 Going forward

3 01 Strategic Scope of MiFID

4 Strategic Scope: the regulation of the European Asset management industry is a critical economic debate  Importance of the European asset management industry –Growth of the European fund market, over Eur 7.9tn in AuM –UCITS represent over Eur 6.2 tn of AuM, i.e. over 60% of the European GDP –Cross-border activity represents over half of net flows in 2006 (53% with about Eur 285bn net inflows)  MiFID adds to a tight regulatory agenda for the industry –UCITS review (Open Hearing, Exposure Draft) –Asset management report by EU Parliament/ Dr Klinz fund processing, private placement, real estate and funds of hedge funds, investment and risk management policies –Pensions challenge (being acknowledged as a key priority)

5 Strategic Scope: MiFID’s impact on the Regulation of the European Asset Management industry  Regulatory change of the Financial industry in Europe impacting the asset management industry –EC Financial Services Action Plan: “Create the most effective and integrated financial services market in the world”, set up to achieve a harmonised legal framework for Wholesale and Retail financial services within the European Economic area –MiFID is the cornerstone of this Initiative –MiFID will have a broad impact on the financial services industry, Regulating across traditionally fragmented financial services place (Banks/ Asset Managers/ Brokers&dealers/Advisors/Regulated Markets and MTFs)  How MiFID is impact the regulation of the Asset Management industry –Discretionary portfolio Management activities –distribution activities and investor protection –Interaction with UCITS regulation

6 Strategic Scope: the broadest regulation in the financial services arena

7 02 Recent challenges

8 Recent challenges: a lot of “unknowns” for the AM industry  A lot of questions are still partially/unanswered for the Asset Management industry –Regarding issues such as Inducements, Best Execution, Record-keeping, Passport or Transaction reporting for instance  Potential difficulties for cross-border players active in several member states facing different national rules –Real concern within the industry that MiFID does not result in common rules that are consistently applied across Europe  How to face the competition gaps between different savings products –MiFID not applied evenly across Investment products  Need to clarify relationship between MIFID and UCITS  Tight Schedule

9 Recent challenges: the case of Inducements showed the risks linked to MiFID’s implementation  Regulation of Inducements became a major concern for the industry –Inducements (retrocessions paid to the distributors) are a cornerstone of the fund distribution –Five months of discussion and two consultation rounds led by CESR –Levelplaying field challenges  Major improvement in several areas in CESR’s final recommendations (after last consultation following the feedback given by professional associations): –Product-neutral language and examples –Acknowledgment of lack of level playing field –Proportionality tests have disappeared –Understanding that commissions are necessary for distribution, both for the provision of advice and of infrastructure  However, guidelines language is now very broad and very different interpretations are possible: –No details about the implementation of key issues such as the circumstances under which inducements may be paid –No detailson the required level of disclosure making harmonised implementation difficult (and opening the way for goldplating ?)

10 03 Opportunities

11 Opportunities: Market Transparency for the benefit of investors and asset managers  Investor at the core of MiFID’s regulation  Better harmonisation of Investor protection across European markets: –Inducement –Client classification/suitability

12 Opportunities: promoting a level playing field among all savings products  Competition among Savings products at the Point of Sale is healthy but only if such competition is fair  In particular, Insurance products or Structured products should fall under the same rules –Fair competition with Insurance products is key (as highlighted in the Delmas-Marsalet report) –Structured products difficult to “catch” within MiFID rules  Acknowledgement of the issue by regulators –ECOFIN of 8 May 2007 acknowledged need for level playing field and importance of a coherent application between MiFID and UCITS –Green Paper on retail Financial services: need for consumers to be able to compare fairly –The recent call for Evidence announced by Commissioner Mc Creevy is a great step

13 Opportunities: the goal of level playing field Source: EFAMA  Ensure common regulation of distribution across Investment solutions

14 04 Going forward

15 Going forward: much to be done by stakeholders and regulators to continue striving for the best implementation of MiFID  Stakeholders looking for consistent regulation in return for the significant investments which are required  Timeline  Commission’s role is key: –Commission is expected to publish next year a “vade-mecum” on the implementation of MiFID rules to the distribution of collective investments/ UCITS –Need to clarify MiFID/ UCITS overlap but concerns about new interpretations after implementation