Response to discussion on the potential review of the investment firms’ prudential framework
Q24: Do you have any views on the possible ways forward discussed above concerning the provision of MiFID ancillary services by UCITS management companies and AIFMs?
Invesco does not agree with the conclusion of the joint EBA/ESMA assessment described in the Discussion Paper that there are deficiencies in the EU UCITSD and AIFMD frameworks, which have recently been strengthened, regarding the current level of capital requirements applicable to management companies or the investment services that they are permitted to undertake. We therefore do not agree with the conclusion to either (i) impose (additional) capital requirements on the management companies providing ancillary services, or (ii) limit the number of ancillary services provided by management companies.
For example, the assessment seems to ignore the very different agency role that asset management companies undertake on behalf of their clients in comparison to credit institutions and investment firms more broadly, and thus seems to conflate management companies’ activities (which do not directly hold client assets or trade on own account) with credit institutions’ and certain investment firms’ activities (which may hold client assets or trade on own account).
In addition, no evidence is presented which shows existing provisions governing the application of capital requirements within the recently strengthened EU UCITSD and AIFMD frameworks are deficient, or that management companies providing ancillary services should hold additional capital in respect of those activities.
Indeed, asset managers are already subject to specific initial capital and own funds requirements which are appropriate for their business model, and must produce and keep up to date wind-down plans to ensure an orderly wind-down in such a scenario. Asset managers are also required to separate client funds from their own funds to protect clients against the potential failure of the manager and appoint a custodian when establishing a fund for this purpose. Asset managers are also subject to stringent operational resilience and business continuity requirements. As such, were an asset manager to fail, another manager may assume responsibility for managing the failed manager's funds, thus clients can remain invested or monies can be paid out where this is determined to be in clients’ best interests.
As such, we believe that provisions governing capital requirements and ancillary services set out in the recently strengthened EU UCITSD and AIFMD frameworks remain appropriate and do not require to be amended as discussed in the Discussion Paper.