AMF wants MiFID to recognise issues with complex Ucits, say sources
Sources close to the Autorité des marches financiers (AMF), the French regulator, have said they would like to see Brussels recognise in MiFID that some Ucits are complex and cannot be sold on execution only.
“The AMF is pushing for the EU to consider in MiFID classifying the Ucits degree of complexity depending on whether the risk/reward profile is readily understandable. This would help enable investors to understand what they’re buying into,” said the source.
In October 2010, French regulators introduced new marketing requirements for financial instruments. Products are divided into non-complex, not suitable for execution only (whereby advice for the client is required) and not suitable for retail. The aim of this approach is not to ban highly complex products but to oblige distributors to put a health warning on the front page of official documents for these products.
There have been repeated concerns that illiquid, complex products are being shoehorned into Ucits. Some have warned a Ucits blow-up or suspension of redemptions could cause irreparable damage to the Ucits brand. This has led to calls for Ucits to be split in two between non-complex and complex. Nonetheless this could lead to confusion, particularly for complex CTA products, which are in fact highly liquid albeit difficult to understand.
The European Commission published a consultation on the proposed Ucits VI on July 26, 2012, asking for industry comment. The paper included some open-ended questions about which assets should be eligible for Ucits and whether rules on liquidity for eligible assets should be expanded. Tilman Leuder, head of the asset management unit at the European Commission, speaking in September 2012, said funds which use indices to track commodities and long-term, less liquid asset classes such as real estate and infrastructure, should not be part of Ucits.
The source close to the AMF said he could not predict whether the French demands would be heeded at an EU-level anytime soon.