ECB joins anti-EU directive bandwagon

The European Central Bank has become the latest influential group to raise concerns over negative consequences that proposed regulations could have on Europe’s private equity industry.

The European Central Bank has warned that proposed EU regulations could place Europe’s private equity industry at a competitive disadvantage to non-EU funds, adding to the chorus of criticism in the past week that has included the UK Financial Services Authority and London mayor Boris Johnson.

The ECB said if passed as is, the European Commission’s “Directive on Alternative Investment Fund Managers” could drive funds out of Europe to countries and jurisdictions with less burdensome oversight. The proposals would subject EU managers to new annual reporting requirements to investors and regulators, as well as additional offering memorandum disclosure requirements and regulatory reporting about assets in which funds are invested.

Last week a report released by the FSA said the directive could impose substantial one-off compliance costs of up to €3.2 billion on alternative investment fund managers (AIFM), while private equity firms would bear the brunt of an expected €311 million in ongoing compliance costs. Shortly after that Johnson’s office released its own survey which said the negative impacts of the proposals could reduce London’s competitiveness and lead to an exodus of firms from the city.

In a legal position posted on its website, the ECB said it supported the intention of placing additional oversight on alternative investment fund managers in the EU, but urged the European Commission to work with international partners – especially the US – to ensure that resulting regulations were consistent with other regimes. 

Javier Echarri, the European Private Equity and Venture Capital Association's secretary geeral, said in a statement that the ECB opinion demonstrated a growing recognition by organisations in Europe of the damaging consequences the directive would have.

“But while such sentiments are well and good, revisiting the directive's proposals line-by-line is a massive task and it is the action of the Parliament and Council that now really counts,” he added. “A widespread acknowledgement that this directive was rushed is nice to hear. It is also nice to hear that the level playing field for companies should not be damaged. The directive itself talks of tailoring – but the real challenge is getting the text improved and that lies with the working groups and committees of the EU institutions.”