To regulate, or not to regulate, that is the question (Paisley Liberal Democrats)

To regulate, or not to regulate, that is the question

December 7, 2009 1:24 PM
By George Lyon in Insight Europe
Originally published by George Lyon - Liberal Democrat MEP for Scotland

My focus heading into 2010 is still, without doubt, the economy. This is the overriding concern for thousands of Scots as we continue to struggle out of the grips of recession. In the next year the European Parliament's focus must be on better cross border financial regulation so we do not reach these depths again.

But European authorities must recognise the difference between regulation for the sake of appearance and regulations that will actually help financial institutions make better decisions.

The Alternative Investment Fund Managers Directive (AIFM) currently before the European Parliament is, sadly, an example of regulation drawn up to look tough but with little thought to the implications.

The European Commission's own preamble for the Directive states claims that it "is focused on regulating the activities of AIFM, since it is the AIFM who is responsible for all key decisions in relation to the management of the fund."

UK investment companies believe this to be a rudimentary misapprehension that resonates throughout a number of the Directive's proposals. I have received numerous letters from industry figures who hold serious concerns about there ability to make proper and prudent investments on behalf of their clients if this Directive is adopted.

Many of those clients are not multi-million pound conglomerates but you, me and families across Scotland. In all the talk of bad banking and bad bankers, let's not forget that investment is not a bad thing; it should not be made into a dirty word. After all it is investment that grows our pension pots, something that needs to be done and done well.

The industry body, the Association of Investment Companies, is calling for the removal of investment companies traded on a regulated market (non-UCITS) from the Directive.

This is a proposal that the European Economic and Monetary Affairs Committee will examine closely. With little or no consultation with the industry the Directive is unworkable in its current form. It has now been passed on to the Committee to try to make some sense of it.

My Liberal Democrat and ALDE colleague Sharon Bowles MEP is the Chair of the Committee. In that capacity I have invited her to meet with members of the financial sector in Scotland to hear their concerns and make it is possible to work towards a Directive that will regulate, but not damage future investment.

Liberal Democrats believe that regulation should only be used when there is a demonstrable need. We would have preferred the various industry voluntary codes of conduct that have been devised to have been given time to bed down and prove their worth.

Obviously, the financial crisis has reinforced and amplified calls for there to be comprehensive legislation covering all kinds of financial and investment institutions. But European authorities should be wary of making knee-jerk reactions. It is clear that the AIFM Directive is exactly that.

Although in theory either the Parliament or the Council could 'vote down' the proposal in its entirety, there does not seem to be any realistic likelihood of that happening. Therefore along with other colleagues I will be pressing for amendments to be made to the Directive so that it can simultaneously protect our economies from reckless damage but allow the investment we all need to prosper.

At the moment it is not possible to predict how successful this will be. But, not before time, the financial sectors legitimate concerns are being listened to. That is, at least, a good starting point.

In focusing on the economy in the coming year, the European Parliament should not lose sight of what is needed - long term solutions, not short term knee-jerk reactions. This is what I will be pressing for in 2010.

Paisley Liberal Democrats