EUROPE: CESR publishes Annual Report for 2007

Friday July 25 2008

The Committee of European Securities Regulators (CESR) has published its 2007 annual report (the ‘Report’). The Report, which is an important element of CESR’s accountability obligation, has been submitted to the European Commission, Parliament and the ECOFIN Council.

In addition to sections dealing with, for example the steps taken by CESR in response to the market turmoil in the second half of the year and as regards CESR’s response to frequently asked questions and guidance in areas such as prospectuses and Markets in Financial Instruments Directive (MiFID) from market participants, the Report also deals with CESR’s activities as regards UCITS and hedge funds.

As regards UCITS, the Report summarises CESR’s work on UCITS Eligible Assets and the Eligibility of Hedge Fund Indices for Europe. Reference is made to the fact that CESR has also been working increasingly at fostering mutual understanding of supervisory practices and convergence in the day-to-day application of rules, which both the Commission and CESR believe are crucial issues with a view to building a fully integrated European market for UCITS.” Presuming, this relates to the differing treatment of Regulators to issues such as physical shorting by UCITS and the measurement of counterparty risk.

Also covered in the Report is CESR’s work on Key Information Document.

The CESR Investment Management Expert Group and its sub-groups will focus on the following in the year ahead:

*Providing assistance to the Commission on the proposed changes to the Level 1 Directive, in particular by delivering a set of advice on key investor information (KII) disclosures for UCITS. CESR will continue to work closely with the Commission during the market testing phase of the KII work.

*Promoting supervisory co-operation and mutual understanding via the Group’s Operational Task Force, on the basis of surveys on effective supervision and risk measurement systems, but also through practical discussions relating to the day to- day application of rules, in particular in the areas of eligible assets and innovative products.

*Carrying out further work on the interaction between MiFID and UCITS, in parallel with the Commission’s work.

*Mandate from the Commission on simplified Prospectus/ Key Investor Information.

*Follow-up of the revision process of the UCITS Directive (White paper).

*Co-operation work in view of fostering mutual understanding and improving convergence of regulatory practices (OTF).

*Interaction between MiFID and UCITS Directives.

*On-going assessment of the impact of the recent subprime crisis on the European fund industry.

*Developments on Conduct of business rules.

*Contribution to the work undertaken by the European Commission on private placement.

*Work of the European Commission on non-harmonised funds (funds of hedge funds, private equity, real estate funds).

*Work on European real estate funds completed by the Expert group (industry stakeholders) set up by the European Commission.

*Follow-up and possible contribution to the 3L3 work on substitute products.

*Possible contribution to the work undertaken by the European Commission on retail financial services

*Evaluation of the implementation of the notification guidelines.

Not covered in the report is the work that CESR has recently been mandated to do on the Management Company Passport.

In regards to hedge funds, the Report has identified a lack of clarity about who the ultimate beneficial owners and the decision makers are. Further, market participants report that they have experienced difficulties where objectives are discussed under the same heading of “hedge funds”. This has created problems in achieving positive solutions and results. A simplification of the Lamfalussy process, (a process to aid the development of the financial services market) has helped to reduce these problems whilst creating greater transparency.

For a copy of CERS’s annual report please click on the above link.

Related Articles:

* CESR publishes advice on the `Key Information Document`

* Hedge funds indices and UCITS – CESR publish Issues Paper

* Member State implementation of UCITS simplified notification procedure