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The European Court of Auditors wants to better protect consumer savers (photo: ECA)
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EU. The European Court of Auditors (ECA) is launching an audit to "assess the EU's progress towards a single market for investment funds," as a press release says. It is the latest in a series of audits devoted to the supervision of the EU financial sector.
The institution wants to "assess whether the evolving regulatory environment is fit for purpose, whether the European Union has promoted common supervisory practices across member states and whether it has effectively mitigated risks to investors, markets and financial stability".
The survey encompasses all types of investment funds, those that meet the needs of investors as well as those that are aimed at companies. While a "European passport" makes it possible to market them throughout the EU, "as late as 2018, around 70% of all assets under management in the Union were held by funds whose authorisation or registration allows them to be distributed in only one Member State", the auditors of the European Court of Auditors note. "A large number of rules are determined at the national level, so there can be significant regulatory differences between these funds," the institution regrets. While specifying that "the day-to-day supervision of investment funds remains a national competence".
"When interest rates are very low, it is particularly important to protect consumers seeking a return on their savings and to ensure financial stability," says Rimantas Šadžius, the member of the Court responsible for the audit.
The institution wants to "assess whether the evolving regulatory environment is fit for purpose, whether the European Union has promoted common supervisory practices across member states and whether it has effectively mitigated risks to investors, markets and financial stability".
The survey encompasses all types of investment funds, those that meet the needs of investors as well as those that are aimed at companies. While a "European passport" makes it possible to market them throughout the EU, "as late as 2018, around 70% of all assets under management in the Union were held by funds whose authorisation or registration allows them to be distributed in only one Member State", the auditors of the European Court of Auditors note. "A large number of rules are determined at the national level, so there can be significant regulatory differences between these funds," the institution regrets. While specifying that "the day-to-day supervision of investment funds remains a national competence".
"When interest rates are very low, it is particularly important to protect consumers seeking a return on their savings and to ensure financial stability," says Rimantas Šadžius, the member of the Court responsible for the audit.
11.7 trillion euros of funds managed in the EU
In September 2020, the net asset value of the approximately 64,000 investment funds domiciled in Europe was approximately €17.6 trillion (€17,600 bn), an increase of €10 trillion compared to 2019. In 2020, more than 80% of net assets under management were headquartered in Luxembourg (€4.7 trillion), Ireland (€3.1 trillion), Germany (€2.4 trillion) or France (€2 trillion). Two countries, Luxembourg and Ireland, managed more than half of the net assets of retail investors (invested in UCITS - Undertakings for Collective Investment in Transferable Securities).
European households hold (either directly or through insurance companies or pension funds) nearly two-thirds of the net assets of investment funds.
In an Auditinfo published on Thursday 25 February 2021, the ECA points out the potential vulnerabilities of the sector and the risks for financial stability. It considers that "cash shortfall is a major risk because it reduces the ability of a fund to absorb large outflows of the type that occurred in March 2020 (Editor's note: - €313 bn) in the context of the Covid-19 pandemic". But it also raises "the high indebtedness of some hedge funds which can amplify shocks and increasing credit risk due to low interest rates and the resulting search for higher returns".
European households hold (either directly or through insurance companies or pension funds) nearly two-thirds of the net assets of investment funds.
In an Auditinfo published on Thursday 25 February 2021, the ECA points out the potential vulnerabilities of the sector and the risks for financial stability. It considers that "cash shortfall is a major risk because it reduces the ability of a fund to absorb large outflows of the type that occurred in March 2020 (Editor's note: - €313 bn) in the context of the Covid-19 pandemic". But it also raises "the high indebtedness of some hedge funds which can amplify shocks and increasing credit risk due to low interest rates and the resulting search for higher returns".
