RegulationNov 17 2014

Trade bodies lobby ESMA over ‘absurd’ Mifid trusts label

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The Wealth Management Assocation and the Association of Investment Companies are lobbying to prevent a new European directive labelling investment trusts as “complex” instruments, which they say would reduce investment into the vehicles.

New rules would define all vehicles which are not compliant with the latest Ucits (Undertakings for Collective Investment In Transferable Securities) rules as ‘complex’, which in turn would mean an appropriateness would need to be taken before each investment.

John Barrass, deputy chief executive officer at the WMA said at an event held by the wealth management trade body last week that the proposals within the second iteration of the Markets in Financial Instruments Directive were “an absurdity”.

Mr Barrass said that this is a piece of legislation which has gone “haywire because the evidence base is not there” and as such it is an area that the Wealth Management Association is going to look at closely.

He added that there was concern on how the organisation was best able to lobby on it.

The WMA has already made representations in its return on the European Securities and Markets Association consultation documents, with which it worked very closely with the trusts trade body the Association of Investment Companies.

Mr Barrass said: “Investment trusts have been a great area of growth for retail investment in this country. If they make them complex that every single by the time you buy an investment trust you have got to get an appropriateness test done and its going to completely foul the work - its like throwing sand into a machine.”

“We are fighting to have this not done - we think its an absurdity, that a product which has been very successful over a number of years and an area of growth which produces good returns for them has never had a problem and is suddenly going to be very complex for no reason, there is no justification for it.”

Mr Barrass added: “People who are saying this are the people in regulation who haven’t got any experience in working in the markets - they don’t know what its like - and they are also from countries where people don’t have investment trusts.

“So you are landing up with people making laws on products that they don’t deal with on behalf of people that they don’t know and it doesn’t make any sense at all, so you land up with meaningless regulation that increases costs and imposes a burden on the market.”

ruth.gillbe@ft.com