The European Commission wants to apply Cad 3 to all banks and investment firms in the EU from late 2006 in parallel with the complex Basel II bank capital adequacy accord. Cad 3 is closely modelled on the risk-based Basel II accord, which will determine how much of their assets banks must set aside as a protective cushion to absorb unexpected losses from the hazards of banking, including credit, market and operational risks.
EAMA said today there must be a separate recognition of the asset management industry in Europe from both a regulatory and employment perspective. “The business of managing investments – however the end product is packaged – needs distinctive regulation and representation. Asset managers are not banks or insurers,” EAMA said.
EAMA has criticised as “deeply flawed” the Cad 3 and Basel II proposals for capital charges against operational risks, such as fraud, technology failure and trade settlement errors, in the fund management businesses of banks. The organisation believes such charges could make the European asset management industry uncompetitive with other countries, most notably the US.
The European Commission said in July this year that it accepted that the Basel II operational risk requirements would be disproportionate to the risks faced by certain types of lower-risk investment firms. The commission said it is considering how best to modify its op risk proposals in the light of that recognition.
As well as Cad 3, EAMA and FEFSI would seek to present a united front on other EU matters, including the pensions directive, the market abuse directive, the collateral directive and the investment services directive.
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