European Fund Managers Say Basle Op Risk Ideas Are Deeply Flawed

BRUSSELS -- Global banking regulators' plans for making major banks set aside capital against operational risks such as fraud, computer breakdowns and settlement failures were not welcomed by European fund managers and stockbrokers.

Fund managers fear that the application of the charge to asset management businesses owned by banks could increase costs in a competitive market.

Non-bank fund managers and stockbrokers also fear the European Union's apparent intention of applying to EU financial services generally the principles of Basle II, the new accord on bank capital adequacy drawn up by the Basle Committee on Banking Supervision. The Basle Committee comprises banking supervisors from the Group of 10 leading economies, and is the body that in effect regulates international banking.

The European Asset Management Association (EAMA) says the Basle II proposals on operational risk are "deeply flawed" as they apply to the asset management businesses of banks.

EAMA, which represents the fund management trade associations of the UK, France, Italy, Spain and Ireland at the European level, wants the Basle Committee to reconsider its ideas.

It said that the Basle II suggestion that funds under management is an appropriate indicator of exposure to operational risk in asset management companies "doesn't take account of the diverse nature of operational risk in the asset management industry".

EAMA says the proposals also don't take account of key factors such as the extent of external custody arrangements and insurance cover.

EAMA, along with stockbrokers and non-bank financial institutions throughout the EU, is also concerned that similar proposals are to be included in the European Commission's imminent revised capital adequacy directive.