The European Commission has hit back at claims by the UK’s Financial Conduct Authority that shortcomings in EU regulations were behind the fallout involving fund manager Neil Woodford.
Woodford stopped investors from withdrawing money from his £3.7bn equity income fund earlier this month after it racked up huge losses amid creeping exposure to illiquid assets.
On Tuesday, Financial Conduct Authority chief executive Andrew Bailey told the Treasury select committee that some of the underlying problems in Woodford’s case arose because of loopholes in the European fund regulation system.
Ucits rules cap the amount of illiquid assets an investment fund can have at 10%, while remaining assets must be listed on an approved stock exchange.
Woodford used several creative means to circumnavigate these rules, including listing a trio of investments in Guernsey which caught the attention of the International Stock Exchange and ultimately the FCA.
Weak UK supervision
The European Commission said the chief reason for the Woodford debacle was a lack of effective oversight by the UK regulator.
“This case seems to be a supervisory issue concerning the application of the EU rules, and not of the Ucits rules themselves,” a European Commission spokesperson said.
“We see no immediate reason for changing rules which are, in our view, clear but need to be applied properly by national authorities in order to ensure the intended protection of investors.”
The spokesman added that the European Commission has always advocated that the European Securities and Markets Authority (Esma) should have “a strong role in ensuring convergence of supervisory practices to ensure consistent application of EU rules”.
Bailey had told the parliamentary committee on Tuesday that oversight to prevent similar problems with liquidity in funds would be easier after Brexit because of overly complex EU regulations.
Ucits are expected to invest in liquid assets in order to be able to ensure daily redemptions, the European Commission spokesperson said.
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