Regulations: ten years of change, what next?


For the last decade or so following the financial crisis of 2008, a series of directives and regulations have emerged to deal with any new crisis, since when Europe has not experienced any new financial cataclysms. We take a look at the new regulations that have emerged over the last decade and what the future holds in store.

The Financial Stability Board (FSB) – an international economic body established after the G20 London Summit in 2009 – singled out shadow banking as the main culprit behind all the woes of 2008. The FSB defined shadow banking as “the system of credit intermediation that involves entities and activities outside the regular banking system”. Hedge funds, money market funds and securitisation were identified as being a part of this alternative finance.

Europe wanted to follow the US lead and better regulate all of the financial industry’s players and activities, in order to rectify the regulatory framework in place at the time, which was poorly adapted not to say too permissive. The European institutions in Brussels and politicians therefore took a certain number of regulatory measures, beginning with the EMIR* European regulation in July 2012. This regulation covering OTC derivatives* was supplemented in January 2016 with the enactment of the Securities Financing Transactions Regulation (SFTR*). SFTR concerns transactions that are not covered by EMIR: repurchase agreements, securities lending activities and sell/buy-back transactions.

The AIFM* Directive, implemented in July 2013 and from which UCITS V* gains its inspiration, was to be the first iteration of the project, only covering hedge funds accused – rightly or wrongly – of being responsible for the 2008 financial crisis. Two major events took place that year: the collapse of Lehman Brothers in September and the discovery of the Ponzi scheme set up by Bernard Madoff in December. Then AIFMD included all mutual funds that were not UCITS*, including private equity and real estate funds. Indeed, the vast majority of data to be included in financial reports (extreme values or derivatives, for example) applied to hedge funds and not to other categories of assets, thus resulting in a few computer glitches during the implementation of certain tools required by the new regulations. Furthermore, some alternative asset managers felt that these AIFM rules – aimed at protecting investors – were unjustified: their clients and themselves, as experienced professionals, understood their investments and controlled the associated risks.

Strengthening investor protection also means more transparency, and therefore more communication. The MiFID II directive, which came into effect in January 2018, stipulates that information provided to clients must be clear, accurate, not open to interpretation and still relevant.

Towards a lull in regulations?

Following the events of 2008, the European Parliament and the European Commission put a number of practical actions into effect in the regulatory domain. They notably based themselves on research undertaken by US survey experts Gallup1. In 2005, 53% of respondents said they had confidence in financial players. The same question asked in 2012, 4 years after the financial crisis, resulted in just 21% of positive responses.

Nevertheless, is regulating needed or not? Whilst regulations are necessary to deal with the dysfunctions of our financial systems, regulating effectively is a challenge.

Nobody wants to go through the subprime crisis again, nor the misfortunes that the financial universe experienced in 2008 and the following years. To avoid certain pitfalls, the European Union then implemented a series of regulations and directives. As an example, we’ll mention that of July 2017: the regulation pertaining to money market funds, MMFR*, which came into effect a year later.

Although certain adjustments are still necessary, most of the regulatory measures directly or indirectly impacting mutual funds have already been taken, and the period of significant regulations with EMIR, AIFMD, UCITS V, SFTR, MMFR*, MiFID II* and PRIIPs* is now behind us. They came into effect, were transposed and have been implemented.

This lull in the regulatory domain is very welcome. Most players are now busy consolidating, finalising, regulating, automating and industrialising the operational processes they should have put in place almost a decade ago in order to achieve compliance.

Although AIFMD was a revolution for custodians and alternative fund managers, these alternative funds’ assets have increased by 62% since 20132, exceeding 6,000 billion euros, reflecting the success of this at first much-maligned AIFM directive that has proven to be a real success. AIFMD has enabled new businesses and economic growth and job opportunities to be created, a major objective of the Capital Market Union project. As an example, since 2013, SGSS’ alternative funds department in Luxembourg has strengthened its teams.

What should we expect in the near future?

A new regulatory roadmap will be published after May’s European elections. Will MEPs (Members of the European Parliament) merge the AIFM and UCITS directives into a single directive for mutual funds? Will a single transaction notification method for EMIR, SFTR and MiFID II* be proposed? Is a harmonisation of the information to be generated so that investors receive just one KIID*, whether covered by PRIIPS, MiFID II, UCITS V or AIFMD, conceivable?

In the coming months, ESG* criteria – which it would be advisable to incorporate within a regulation – or technological changes will have a growing impact.

Technology is increasingly incompatible with the ongoing growth in regulatory papers. RegTechs, which allow banks to improve their efficiency thanks – amongst other things – to automated data control solutions, facilitate the application of regulatory texts but have no effect on their length. MiFID II, for example, has more than 2,000 pages! Experience shows us that once a text comes into effect, its adaptation and implementation within institutions can take time. Eighteen months to comply can prove to be too short a timeframe. This illustrates the time lag that can prove risky and lengthy between the compliance demanded by the texts and its effective implementation by market players.

The absence, in Europe, of fiscal harmonisation alongside regulatory harmonisation also remains problematic. Furthermore, ATAD*, which came into effect on 1 January 2019, could reshape the economic map of the EU*. Indeed, some companies that currently enjoy tax benefits could leave the country in which they are established or domiciled. And let’s not forget Brexit, the outcome of which is currently very uncertain.

Regarding the change in European demographics, and in particular the issue of pensions, according to EIOPA*, 67 million (27%)3 EU citizens aged between 25 and 59 have a voluntary pension plan. Member States had 24 months, i.e. until 13 January 2019, to transpose Directive 2014/91/EU on pension funds into domestic law. To date, it is not yet possible to indicate which countries have done this. On the same topic, the EU’s PEPP* project launched in 2017 has the same purpose: to anticipate the demographic challenge Europe is facing and which will increase the pressure on public finances.

Luxembourg still enjoys top position in Europe in terms of mutual fund assets domiciled there, with 3,500 billion euros or 35.9% of assets in Europe4. Ireland is in second place with 1,900 billion euros or 19.1%. But the latest changes enacted at OPCVM 2014/91/EU and AIFM 2011/61/EU delegated act level, which impose new rules on custodians from 1 April 2020, could have an impact on the number of custodians currently operating in Luxembourg (67) because of the sizeable costs needed to implement them.


Published by the AGEFI (February 2019)


AIFM: Alternative Investment Fund Managers
ATAD: Anti-Tax Avoidance Directive
EIOPA: European Insurance and Occupational Pensions Authority
EMIR: European Market Infrastructure Regulation
ESG: Environmental Social Governance
EU: European Union
FSF: Financial Stability Board
KIID: Key Investor Information Document
MiFID II: Markets in Financial Instruments Directive II
MMFR: Money Market Funds Regulation
OTC: Over The Counter (transactions)
PEPP: Pan European personal Pension Product
PRIIPs: Packaged Retail Investment and Insurance-based Products
SFTR: Securities Financing Transactions Regulation
UCITS: Undertakings for Collective Investments in Transferable Securities
UCITS V: Undertakings for Collective Investments in Transferable Securities V

* Glossary
[1] In U.S., Confidence in Banks Remains Low, by Rebecca Riffkin, June 26, 2014
[2] Source:
[3] Source: European Commission press release: Commission launches a new pan-European personal pensions label to help consumers save for retirement - Brussels, 29 June, 2017.
[4] Source: