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Association Française de la Gestion financière (AFG)

We disagree with the general approach and would suggest to focus strictly on to non-regulated entities or structures embedding systemic risk (notably by using significant leverage) or to express regulatory arbitrage. “Shadow banking” should imply opaque activities bearing systemic risk, with no definition or specific rules attached.

Also if AFG welcomes the fact that investment firms and UCITS are left out of the scope and that the EBA acknowledges the robustness of UCITS’ framework, we regret to see other AM activities considered “banking-like activities”: MMF & AIF.






a. MMFs

No justification is brought by the EBA as to why it wants to include MMFs in the scope of the Guidelines.

We believe MMFs are tightly regulated and subject to prudential rules and that as such they don’t fulfill the first criterion establised by the EBA to be considered as shadow banking entities. AFG would like to highlight that currently almost all of MMFs in Europe are complying with UCITS directives, the Eligible Assets directive, ESMA Guidelines on a common definition on European Money Market Funds, and that a specific Money Market Funds Regulation (MMFR), currently close to final adoption, was explicitly proposed by the European Commission to tackle the supposed risk of shadow banking in the area of MMFs and will, once adopted, tackle the potential risks identified by EBA. For instance, the liquidity rules voted by the European Parliament in the MMFR will reduce considerably the risk of liquidity mismatch, as it requires MMFs to comply with daily and weekly liquidity thresholds for 10% and 20%. Thus we see no reason to include all MMFs as relevant shadow banking entities, at least as soon as the MMF Regulation will be definitively adopted.

If anything, the definition of the type of fund subject to scrutiny under shadow banking should be focused on the risks which stem from the discrepancy between marked to market and published NAV in the specific case of constant NAV MMFs.

b. AIFs

No justification is brought by the EBA as to why it wants to include all AIFs in the scope of the Guidelines.

We believe AIFs are tightly regulated and subject to prudential rules and that as such they don’t fulfill the first criterion establised by the EBA to be considered as shadow banking entities.

As for the second criteria (credit intermediation), we believe that risks identified with AIFs such as leverage effect, maturity and liquidity transformation as well as credit risk exposure are tightly limited at the level of low leveraged AIFs: the vast majority of AIFs are not hedge funds, and are regulated at national level as UCITS-like funds.
AIFs, especially AIFs without significant leverage as defined by AIFMD (3:1), should not be considered SB entities given their rules in terms of leverage, investment diversification, liquidity credit and counterparty risk management as well as the strict and continuous control they are subject to.

Under AIFMD, supervisory reporting is mandatory for most AIFs on a quarterly basis and includes detailed information on portfolio composition, principal exposures and most important concentrations, risk profile and liquidity management.

The AIFMD reporting also provides helpful data for assessing the interconnectedness between banks and other financial entities. These requirements have been developed with the specific aim of enabling supervisory authorities to effectively monitor systemic risks associated with AIF management.

We understand that banks exposure to highly leveraged funds is a source of concern for the EBA, but this matter is to be dealt with the current negotiation on the Banking Structural Reform at level 1, and should not be adressed via level 3 regulation.
If relevant entities were to be considered as SB entities (cf. answer to question 1) and in order to avoid burdensome procedures, AFG would suggest having a limit at aggregate level. Monitoring of individual exposures should exist, but we do not think that individual limits should be required.
It’s hard to agree or disagree with the fall back approach, as there is no justification as to why the 25% limit woud be relevant. For the same reasons, it is hard to assess whether option 1 or 2 would be more relevant.
If and only if the relevant entities were to be identified as SB entities (cf. answer to question 1), AFG would support the principal approach.
See answer to question 5.
Arthur Carabia
+ 33 1 44 94 96 58