The European Fund and Asset Management Association warned against the Volcker Rule on Monday, saying that the proposal could have a potentially more devastating effect on Europe’s asset management market than the U.S. market.
EFAMA, which represents various entities in the European investment management industry, sent a comment letter in response to a request from U.S. regulators, warning that a U.S. decision to implement the proposed rule absent alterations will have far-reaching consequences.
“We believe…that, in their current form, the proposed rules represent an inappropriate extraterritorial application of [U.S.] jurisdiction and significantly exacerbate the negative impact that the Volcker Rule will have on the the European fund and asset management industry without…furthering the purpose or intent of the Volcker Rule,” the Feb. 13 letter said.
EFAMA’s primary concern is that imposing the Volcker Rule on foreign markets will create a disparity between U.S. mutual funds and other regulated investments in Europe.
“EFAMA is concerned that the proposed rules could adversely impact market liquidity generally…” the letter said. “EFAMA believes that the [regulators] should take all necessary steps to limit unnecessary adverse impacts on the liquidity and efficient operation of the securities market.”
EFAMA made several suggestions to regulators in the letter, including revision of the definition of a “covered fund.” Though covered funds are intended to primarily prohibit traditional non-U.S. hedge and private equity funds, EFAMA said, the rules, as written, could possibly extend to include every non-U.S. regulated fund.
Additional suggestions include reconsideration of the “solely outside of the United States” exception, which is unlikely, EFAMA said, to be applicable to very many foreign banks and lenders.
EFAMA said in the letter that while comments on the rule will not preempt all foreseeable problems,“these problems can be avoided, or at least substantially mitigated, without sacrificing the objectives of the Volcker Rule, through revisions to the proposed rules.”