BNP Paribas Investment partners is the holding company of all asset maangement companies within the BNP Paribas group. Our subsidaries are regulated and operate in many countries, in Europe, Americas, Asia Pacific. Globally we manage or advise about 540 bn euros (mandates, UCITS, AIFs, mutual funds, advisory services...). We are one the 15 biggest asset managers in the world; Our clients are mainly institutions (67%) and retail clients (through BtoBtoC). Within the institutional franchise, banks are one of them. Banks are also counterpart of funds we manage (reverse repos, derivative OTC transactions..) . It explains why we are very happy to offer our views to EBA.
Globally we do not intend to position ourselves on questions which are much more relevant for banks than for asset management.
But we consider important for us to respectfully challenge EBAs' approach where funds are concerned. Whereas we could admit that there is a distinction drawn from regulated-unregulated entities, we would like to emphasize that EBA is misinterpreting the ongoing European regulation of our activity, in particular when funds are concerned. Therefore the conclusions EBA puts forward are not the right one, from our point of view.
We understand that, behind EBA thoughts, there is the will to address systemic risks arizing from the so called shadow banking". The first question -what type of funds are "systemic"?- has been addressed quite recently by the FSB and IOSCO and if asked to do so we will kindly provide EBA with the answers we have shared with our peers and which are reflected in AFG or EFAMA answers to the FSB/IOSCO consultation.
Our answer to EBA consultation repeats what was said then: the scope for "systemic risks" arising from funds is very limited.
We add here that qualifying as being potentially part of "shadow banking" the funds ignores the fact that most of them are regulated. if we follow EBA first approach -exluding from the scope regulated entities- it would mean that a wide range -and not only as proposed a small one- of funds should be excluded. UCITS, but also AIFs with a limited leverage effect (up to 3) are to be considered as regulated and limiting per se the risks; they are neither systemic nor part of any Shadow banking activity.
Specific consideration is to be paid, from our point of view, to Money market funds and to highly leveraged funds (above 3);
MMF are already regulated in Europe, at least under some provisiosn of ESMA guidelines; they wil be directly regulated as a Commission proposal is being discussed in the EU. As such, these funds cannot be considered themselves are "shadow activities" but one part of them -VNAV funds- can bear systemic risk. We could understand that a different treatment is made for both categories of MMF -VNAV vs. CNAV. VNAV MMF should be out of the scope of EBA guidelines.
Regarding AIFs, all funds with a low leverage should be excluded from the "shadow banking activities". Other AIFs (above 3) - which are not exempted of reporting requirements and which can face regulatory constraints in case market conditions need it- could however in our view be covered by the guidelines provided that:
1) banks and their subsidiaries can get an exposure to them through seed money
2) during a limited period of time
3) within a limited amount of tehir capital. Here we support the explicit inclusion of Option 1 page 32 within the guidelines.
Seed money is key for launching any type of hedge fund -and EBA should avoid that Europe falls out of the market because more stringent rules would be adopted, compared for example to the Volcker rule in the US; As it is very comon that seed money is brought by the asset managers themselves, such activities should be captured through a consolidation wihere the asset manager is part of a regulated group.
Finally, and in order to be simple, a list of shadow banking entities within the scope of the regulation and of exempted entities should be published by EBA afetr consulattion with ESMA."
We do not believe aggregated limits would be relevant: shadow banking entities differ much. Individual limits seem much more efficient and easy to calibrate.
In any case, Ucits, AIFs with a small leverage should be out of any scope. Where the limit of 0.25% is not reached, nothing should be included in the aggregate limit, if