A former Brussels lawmaker has warned that the EU’s push to establish its own data storage infrastructure to rival US giants Amazon and Google threatens the outsourcing arrangements that underpin asset managers’ global business models.
Kay Swinburne, who spent years working on EU regulation as vice-chair of the European Parliament’s main financial services committee, said the EU could clamp down on delegation “via the back door” by restricting the transfer of European customer data outside of the bloc.Show Full Article
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Delegation, which allows asset managers operating from financial hubs such as Hong Kong, Boston and London to run money for investors all over the world, has come under attack from European countries eager to bring asset management activity onshore.
In 2017, France led an attempt to curb asset managers’ delegation to non-EU countries, arguing that the rules could result in British asset managers evading European oversight after Brexit by outsourcing the bulk of their activity back to the UK.
This attempt was ultimately unsuccessful but former UK MEP Ms Swinburne, who was a vocal critic of the French proposals, warned that policymakers could find creative ways to attack delegation once again.
“Delegation will come up absolutely everywhere,” said Ms Swinburne, now vice-chair of financial services at KPMG. “If the EU felt there was a gain to be had [by curbing the practice], they could do it in one of the upcoming regulatory reviews or they could do it via the back door by introducing data clauses.”
The EU is determined to reboot its data storage prowess in a bid to reduce the region’s reliance on US cloud suppliers, which policymakers fear could compromise the security of sensitive European information. European Commission president Ursula von der Leyen has made “digital sovereignty” a big priority, while France and Germany are drawing up proposals to develop a European data storage champion, called Gaia-X.
Ms Swinburne said that the EU’s aims suggested it favoured limiting the transfer of EU customer data outside of the bloc.
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Delegation of fund management activities is contingent on the existence of information-sharing arrangements between the regulator of the delegating entity and the regulator of the delegate itself. As a result, any restriction on the ability to move customer data outside of the EU “would cause huge problems for delegation”, said Ms Swinburne.
Gita Shivarattan, data protection counsel at law firm Ashurst, said even if the EU stopped short of introducing data localisation rules, the creation of an EU cloud computing provider could nevertheless deter asset managers from delegating to non-EU entities.
Under EU rules, asset managers have to prove they have oversight of their non-EU entities to be able to delegate. Ms Shivarattan said the EU’s plans to develop common security standards may make it “challenging” for asset managers to justify delegating to non-EU managers that use US or Chinese cloud providers. The oversight of these providers is often “diluted” as they do not offer bespoke services to clients.
“While this is not likely to prohibit delegation outside of the EU, it may increase operational costs, if there is a requirement to use an EU cloud provider or adhere to approved EU cloud standards or codes of conduct,” she said.
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