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ALFI Summary: Response to Consultation on European Regulation 1781/2006

Core Content

ALFI (Association of Luxembourg Investment Funds-Société de Gestion de Patrimoine Familial) has responded to a consultation by CESR, CEBS, and CEIOPS regarding the obligations of payment service providers (PSPs) to provide information on the payer when transferring funds to investment fund payment service providers. ALFI represents the Luxembourg fund industry, which manages over 1.9 trillion Euros, and also includes a wide range of financial service providers and distributors.

Main Views

ALFI emphasizes the following key points in its response:

• Importance of Efficient Fund Operations: It is crucial for PSPs representing investment funds not to block incoming payments immediately when the payer information is incomplete. This is because fund managers often need to match incoming cash with investment settlements promptly to maintain market exposure and avoid unnecessary delays.

• Recommendation on Handling Incomplete Information: ALFI suggests that investment funds should accept the funds for subscription, but block the shares in the client's account until the payer information is fully available to the fund. This approach balances the need for compliance with the operational efficiency of the fund.

• Need for Clarity on Regulatory Obligations: ALFI urges the European regulators to clarify the specific authorities to which failing PSPs should report, whether it is the supervisor of the payee's PSP or the payer's PSP. It also calls for more precise definitions of what constitutes a "common understanding" on failing PSPs.

Key Comments on Specific Sections

Section 4.3 (Transmission to Authorities)

• ALFI recommends that CESR specify whether reporting of failing PSPs should be directed to the supervisor of the payee's PSP or the payer's PSP.
• The term "common understanding" is considered too vague and requires further clarification by the European regulators.

Response to Questions

Question 1

• ALFI prefers a hybrid approach combining elements of options A and B, allowing PSPs to define their own policies while also supporting the imposition of a maximum pre-agreed deadline by European regulators.

Question 2

• ALFI's position is the same as for Question 1: a combination of options A and B is preferable, with the added value of a regulatory-imposed deadline.

Question 3

• ALFI suggests that the criteria for identifying incomplete transfers should be based on a percentage of incomplete transfers relative to the total number of transfers received within a defined timeframe, rather than an absolute number.

Question 4

• ALFI is concerned that the proposed coordination mechanism may add unnecessary administrative burden without significantly improving the consistency and quality of fund transfers.
• It advocates for enforcement by the regulator of the payer's PSP, particularly after consultation with the payee's PSP supervisor, to ensure compliance with the regulation.
• ALFI believes that the termination of a business relationship due to a failing PSP should not solely rest on the payee's PSP, as the payer's PSP is primarily responsible for providing the necessary information.

Question 5

• ALFI states that this question is not applicable to them.

Conclusion

ALFI advocates for a balanced regulatory approach that supports operational efficiency while ensuring compliance with AML requirements. It emphasizes the need for clarity and specificity in regulatory guidance, particularly regarding the responsibilities of PSPs and the reporting mechanisms for failing PSPs.