A single market for investment funds – ensuring investor protection and financial stability

Abstract

In the EU, financial services are increasingly provided through “non-bank financial intermediation” (NBFI). By asset value, investment funds are the most important sector of NBFI. They help to ensure the efficient and cost-effective allocation of capital to businesses and provide consumers and investors with a large variety of potentially highly rewarding investment opportunities.

The EU has gradually been stepping up its regulation of the investment funds sector, and increasingly so since the 2008 financial crisis. The EU aims to provide an effective level playing field for investment funds, based on strong consumer and investor protection, whilst ensuring financial stability.

EU bodies are responsible for creating a set of common rules, fostering supervisory convergence and assessing the risks to investors, markets and financial stability, and for coordinating efforts to mitigate systemic risks.

However, since EU law in this area largely takes the form of directives, many of the detailed rules governing investment funds are determined at Member State level. Thus, there may still be significant regulatory differences from one Member State to the next. Moreover, the day-to-day supervision of investment funds remains a national competence.

The European Court of Auditors has launched an audit of the EU’s progress towards creating a single market for investment funds. As well as addressing the suitability and effectiveness of the evolving regulatory framework, we intend to examine whether it has promoted supervisory convergence among Member States.

This is the latest in a series of audits in which we focus on supervision in the EU’s financial sector, as we have previously done in relation to banking and insurance.