EU-based funds routinely delegate portfolio management to their own teams in London, New York and other places outside the bloc, or outsource it to other companies. The European Securities and Markets Authority said this practice increases risk, and “is likely going to further increase” once the U.K. leaves the EU. It recommended limiting delegation and holding fund managers to EU standards regardless of where they’re located.
The regulator also called for a tightening of the rules on the use of so-called seconded staff temporarily assigned to a firm in the EU, but who in some cases continue to work outside the bloc. ESMA’s proposals are part of a review of EU rules for so-called alternative investment funds, a category that includes private equity, real estate and hedge funds.