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1 BVI Eschenheimer Anlage 28 D Frankfurt am Main European Commission Directorate General Internal Market and Services Financial Services Policy and Financial Markets Securities markets Bundesverband Investment und Asset Management e.v. Contact: Marcus Mecklenburg Phone: Fax: September 2010 B-1049 Brussels BVI Reply to the EU Commission s Green Paper on the Corporate governance in financial institutions and remuneration policies Dear Sir or Madam, BVI 1 welcomes the opportunity to comment on the Commission s Green Paper on Corporate governance in financial institutions (COM(2010)284). The European investment management industry takes interest in the topics under discussion from two perspectives: In our understanding, fund management companies managing UCITS or other types of funds are to be regarded as financial institutions in the sense of the consultation paper und would therefore be affected by any regulation on corporate governance and remuneration policies which would develop from the Commission s initiative ( internal governance ). Director General: Stefan Seip Managing Director: Rudolf Siebel 1 BVI Bundesverband Investment und Asset Management e.v. represents the interest of the German investment fund and asset management industry. Its 85 members manage currently assets of nearly EUR 1.7 trillion both in mutual funds and mandates. BVI s ID number in the EU register of interest reopresentatives is For more information, please visit Eschenheimer Anlage 28 D Frankfurt am Main Postfach D Frankfurt am Main Phone: Fax: info@bvi.de

2 Page 2 of 19, 1 September 2010 In managing assets for both retail and institutional investors, BVI members are major investors in companies whose securities are traded on regulated markets. Thus they take vivid interest in governance and remuneration requirements imposed on undertakings which (potentially) constitute portfolio holdings ( external governance ). One of BVI s key concerns is the one size fits all approach the Green Paper seems to be driven of. Undoubtedly, the financial crisis has shown that certain large financial institutions give rise to certain systemic issues that necessitate measures to improve their governance. But we disagree with the application of a number of the proposals to smaller financial institutions. Nor do we consider it necessary, or that the case has been made, for the governance of other types of financial institution to be addressed. In particular, the investment management industry s business model is very different to that in the banking sector: an investment manager s clients money and assets are segregated from those of the firms, and the manager s activities do not put their security at risk. In a bank, on the other hand, client funds are held on the balance sheet and are used in the business. Furthermore, BVI feels that the Commission s considerations on shareholders (Section 5.5 of the Green Paper) may apply to institutional shareholders holding assets on their own account. However, these general considerations are not suitable to be applied to the asset management industry with its business model differing from the business model of banks (see above). In particular, we would like to challenge the assumption that performance measurement in the area of institutional investment is usually short-term oriented, thus inducing short-term investment decisions even under long-term investment goals 2. The Green Paper does not provide any evidence for this assertion, and BVI thinks that in the area of investment management it is untenable in its generalisation. Asset managers are capable of and obliged to adjusting to different investors needs, including long-term performance or short-term. It lies within the responsibility of the institutional client (ultimate investor) to communicate the investment objective of each mandate clearly to the asset manager. It is also the responsibility of the institutional client to align the incentives for the asset managers with the investment objectives for each mandate. The 2 Section of the Staff Working Document

3 Page 3 of 19, 1 September 2010 institutional client sets the rules for the mandates and decides on the incentivisation. Where retail investors are concerned, certain types of funds (such as money market funds) are more suitable for short term investments, while others are more suitable for long term investments; it is in all circumstances up to the client how long he wants to stay invested. Even if performance is assessed short-term, when mandates are awarded, institutional clients will look at performance over a number of years rarely is a mandate awarded based on a short term time frame. Also whilst the actual investment entity may be awarded fees based on quarterly performance, individual portfolio managers performance is assessed on a medium to long-term basis and other factors are taken into account by the asset management company. Given that EU legislation has far-reaching effects for the affected industries and in the area of investment management also for end investors, BVI thinks that throughout understanding of these correlations is indispensible and welcomes the Commission s intention to take them into consideration. With regard to the questions submitted for consultation, our comments focus on those issues we deem specifically important from the perspective of the German investment fund industry. 1. BOARDS OF DIRECTORS General Question 1: Interested parties are invited to express whether they are in favour of the proposed solutions concerning the composition, role and functioning of the board of directors, and to indicate any other measures they believe would be necessary. BVI does not believe that these proposals should unconditionally be extended to all financial institutions, particularly not to those institutions that do not give rise to systemic risks. A clear distinction is required between traditional financial institutions, such as credit or investment banks, and institutions which assume the role of a trustee for their clients, such as asset and fund management companies, since both the nature of the risks taken by such institutions and the impact on the whole financial system may vary considerably.

4 Page 4 of 19, 1 September 2010 Furthermore, as there are different governance models in place in the regulatory frameworks at national level in EU Member States (e.g. one-tier vs. two-tier model), BVI deems it important that EU governance rules remain principle-based, balanced and flexible, and that the principle of proportionality is preserved. 1.1 Should the number on boards on which a director may sit be limited (for example, no more than three at once)? The financial crisis has highlighted the need for talented and experienced directors to perform a more effective oversight role. Directors need to be high quality and committed to ensuring that their businesses are run effectively. Undoubtedly the quality of non-executive directors oversight would be enhanced if they devoted more time to their role. BVI members agree that enhancing the quality and efficiency of the board s supervisory function is a reasonable concern. A limitation of the number of mandates is, however, only one possible option. As an alternative, it could also be envisaged to focus on qualitative than quantitative criteria, as indicated in the following questions. In any case, it should be noted that the actual time and effort necessary for properly administering the role of a director may vary widely according to the size and business model of a company. Thus, the proposed number of 3 mandates per director might be to low. After all, also in this respect the particularities of one-tier vs. two-tier structures need to be taken into account. 1.2 Should combining the functions of chairman of the board of directors and chief executive officer be prohibited in financial institutions? BVI would like to state that the situation the prevention of which is suggested by this question can only occur in structures featuring a one-tier board. Twotier structures provide for a clear separation of management and supervisory functions and therefore are not prone to problems deriving from a cumulation of offices. BVI members think that a separation of the functions of chairman of the board of directors and chief executive officer should clearly be considered. A cumulation of such functions among various members of a financial group, on the other hand, is common practice to a certain extent and also feasible from the entrepreneurial point of view. It should therefore

5 Page 5 of 19, 1 September 2010 not be banned as long as sufficient oversight is being provided by board members who do not represent other entities of the group. 1.3 Should recruitment policies specify the duties and profile of executives, including the chairman, ensure that executives have adequate skills, and ensure that the composition of the board of directors is suitably diverse? If so, how? BVI is certainly of the opinion that adequate skills of directors and adequate diversity in the board are important. The financial crisis exposed a number of instances in which boards lacked the expertise to question executive management and, particularly in the case of complex financial institutions, oversee the risks. For a board to be effective, it needs to have a mix of relevant experience and a broad range of skills, and the individual members need to conduct themselves with integrity and exercise sound judgment. There is, however, no need for a regulatory obligation to implement detailed recruitment policies unconditionally in all financial institutions. Such policies cannot abstractly determine the ideal profile for candidates, and it has to be recognised that in smaller entities or boards it might prove to be impossible finding persons that fit exactly into such profiles. In any case, it must remain possible to recruit directors or board members with a broader background, not only specialists. 1.4 Do you agree that including more women and foreign executives in the board of directors could improve the functioning and efficiency of boards of directors? When composing boards, BVI deems it important to encourage diversity. Appointing board members with different backgrounds, experiences and skills improves the quality of the functioning of the board of directors. Mandatory quota for women and foreign executives, however, can hinder the efficient workings of the market and result in the loss of experienced talent. Board appointments should be on merit and it is important that potential candidates appear 'on the radar' of those recruiting and the decision-makers.

6 Page 6 of 19, 1 September Should a compulsory evaluation of the functioning of the board of directors, carried out by an external evaluator, be put in place? Should the result of this evaluation be made available to supervisory authorities and shareholders? BVI is in favour of installing an explicit evaluation procedure to assess the functioning of the (supervisory) board and its interaction with the executive management. This could be setup as a self-assessment or could be carried out by external experts. A challenge for external evaluation will lie in the lack of objective material criteria for the functioning of a board. Furthermore, any external evaluation should not be set up as a check the box procedure, as this might result in little meaningful findings. It has to be clear, however, that such self-assessment or external evaluation is not about the content of decisions, i.e. the entrepreneurial dimension, but rather about the functioning of the diverse functions of the entities involved. In any case, the idea of publication of the outcome of evaluation measures needs further consideration as it may harm the stability or solidity of the financial institution in question. 1.6 Should it be compulsory to set up a risk committee within the board of directors and establish rules regarding the composition and functioning of this committee? BVI deems it important that the board retains responsibility for risk management, but recognises it may be necessary to delegate certain functions to sub-committees, particularly where independence may be an issue and where there are too many demands on the audit committee, such that insufficient time may be dedicated to risk management. Thus we agree that the board of a major financial institution, such as a bank, should be required to establish a risk committee separately from the audit committee and for there to be requirements regarding its composition and functioning. However, there is no need to extend this beyond those large banks and financial institutions where there are systemic issues and which are exposed to extreme risks.

7 Page 7 of 19, 1 September Should it be compulsory for one or more members of the audit committee to be part of the risk committee and vice versa? Whilst it can be helpful if one or more members of the audit committee are part of the risk committee and vice versa, BVI does not consider that this should be compulsory in that it should be for the financial institution itself to decide. 1.8 Should the chairman of the risk committee report to the general meeting? BVI members feel that the risk committee should report to shareholders but this should be through the annual report rather than to the general meeting. At least there is no need for implementing such a requirement. 1.9 What should be the role of the board of directors in a financial institution's risk profile and strategy? Also in this respect the particularities of one-tier vs. two-tier structures need to be taken into account. Within a dual structure system like in Germany, the role of the (supervisory) board should be confined to oversight the respective strategies and procedures developed and executed by the executive board, seconded by advisory functions Should a risk control declaration be put in place and published? BVI is not in favour of implementing a risk control declaration that has to be published. There are sufficient checks and balances in place by both the supervisory authority and external auditors. Mandatory publication might lead to boilerplate statements with no practical value at all Should an approval procedure be established for the board of directors to approve new financial products? Product development is part of the operational activities of the company. Thus it should be the responsibility of the management to install appropriate policies and procedures of approving new financial products and the risks

8 Page 8 of 19, 1 September 2010 involved. The board of directors should exercise its supervisory duties and ensure appropriate procedures exist and are effective Should an obligation be established for the board of directors to inform the supervisory authorities of any material risks they are aware of? BVI members deem it important that the supervisory authorities become aware of any material risks which might become relevant for the functioning of the financial markets. They are of the opinion, however, that the flow of information is already guaranteed by the existing governance models. Depending on the board structure, the reporting to the supervisory is effected by the board, the executive board or the auditor. In any case, BVI does not see any need for implementing additional reporting lines Should a specific duty be established for the board of directors to take into account the interests of depositors and other stakeholders during the decision-making procedure ('duty of care')? The board s primary responsibility should be to promote the success of the company primarily for the benefit of its shareholders they provide the risk capital and bear the residual risk. In the area of fund and asset management, however, there is a dedicated obligation of the management company to act in the interest of the unit holders 3 or clients 4, respectively. Given that the board of directors is responsible for the proper functioning of the company and for performance of legal duties, the board is already legally committed to the interests of the customers. 2. RISK-RELATED FUNCTIONS General Question 2: Interested parties are invited to express whether they are in favour of the proposed solutions regarding the risk management function, and to indicate any other measures they believe would be necessary. BVI supports improvements to the quality of risk management in financial institutions. However any requirement should not be applied on a one size 3 Article 14(1)(a) Directive 2009/65/EC ( UCITS IV Directive ) 4 Article 19(1) Directive 2004/39/EC ( MiFID )

9 Page 9 of 19, 1 September 2010 fits all basis; instead, there should be a degree of proportionality and appropriate application. When the proposals are elaborated further their interconnectedness with other concepts, such as the compliance function, level of know-how of individuals (and the regulators testing of that) and the behavioural effect of remuneration policies should be included. In Germany, there is already highly detailed regulation in place in the shape of circulars from the supervisory authority BaFin on risk management in banks, insurance undertakings and fund management companies ( MaRisk ). In case of the regulation for management companies, the provisions are based on the UCITS IV implementing Directive on Management Companies which came into force on July 1, 2010 (to be implemented by Member States on July 1, 2011). 5 BVI members deem it important that for management companies, the quality and efficiency of these provisions should be assessed before considering new regulation in this area. 2.1 How can the status of the chief risk officer be enhanced? Should the status of the chief risk officer be at least equivalent to that of the chief financial officer? BVI favours financial institutions having a strong and experienced risk management function with sufficient authority and independence. At least major firms should indeed appoint a dedicated CRO. However, we see difficulties in prescribing that the persons in charge should be of at least equal status to the chief financial officer. For example, how would status be measured? BVI deems it more important that there is a direct reporting line from the CRO/risk management function to the board. 2.2 How can the communication system between the risk management function and the board of directors be improved? Should a procedure for referring conflicts/problems to the hierarchy for resolution be set up? BVI feels that a direct reporting line from the risk management function to the board of directors is vital, and that each financial institution should have 5 Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company

10 Page 10 of 19, 1 September 2010 effective procedures for handling conflicts of interests. In Germany, the requirements on risk management for UCITS management companies are laid down in a BaFin Circular InvMaRisk and comprise direct reporting lines from the risk management function to the board of directors. These mechanisms appear appropriate, and we are concerned that should the communication systems and escalation procedures become overly prescriptive and result in mechanistic compliance, this would not be helpful in the management of risk. Undoubtedly institutions should have escalation procedures as part of their normal business procedures. These should be appropriate to the institution concerned, with small institutions having relatively simple processes and procedures compared to larger institutions. We do not agree with the implication in the paper that all conflicts and problems encountered should be escalated in that conflicts and problems that arise should be dealt with at the appropriate level in the institution. 2.3 Should the chief risk officer be able to report directly to the board of directors, including the risk committee? See our answer to Question Should IT tools be upgraded in order to improve the quality and speed at which information concerning significant risks is transmitted to the board of directors? BVI considers that whether IT tools should be upgraded to improve the quality and speed at which information concerning significant risks is transmitted to the board is a matter for institutions themselves to determine. In addition, IT in the area of risk management is evolving rapidly, and there is never a particular point of time when an upgrade is required. As a principle, IT tools should be appropriate to the size and complexity of the institution and may not need to be upgraded in small, simple institutions which may choose to use perfectly adequate non-it solutions in this area. 2.5 Should executives be required to approve a report on the adequacy of internal control systems? In the area of UCITS management, management companies will be obliged by July 1, 2011 the latest to ensure that senior management and, where

11 Page 11 of 19, 1 September 2010 appropriate, the supervisory function is responsible for the internal control systems. 6 The relevant provisions provided for by UCITS IV Level 2 regulation should be the benchmark for requirements to be posed on financial institutions in this area. Apart from that, a requirement to approve a report on the adequacy of the internal control system would be likely to become standardised and engender a box ticking, mechanistic approach to ensure compliance rather than allowing companies to produce meaningful reports tailored to their own circumstances and that this should not be progressed. 3. EXTERNAL AUDITORS General Question 3: Interested parties are invited to express whether they are in favour of the proposed solutions concerning the role of external auditors, and to indicate any other measures they believe would be necessary. BVI is of the opinion that the UCITS Directive ensures that external auditors are sufficiently involved in the regulatory system of checks and balances in the area of UCITS management. 4. SUPERVISORY AUTHORITIES General Question 4: Interested parties are invited to express whether they are in favour of the proposed solutions concerning the role of supervisory authorities, and to indicate any other measures they believe would be necessary. 4.1 Should the role of supervisory authorities in the internal governance of financial institutions be redefined and strengthened? BVI members agree that a stronger role of supervisory authorities in the internal governance of financial institutions could help identifying potential systemic risks before they can create a negative impact. In the area of fund management, however, the UCITS Directive grants the supervisors sufficient means to obtain meaningful and up to date information on the condition of the supervised management companies. In any case, any increase in the 6 Article 9(1) Commission Directive 2010/43/EU

12 Page 12 of 19, 1 September 2010 duties of the supervisory authority would have to be seconded by an adequate increase of its capacities. 4.2 Should supervisory authorities be given the power and duty to check the correct functioning of the board of directors and the risk management function? How can this be put into practice? BVI members deem the current situation provided for by the UCITS Directive satisfactory and see no need for legislative intervention Should the eligibility criteria ('fit and proper test') be extended to cover the technical and professional skills, as well as the behavioural characteristics, of future executives? How can this be achieved in practice? It should be noted that the German supervisory authority BaFin already conducts extensive fit and proper tests on the technical and professional skills of future managing directors of German UCITS management companies. This procedure has proven to be useful and efficient and should become general standard in the selection process of executive board members of financial institutions. Extending this supervisory assessment to behavioural characteristics of potential executives appear disproportionate and could deter able and experienced people from coming forward. Especially tests on typical behaviour patterns are deemed too far-reaching. 5. SHAREHOLDERS General Question 5: Interested parties are invited to express their view on whether they consider that shareholder control of financial institutions is still realistic. If so, how in their opinion would it be possible to improve shareholder engagement in practice? Both European and German self-regulation in the area of asset management underline the important role shareholder activism plays for the industry. BVI encourages all investment managers to use shareholder and creditor rights attached to portfolio holdings in a considered way and in compliance with recognised standards of good corporate governance. In view of upcoming

13 Page 13 of 19, 1 September 2010 regulation under Article 21 of the UCITS IV Level 2 Directive on Management Companies, we see no need for further legislative initiatives in this area. 5.1 Should disclosure of institutional investors' voting practices and policies be compulsory? How often? While fully in support of transparency on voting policies of institutional investors, BVI is strongly against the institutions being required to disclose how they have voted to the public (regarding disclosure towards investors, see our answer to question 5.2). Such an obligation could cause the risk that public knowledge of a disagreement with investee company management may have an adverse effect on shareholder value without solving the disagreement and could result in institutions, their employees or clients, facing the risk of inappropriate pressure by special interest groups. Furthermore, the costs for setting up systems, vetting the information, and analysing the information is deemed inappropriately high. Furthermore, such an obligation would cause particular problems with regard to asset managers who act for different clients (e.g. by managing collective undertakings and mandates simultaneously), as this might lead to the situation that they will vote a particular block of shares different ways. 5.2 Should institutional investors be obliged to adhere to a code of best practice (national or international) such as, for example, the code of the International Corporate Governance Network (ICGN)? This code requires signatories to develop and publish their investment and voting policies, to take measures to avoid conflicts of interest and to use their voting rights in a responsible way. Obligations related to the exercise of voting rights should be required by Member States with regard to institutional investors, such as UCITS, according to Article 21 of the UCITS IV Level 2 Directive on Management Companies, stipulating the following: - Member States shall require management companies to develop adequate and effective strategies for determining when and how voting rights attached to instruments held in the managed portfolios are to be exercised, to the exclusive benefit of the UCITS concerned.

14 Page 14 of 19, 1 September That strategy shall determine measures and procedures for: a) monitoring relevant corporate events; b) ensuring that the exercise of voting rights is in accordance with the investment objectives and policy of the relevant UCITS; c) preventing or managing any conflicts of interest arising from the exercise of voting rights. - A summary description of those strategies shall be made available to investors. Details of the actions taken on the basis of those strategies shall be made available to the unit-holders free of charge and on their request. No further mandatory adherence to codes of best practice should be envisaged, but rather left to the discretion of the institutional investors self regulation efforts Should disclosure of shareholders' identity be made compulsory in order to encourage dialogue between companies and their shareholders and reduce the risk of abuse connected to empty voting? One of the main reasons for empty voting is the perception that stock will be borrowed and voted when the underlying owner does not have a long term interest in the company concerned. However, if an issue is contentious then the lender retains the right to recall the shares and we are not aware that recall failures are a major issue and that further measures are necessary. Anyway, the issue of empty voting doesn t much seem to be an issue of shareholder identity and is currently being dealt with under the revision of the Transparency Directive. Dialogue between companies and their shareholders can also be improved by other means, e.g. by strengthening the company s commitment in this area, i.e. by assigning the responsibility corporate governance and sustainability to a board member who is open to talk to shareholders. 5.3 Which other measures could encourage shareholders to engage in financial institutions' corporate governance?

15 Page 15 of 19, 1 September 2010 From the perspective of the German investment management industry, no further measures are necessary. 6. EFFECTIVE IMPLEMENTATION OF CORPORATE GOVERNANCE PRINCIPLES General Question 6: Interested parties are invited to express their opinion on which methods would be effective in strengthening implementation of corporate governance principles? 6.1. Is it necessary to increase the accountability of members of the board of directors? BVI does not consider it necessary to increase the accountability of members of the board of directors beyond the current state. Imposing even more stringent rules may discourage qualified board candidates Should the civil and criminal liability of directors be reinforced, bearing in mind that the rules governing criminal proceedings are not harmonised at European level? BVI does not agree that the civil and criminal liability of directors should be reinforced. This is already addressed nationally and it would be difficult to harmonise diverse national regimes with different underlying legal frameworks. 7. REMUNERATION General Question 7: Interested parties are invited to express their views on how to enhance the consistency and effectiveness of EU action on remuneration for directors of listed companies. EU action on remuneration for directors of listed companies has taken place or is currently underway in several areas, inter alia in connection with the draft Directive on alternative investment managers (AIFM-Directive). Regulatory consistency is desirable in principle, however the specifics of the affected industries and business models have to be accounted for. In any case, as long as a world wide (i.e. among all relevant financial centres in the world) consensus on maximum levels of remuneration cannot be achieved, the EU should not impose ceilings or measures of that kind,

16 Page 16 of 19, 1 September 2010 because it would be an incentive for internationally operating financial companies who are active in global financial markets to relocate (part of) their operations to jurisdictions outside the EU. 7.1 What could be the content of possible additional measures at EU level on remuneration for directors of listed companies? BVI sees no need for further regulatory action beyond what is currently underway. 7.2 Do you consider that problems related to directors' stock options should be addressed? If so, how? Is it necessary to regulate at Community level, or even prohibit the granting of stock options? BVI members are of the opinion that an unconditional ban on granting stock options would be disproportionate. Indeed, granting a considerable element of performance-related pay as stock options can help link an individual s remuneration to the long-term performance of the company. Reasonable limitations of remuneration models can be acceptable; however companies should not be restricted too much in their freedom to design their compensation policies. 7.3 Do you think that favourable tax treatment of stock options and other similar remuneration existing in certain Member States helps encourage excessive risk-taking? In Germany, there is no favourable tax treatment of stock options and similar remuneration schemes in place which could encourage excessive risktaking. However, if Member States grant particularly favourable tax treatment for performance-related remuneration elements, this should be addressed also on EU level. 7.4 Do you think that the role of shareholders, and also that of employees and their representatives, should be strengthened in establishing remuneration policy? Remuneration packages and policies for senior management should be the responsibility of the non-executive directors / supervisory board. Remuneration packages and policies for the staff below senior management

17 Page 17 of 19, 1 September 2010 should be the competence of senior management, under the supervision of the non-executive board members or the supervisory board. Shareholder influence may be considered, however only on the overall remuneration framework and not on an individual level. 7.5 What is your opinion of severance packages (so-called 'golden parachutes')? Is it necessary to regulate at Community level, or even prohibit the granting of such packages? If so, how? BVI considers that this is a matter for governance codes and disclosure and not EU regulation. General Question 7a: Interested parties are also invited to express their views on whether additional measures are needed with regard to the structure and governance of remuneration policies in the financial services. If so, what could be the content of these measures? 7.6. Do you think that the variable component of remuneration in financial institutions which have received public funding should be reduced or suspended? BVI members think that this question cannot be answered yes or no. On the one hand, the institutions in question still act in a competitive environment and should be able to continue to attract talented individuals in order to rebuild their businesses and help ensure maximum return on public money. On the other hand, public funds should be used in a considerate way, and of course no reward for failure would be acceptable. Hence, this question should be addressed on a case-by-case basis. Given that state support comes along with state influence on the relevant companies, Member States should be in a position to force their view on the issue in each individual case. 8. CONFLICTS OF INTEREST General Question 8: Interested parties are invited to express whether they agree with the Commission's observation that, in spite of current requirements for transparency with regard to conflicts of interest, surveillance of conflicts of interest by the markets alone is not always possible or effective.

18 Page 18 of 19, 1 September What could be the content of possible additional measures at EU level to reinforce the combating and prevention of conflicts of interest in the financial services sector? All financial services entities should have clear policies for identifying, recording, managing (i.e. resolving or minimising) and disclosing conflicts that arise in their activities. As is noted in the Staff Working Document, MiFID already requires that investment firms maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest from adversely affecting the interests of its clients 7. Investment firms must clearly disclose the general nature and/or sources of conflicts of interest to the client that cannot be prevented before undertaking business on its behalf. Level Two sets out detailed requirements on how firms should implement their conflicts of interest policy and UCITS IV has similar requirements. Given the extensive requirements already in place that are supervised by national authorities, BVI sees no need for additional measures. 8.2 Do you agree with the view that, while taking into account the different existing legal and economic models, it is necessary to harmonise the content and detail of Community rules on conflicts of interest to ensure that the various financial institutions are subject to similar rules, in accordance with which they must apply the provisions of MiFID, the Directive on 'regulatory own funds', the UCITS Directive or Solvency 2? BVI supports the harmonisation of Community rules on conflicts of interest to the level provided for by MiFID. We would like to reiterate that the UCITS IV Level 2 provisions have already contributed profoundly towards that goal. It would also be helpful if the Level 3 bodies (CESR, CEBS and CEIOPS) were coordinated to ensure that national competent authorities implement and enforce the rules consistently. Various EU initiatives (in particular, the PRIPs project) recognise the need to create a level playing field with regard to consumer protection across the retail banking, securities and insurance sectors, and proper management of conflicts is a crucial part of this. 7 Articles 13(3) and 18 Directive 2004/39/EC

19 Page 19 of 19, 1 September 2010 We hope our comments are helpful for the Commission s work on improving corporate governance in financial institutions and remain at your disposal for any further information you might need. Yours sincerely BVI Bundesverband Investment und Asset Management e.v. Signed: Stefan Seip Signed: Marcus Mecklenburg