Ethics and governance in the European Financial centers

Persian Letters (Lettres persanes) is a satirical work, by Charles de Secondat, baron de Montesquieu, recounting the experiences of two Persian noblemen, Usbek and Rica, who are traveling through France. In Paris, the Persians express themselves on a wide variety of subjects, from governmental institutions to salon caricatures.

 

As this is summer time, I would like to offer some goodies on this blog with a couple of Venezuelan letters. These will be an exchange of e-mail between two Venezuelans, the first one, Manuel, residing in Venezuela and the second one, Jose, travelling in Europe.

 

 

 

Read First Letter

Read second letter

Read third letter

 

 

 

From: Manuel

To: Jose

Sent: Sunday, August 16, 2009 3:25 PM

Subject: European UCITS Directive

 

Dear Jose,

 

I have vaguely heard about this issue of the UCITS directive. But you know our media are not covering the topic.

 

Can you tell me what the problem is?

 

Cheers.

 

Jose

 

 

From: Jose

To: Manuel

Sent: Sunday, August 16, 2009 11:25 PM

Subject: RE: European UCITS Directive

 

Dear Manuel

 

The problem is that France, which is a competitor for the investment funds industry, is jealous of Luxembourg’s success in the development of investment funds.

 

Madoff is firstly an American affair where the control system by the public authorities undoubtedly failed. (http://www.agefi.lu/mensuel/Article.asp?NumArticle=11177) .

 

As part of the  Financial power, the Luxembourg Investment Fund Industry has regularly had a very close and direct say on the evolution of the Luxembourg prudential regulatory environment governing the collective Investment Industry as well as on the introduction of new legislation in this specific field of financial products. Those efforts were always undertaken with the sole aim to enhance the attractiveness of Luxembourg in an industry sector which, based on the tremendous success experienced over the past decade, has become of essential importance to the Luxembourg economy as a whole.

 

This influence has been exerted directly and indirectly by the lobbying initiatives taken on the level of the different professional associations, be it ALFI or ABBL, but also and more importantly, trough a direct association with the Luxembourg Supervisory Authorities by means of a number of standing committees. It is in those Committees which have proven instrumental in providing pragmatic and timely solutions to the evolution of the industry.

 

Critics that are ill-informed would see potential conflicts of interest which may result failures control system by the public authorities . But it is normal that the business community decides of the legislation and regulation to be enforced, including sanctions that are applicable to those from the business community who do not restect the rules.

 

Anyway, as the Chairman of the ABBL said in the Wort (the newspaper that is close to Juncker’s party) to reply to an ill-informed Frenchman, nothing makes it possible to affirm in law that Luxembourg would have to be inspired by legislation in other European country.

 

It was definitely up to the Luxembourg business community and its clever professionals to decide of the depositary duties and of the regulatory duties. As far as auditors are concerned, in the framework of the transposition of the 8^th Directive, auditors will be controlled by the CSSF which is a very good thing for the coherence of the system: the financial institutions controls the regulator through its influence and the regulator is gonna control auditors. This way the auditees from the financial institutions will practically control the auditors, which is normal as auditees pay for the audit service.

 

Cheers

 

Jose