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ICI Supports Insurance for EU Investment Companies
Washington, DC, May 19, 2003 - Investment companies’ use of insurance promotes financial stability, enhances consumer protection, and fosters competition among financial institutions, according to a paper recently submitted to the European Commission (EC) by the Institute.
Since February 2001, the EC, in cooperation with the Basel Committee on Banking Supervision, has evaluated the EU’s capital adequacy framework for banks and investment firms. An EC Capital Adequacy Directive proposal would subject investment firms, UCITS funds, and credit institutions to explicit capital requirements in order to manage operational risk—similar to requirements imposed on banking institutions.
A paper submitted to the EC, Insurance in the U.S. Market for Investment Companies and Related Entities—written by staff of ICI Mutual Insurance Company, an independent fund industry insurer—concludes that insurance offers a number of advantages over a capital adequacy framework.
In a January 2003 comment letter, the Institute stated that it would be unwise to introduce into the Directive’s bank-style capital requirements for asset management firms. The Institute urged the EC to take into consideration the fundamentally different businesses of banking and asset management when imposing capital requirements. The Institute has supported a proposal subjecting investment companies using insurance to lower capital requirements.