economies of scale lost due to discrepancies in the pan-european financial services industry
The Pan-European financial services market is still a long way from being established, despite all the negotiations, regulations and directives, according to an independent survey.
Cross-border sales of funds, intermediary expertise and all other financial services are hampered by obstacles such as tax and distribution.
Catherine Distler, deputy director at research house Promethee, said although a lot of regulatory change has taken place in the European market, investment opportunities are still constrained by barriers that prevent funds being made available to investors across Europe, most notably differences in tax regimes.
The report, Bridging the Funds Divide, stated that each European country still has different tax and distribution structures when it comes to investment products.
For example, tax barriers can make it unattractive to invest in foreign Ucits, as this could impose either taxation on both sides of the border, or the loss of tax incentives set up to encourage investment in national companies.
According to Distler, investors have little knowledge of what products are offered in one country as opposed to another. There is a major gap between what the best performing funds in Europe are and what is available to retail investors in any given country.
For example, out of the top 20% performing funds in Europe, only half are available in Germany and Austria, only a quarter are available in France and the Netherlands, and less than 15% are available in Italy.
The report said that this fails to provide EU fund managers with the type of market and economies of scale that could keep them at the forefront of what is increasingly going to be a global, highly competitive market.
Distler said there should be a harmonisation of products available across the EU because the euro has made the very notion of domestic markets obsolete.
The report has proposed three objectives be established to create a common market place where all European sold funds are available to all investors. First is the establishment of a 'Groupe Special Fonds' GSF, to create an industry dialogue that would focus on eliminating operational risk and achieve full unification of the market.
This would include the bringing together of representatives from banks, insurance companies, transfer agents and fund administrators, fund managers and independent distributors as well as relevant EU institutions ' the European Commission, the ECB and the Committee of European Securities Regulators.
Second is the adoption of a set of common principles for European investment funds that put the investor at the centre.
These principles could include freedom of choice, elimination of operational risk and easy access to full information. The European market would become one in which funds could easily be bought and not simply sold, she said. Third is a consensus within the industry and regulators to set up working groups to make sure there is not just access to many funds, but also ease of contact, facilitation of contractual arrangements and strong commitment to investor's interest.
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