The European Union has proposed radical changes to the funds regime that would benefit asset manager...
The European Union has proposed radical changes to the funds regime that would benefit asset managers and investors. They could lead to a more consistent approach to the regulation of funds across Europe.
If enacted, the proposals contained in a Green Paper produced by the European Commission called 'Enhancing the EU Framework for Investment Funds', could make it easier to merge funds, pool assets from funds based in different EU countries and make regulation and the Ucits III regime more consistent across Europe.
One example that has been highlighted by asset managers is that some derivative instruments can be used within Ucits III funds in one European country but these may not be permitted in another EU member state. This has been a barrier to product development because asset managers are uncertain whether a fund developed for one market can be sold across the EU.
Currently, registration of funds in the EU can be a slow and costly exercise as every country has slightly different requirements. It can take anywhere between four days and 10 weeks to register funds in EU member states. The Commission is looking at a simpler and more consistent system that would reduce costs for asset managers and funds.
Asset managers have welcomed proposals to facilitate fund mergers across borders. The difficulty of merging funds is again due to inconsistencies in the regulatory regime. In Luxembourg, for example, a fund has to secure 100% approval from shareholders before it can merge with another fund. Asset managers said it is impossible to gain 100% approval from shareholders.
Proposals to make it easier to pool fund assets may enable funds to generate economies of scale. If three small funds from three countries managed with the same investment approaches amalgamated, costs could be reduced for investors.
While welcoming the points raised in the Green Paper by the Commission, asset managers argued that the proposals need to be implemented "urgently".
Sheila Nicoll, deputy chief executive of the UK's Investment Management Association, said: "Simplifying the registration process, allowing funds to be merged and avoiding duplication through the use of cross-border pooling techniques would go a long way to achieving economies of scale."
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