A fully functioning cross-border fund distribution market will not be active in Europe for at least five years, due to discrepancies in regulation and tax legislation between member states, warns KNEIP.

The service provider to the fund management industry conducted a survey in the run-up to the European Fund and Asset Management Association (EFAMA) Investment Management Forum.
Eighty-three per cent of respondents to the survey said a prominent issue in distributing funds abroad is the lack of distribution partners, and 67 per cent said the market for European cross-border distribution is less than 15 per cent efficient.

The pending implementation of UCITS IV, due in July 2011, which aims to ease cross-border fund management operations, cut costs for fund management companies and bring a wider choice of funds to investors, holds no comfort for the respondents with 83 per cent saying they do not expect the proposed regulations to tackle the problems beyond 'some extent'.

"The European market is far from harmonised," commented Bob Kneip, CEO of KNEIP.
"Unfortunately, ongoing national protectionism in tax and regulation has hindered the move towards open architecture and the creation of a fully functioning international distribution market.

"While it is unrealistic to expect to have all answers right away, the discussion about the nuts and bolts of the implementation of UCITS IV is still in its infancy. For instance, facilitating fund registration across the European markets will present a significant reporting challenge. There is still much work to be done across standardisation of information and documentation on a pan-European basis if distributors are to understand what they are selling, and investors what they are buying."

KNEIP has issued a set of recommendations to aid in the development of a fully functioning cross-border distribution market. It suggests that the European Commission should implement standardised, more transparent and easy-to-understand reporting across the markets; member states should address higher-level issues of unifying taxation legislation in terms of management company domiciliation; market players should establish centralised information platforms to cater to the end investor and optimise management of cross-border funds; and asset managers should streamline their fund ranges and increase efficiency of their operations by focusing on their core business.

"Now is the time to think about how UCITS IV will work in practice. For truly efficient European fund distribution to work, an even playing field with fixed goal posts in every member state needs to be established. Even if a fully functioning cross-border fund distribution market is not yet in sight, we believe in both the potential of UCITS IV to streamline the fund industry, and in our ability to rally together as an industry to do the right thing for investors."

The survey was conducted among CEOs of European fund management houses with a combined total of €1.8trn in assets under management.

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