Cross-border fund distribution blocked by
regulation and tax legislation disparity
5 October 2009
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.
