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Reducing regulatory hurdles in cross-border fund distribution?

By Daniel Häfele

UCITS and AIFMD are planning to introduce a passport for cross-border fund distribution. The EU Commission aims at making cross-border marketing easier. However, for most asset managers, country-specific requirements have made the common market they are dreaming of way too complex and expensive. The EU Commission is now inviting the industry to participate in a consultation in order to reduce barriers.

Cross-border distribution increasingly blocked by regulations

With the good intention to strengthen cross-border marketing, the EU Commission created the UCITS Directive in 1985 and introduced the European passport. Twenty years later, we still have no real common market. Every member state of the EU continues to protect its domestic market from its competitors, i.e. other countries, by implementing different local requirements. Under the pretence of protecting investors, every country has developed its own guidelines regulating the way foreign investment funds should be offered to the domestic investor. In this way, it protects its own asset management industry, depriving the investor of a good portion of the offering and increasing product prices considerably – as if a French investor, for instance, needed a different protection than an Italian or German investor! Even the creation of fund prospectuses did not result in a uniform document. This is how an Irish UCITS prospectus, for example, is almost 100 pages long, while the Norwegian paper includes no more than 7 pages.

Despite the EU passport, an asset manager wanting to market his product cross-border needs to define representations or paying agents, and comply with various publishing regulations – not to mention diverse tax systems. Implementation of MiFID II and AIFMD does not show any kind of harmonisation either. Asset managers who wish to set up distribution simultaneously in several countries will quickly incur costs totalling several € 100,000. It is often less expensive to launch several funds in different countries than to distribute only one fund across several states. Therefore, it comes as no surprise that only one third of more than 30,000 UCITS is being marketed in five or more countries – 20 years after introducing UCITS. We are very far and many years away from a common market. This is why the EU Commission’s initiative is all the more positive, i.e. publishing a green paper on this subject on July 2nd and inviting the industry to a consultation in order to identify and eliminate unnecessary hurdles.

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