13 March 2018

Financial Times: European fund sales reforms criticised by trade bodies

The proposals are designed to provide fund investors with more choices and better value in a renewed push to boost investment flows and economic growth.

Removing barriers to cross-border fund sales in Europe should lead to improvements in the availability of financing for companies, particularly small and medium-sized businesses.

But the plans sparked criticism from several industry trade associations.

“These reforms will do little to ease distribution, lower costs and increase investor fund choices,” said Dan Waters, managing director of ICI Global.

Efama, the European fund management association, said that adding further regulatory requirements was not the most appropriate way to boost the cross-border distribution of funds.

“The main barriers to the cross-border distribution of funds are the lack of clarity and transparency of existing rules, along with additional layers of regulatory requirements imposed at national level. The new proposals, unfortunately, add yet a new layer of rules,” said Peter De Proft, director-general of Efama.

The removal of barriers to cross-border fund sales could save asset managers up to €440m annually and deliver even greater savings to end-investors by strengthening competition and widening the range of product choices available to savers, according to the commission’s estimates.

To boost cross-border fund sales, the commission has proposed the creation of a new harmonised framework for marketing communications to replace the current patchwork of differing requirements across member states that asset managers find difficult to navigate. It also wants asset managers to be permitted to communicate electronically with investors to improve the quality of dialogue and plans to create a new “one-stop-shop” to gather marketing information and data on fees that will reside at the European Securities and Markets Authority, the regional regulator, in Paris.

New common requirements to simplify exit procedures when an asset manager decides to leave a market have also been proposed. Asset managers currently cannot leave some countries if they have a single investor in a fund. But under the new plans, asset managers will be able to exit provided that there are 10 or fewer investors who do not hold more than 1 per cent of the total assets of the fund.

Plans to harmonise the rules covering the marketing and pre-marketing of mutual funds and alternative investment funds have also been proposed. This is currently a grey area with no consistent rules that is difficult for managers to navigate. Some member states do not allow pre-marketing when a manager discusses a new idea or strategy with potential investors before a fund is launched while others have more liberal rules.

New rules have also been proposed to boost the €2.1tn European market for covered bonds — debt instruments backed by a segregated pool of loans — which provide a safe source of long-term funding for companies. The commission estimated that annual savings of up to €1.9bn can be achieved for corporate borrowers if harmonised rules for the issuance of covered bonds were implemented.

Full article on Financial Times (subscription required)

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