Under EU single-market rules, funds regulated in one member nation can be marketed across all of the bloc's 28 countries despite differences in rules. Ireland and Luxembourg are the two most coveted jurisdictions, with both offering tax advantages.
In addition, Ireland has regulatory guidelines on fees that are not binding; and Luxembourg has no specific regulations on fees of its own, but says it applies the principles from the International Organisation of Securities Commissions (IOSCO).
Katie Philpott, a spokeswoman for the Central Bank of Ireland, said any arrangements on the payment of performance fees should be consistent with its guidelines. "You have raised issues of a specific nature which, where appropriate, the central bank will follow up with entities directly," Philpott wrote in an email.
Under the EU system, any member state can stop funds from being sold in its home market if it believes managers have moved funds abroad in order to bypass its stricter rules. However, the watchdog overseeing Italian financial markets –the Commissione Nazionale per le Società e la Borsa (Consob) - declined to comment when asked if it was concerned about Italian funds being based abroad and charging fees that would not be allowed at home.
Luca Enriques, corporate law professor at Oxford University and a former commissioner at Consob, said regulatory disparities at a national level need to be ironed out with EU-wide enforcement.
"The only way to avoid such dysfunction would be to centralize regulation and enforcement of the rules with ESMA (the European Securities and Markets Authority)," he said. He added that the rules would need to offer appropriate investor protection and be effectively enforced.
ESMA declined to comment on whether fragmented regulation had harmed investors. It said its role in "developing a single rulebook for EU financial markets and ensuring the consistent application of those rules across the EU, ensuring common approaches, will contribute to enhancing protection for EU investors."
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