Funds deny protectionist stance

THE IRISH international funds industry has rejected claims that its opposition to proposed changes in the European fund regulatory framework was based on protectionism.

Due to be published in draft form this year, the UCITS IV Directive, which aims to create a genuine pan-European single market for investment funds, was set to introduce a "management company passport", under which fund management firms would be able to provide cross-border services. Support for the passport was split down the middle, with fund managers in favour of a full passport, while specialist funds servicing centres such as Dublin and Luxembourg expressed a preference for a partial passport.

EU commissioner Charlie McCreevy announced recently that he was shelving the management passport for the moment, citing fears for investor protection and effective supervision of the industry. As the fourth-largest European centre for UCITS, industry commentators saw Ireland's preference for a partial as opposed to a full passport, as a form of protectionism, because under the new passport, UCITS funds could be domiciled in one centre and serviced in another, which may have led to a leakage in Ireland's business.

Brian McDermott, head of AL Goodbody's Investment Funds Unit, rejected the suggestion that Ireland is seeking to block this move. "It has been portrayed in some quarters that Ireland and Luxembourg were blocking the passport but this is not something the industry here would have been trying to do. It would have been seen as an opportunity for the industry."

He said that the Irish industrys specific concerns, like Mr McCreevy's, centred on supervision. "For example, under the passport, a fund could be domiciled in Germany, administered in Ireland and the manager could be in the UK - but who then would be the best regulator to supervise that fund?"

Seán Páircéir, managing director of Brown Brothers Harriman's Irish operations, agreed, "This is not a protectionist issue. A number of regulators, most notably in Dublin and Luxembourg, felt that the supervisory issue was one that needed to be dealt with."

Both Mr Páircéir and Mr McDermott conceded that the passport could have threatened Irelands position as a leading funds centre.

Mr Páircéir said it was "absolutely possible" that Irelands funds industry would have been damaged.

Mr McDermott agreed the passport "would have been a risk - but we should be confident that we can compete on the international stage, and that the service offering here would have been good enough". Proposals for a management passport will be submitted to the Committee of European Securities Regulators (CESR) while progress on UCITS IV will continue.