The European Commission has proposed a number of "quick win" changes to get the European fund industry working more efficiently in a discussion paper on the asset management industry launched yesterday by internal markets and services commissioner Charlie McCreevy.
The paper is not a blueprint for sweeping legislative change but it does not rule it out either. It is "a starting point for a discussion on where the industry needs to go", Niall Bohan, head of the asset management unit at the internal market directorate at the commission, told the Fund Forum conference in Monaco last week.
He said Ucits, the funds that can be sold across EU borders, enjoyed strong brand recognition. But they had been designed for another era and a discussion on improvements to the legislative framework should not be off limits. Ucits had coincided with fund proliferation rather than rationalisation, he said.
The main concerns addressed by the commission's paper were the high costs of running cross-border funds and the lack of a common regulatory approach to different types of investment vehicles. Structured products, for example, are not subject to the same requirements as Ucits. This is an issue in countries such as Germany that have seen strong growth in certificates offering investors capital protection or access to asset classes that are not allowed under Ucits.
Potential changes proposed in the paper include giving fund managers a passport to run funds across borders rather than restricting the passport to funds. This would remove the necessity for managers to staff an operation in each jurisdiction where they run funds, offering cost savings.
Enabling cross-border fund mergers and introducing asset-pooling structures are also up for discussion. Fund mergers were rare and the obstacles numerous, Mr Bohan said, but the commission had a limited understanding of the problems and needed to do more homework. He said some of these ideas might require changes in legislation.
The commission's paper also discussed the issue of creating a level playing field for investment products but not through extending detailed product regulation beyond investment funds.
Mr Bohan said the aims were to help retail investors select suitable investments and to promote transparency and efficiency in distribution systems.
Any move in this direction would not cover hedge funds, which the commission does not, on balance, view as a threat to systemic stability.
Mr Bohan said a common regulatory approach on hedge funds was not necessary at this stage but that some standardisation of private placements may be useful. But he referred to the "creeping retailisation" of hedge funds and said funds involving exposure to hedge funds would be closely watched by regulators across the EU.
The fund industry gave a cautious welcome to Mr Bohan's outline of the commission's approach. Sheila Nicoll, deputy chief executive of the Investment Management Association, said the commission had listened to the representations made to it but would have to be careful about expectations.
"Two years may not be long in Brussels but it is for the industry," she said.
There was some scepticism, though, that regulators and legislators would match the willingness of the commission to make the pan-European asset management industry work.
There was also disagreement about what the commission should prioritise. Ms Nicoll named asset pooling, fund mergers and simplifying the registration process for funds.
Wolfgang Mansfeld, outgoing chairman of Efama, which represents the European fund industry, said fostering product innovation was a priority "to prevent investment banks taking over our business step by step".
He said Ucits would lose out to other products that were not regulated at a European level without a complete reworking of the Ucits directive.
