EU Green Paper could mean fee cuts

Fund charges could fall if European Union proposals released last week are enacted, according to asset managers. The pace of fund launches under the Ucits III regime may also be speeded up as the European Commission seeks to ensure consistent implementation of the regime across the EU markets.

The Green Paper on Enhancing the EU Framework for Investment Funds by the European Commission considers the future of asset management regulation in the EU.

The Commission is looking to ensure consistent criteria are in place across Europe under Ucits III. For example, at the moment funds are allowed to use certain derivatives under Ucits III in one EU country but not in another. Asset managers say this has impeded product development as they are unable to distribute funds with some derivative instruments across the whole EU.

The registration of funds is being looked at. Currently, it can be a slow and costly exercise, as every country has slightly different requirements. It can take anywhere between four days and 10 weeks to register funds in different EU states. A simpler and more consistent system would reduce costs. The Commission is also considering rules that asset managers registered in EU countries cannot manage funds domiciled in states where they are not registered.

Asset managers have welcomed proposals to facilitate fund mergers across borders, as Europe has three times as many funds as America. The difficulty of merging funds is again due to inconsistencies. In Luxembourg, for example, 100% approval from shareholders is required, which asset managers say is impossible to attain.

Proposals to make it easier to pool fund assets would also enable asset managers to achieve economies of scale. If three small funds from three countries managed with similar investment approaches were pooled, costs could be reduced for investors.

While welcoming the points raised in the Green Paper by the European Commission, the Investment Management Association has called for proposals to be implemented “urgently”.

Sheila Nicoll, deputy chief executive of the IMA, says: “Simplifying the registration process, allowing funds to be merged and avoiding duplication through the use of cross-border pooling techniques would go a long way to achieving economies of scale.”