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Disparity in regulation and tax legislation hinders European fund distribution

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Disparity in regulation and tax legislation between individual member states means that it will be more than five years before there is a fully functioning cross-border fund distribution market in Europe, according to a survey by Kneip, a service provider to the fund management industry.

The survey interviewed chief executives of European fund management houses with a combined total of AUM of EUR1.8trn. According to the findings, 83 per cent of respondents think that it will be more than five years before an efficient cross-border fund distribution market can become a reality, with 67 per cent citing disparity in regulation and tax legislation as key obstacles.

In addition, half of the respondents said the lack of distribution partners is a prominent issue in distributing funds abroad. The majority (67 per cent) said the market for European cross-border distribution is currently to less than 15 per cent efficient. There is little expectation that the forthcoming implementation of Ucits IV will resolve these issues, with 83 per cent believing that the proposed regulations will tackle the problems only to some extent.

Bob Kneip, chief executive of Kneip, says: “The European market is far from harmonised. Unfortunately, ongoing national protectionism in tax and regulation has hindered the move towards open architecture and the creation of a fully functioning international distribution market.

“While it is unrealistic to expect to have all answers right away, the discussion about the nuts and bolts of the implementation of Ucits IV is still in its infancy. For instance, facilitating fund registration across the European markets will present a significant reporting challenge. There is still much work to be done around standardisation of information and documentation on a pan-European basis if distributors are to understand what they are selling, and investors what they are buying.”

According to Kneip, the European Commission, the European member states and the European asset management industry should take the following steps towards ensuring a fully functioning cross-border distribution market:

• The European Commission should implement standardised, more transparent and easy-to-understand reporting across markets
• Member states should address the higher-level issues of unifying taxation legislation with respect to management company domiciliation
• Market players should establish centralised information platforms that cater to the end investor and optimise management of cross-border funds
• Asset managers should streamline their fund ranges and increase efficiency of their operations by focusing on their core business

Kneip adds: “Now is the time to think about how Ucits IV will work in practice. For truly efficient European fund distribution to work, an even playing field with fixed goal posts in every member state needs to be established. Even if a fully functioning cross-border fund distribution market is not yet in sight, we believe in both the potential of Ucits IV to streamline the fund industry, and in our ability to rally together as an industry to do the right thing for investors.”

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