European asset managers continue to be fierce supporters of the Capital Markets Union (CMU), because it is an additional step for the realisation of a deeper and more effective single market and fewer cross-border barriers.
More CMU means fewer barriers and less market fragmentation. While the European passport system, certainly for Ucits, has demonstrated its benefits, asset managers support the European Commission’s objective to make the system function better for the cross-border operation of all investment funds, be they Ucits, alternative investment funds (AIFs) or others.
European asset managers are also enthusiastic supporters of a truly unified European market for personal pensions. The current fragmentation of the pensions market limits people’s choice of pension products and pension providers, and ultimately obstructs the flow of savings into the capital markets that could provide long-term funding for the European economy.
The creation of a pan-European personal pension (Pepp) product is an idea European asset managers have long encouraged. It would create more opportunities for Europeans to make provisions for their retirement via long-term investments.
Much has been done already in order to further the regulatory framework for European investment funds, particularly in terms of investor protection and financial stability, setting a state-of-the-art benchmark for global regulators, many of whom look at EU legislation for inspiration.
Investment funds are the best example to date of a well-functioning EU single market for financial services, with Ucits often cited as a success story to draw inspiration from. The share of funds distributed on a cross-border basis in Europe is regularly increasing, standing at 42% of total fund assets in 2014 (up from 29% a decade earlier). Efama strongly supports replicating this success in other sectors, most notably personal pensions.
Yet, there is still room for improvement. Notably, dismantling barriers to the EU single market, which the CMU builds upon. Efama will always support actions to deepen the single market, and welcomes the Commission’s green paper on retail financial services, and its quest against market fragmentation and remaining hurdles to a single market.
Efama has identified a number of obstacles hindering cross-border distribution. These mostly stem from the absence of an EU regulatory framework in certain areas, gold-plating of EU legislation, fragmented marketing rules or discriminatory withholding of tax by member states. All these should be addressed to reinforce the merits of Ucits as a true cross-border product.
The retail green paper also stimulates a debate on the digitalisation of financial services. Efama has called for increased digitalisation across the single market to facilitate more cross-border business and consumer choice. We believe digitalisation promises to accelerate a move away from ‘hard’ and more costly mediums towards digital supports that prove cheaper to adapt, maintain and access.
It will also bring another dimension to the way fund products are marketed and sold and could decrease costs and increase market access.
Having said that, digitalisation alone will not bring down all barriers, and it will not completely dismantle traditional distribution channels that still provide face-to-face services to consumers.
The retail green paper will be complemented by a detailed consultation to identify and address potential obstacles to the cross-border distribution of investment funds. Efama will contribute on behalf of the industry and will push the idea that, as always, fewer (barriers) means more (single market).
Gabriela Diezhandino is director of public policy at the European Fund and Asset Management Association
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