Prior to the Alfi spring conference on 15-16 March, Funds Europe asked several of the scheduled speakers and figures in the Luxembourg market to highlight the critical issues facing the country’s funds industry.
The association of the Luxembourg Fund Industry (Alfi) spring conference is expected to attract more than 700 delegates who will hear from their industry peers .
What will be the main themes this year?
Camille Thommes, Director General, Alfi:
The interests of the investor are at the heart of this year’s conference, which is entitled Better regulation, Clearer information, More protection. The ambition to make Luxembourg the most attractive fund centre in the world begins with the long-term interests of investors.
This year, the conference has a clear focus on practical solutions to topical issues within the fund management industry. Participants will hear the views of members of the European Union Commission, CSSF [Commission de Surveillance du Secteur Financier], fund managers and service providers on topics including Ucits IV; Fatca [Foreign Account Tax Compliance Act]; the role of Esma [European Securities and Markets Authority] in the supervision of the fund industry, coping with information flow; and the impact of new regulations and trends in funds.
What are the key areas that asset managers need to address to be ready for OTC [over the counter] derivatives reform?
Pascal Scatozza, Product Manager, BNP Paribas Securities Services:
Although the industry welcomes the efforts made to secure this $700 trillion [€520 trillion] market and improve transparency, the reforms will have significant impacts on buy-side participants particularly around collateral obligations for both cleared and bilateral OTC derivatives transactions. Asset managers will need to re-think their operating model. One of the first steps should be to select one or more clearing brokers who will connect the buy-side to the clearing houses. Asset managers will also have to connect to electronic execution platforms and consider liquidity and collateral management, as margining requirements are likely to increase in the future.
Are fund managers facing an information overload?
Pierre Cimino, responsible for Caceis entities in Luxembourg and affiliates, and in North America, Caceis:
There is an information overload. Information today is generated and captured faster, at a greater frequency and in a broader range of formats than ever before. Clients demand real-time reporting and ever-more complex statistical analysis. Furthermore, analogue archives must be scanned to electronic format and all data must be backed-up in various locations to ensure security. However, this is not an overload in terms of digital storage capacity. It’s really a question of data processing capabilities. The volume of information cannot be avoided, but with powerful data processing software it can be kept in check.
In what areas are fund managers struggling when it comes to Kiid [key investor information document] implementation?
Bob Kneip, CEO, Kneip Communications:
Initial reports indicated that asset managers were having difficulty fitting all the necessary information around their funds’ strategies and risk profiles onto just two pages. However, recent research suggests that asset managers are now moving in the right direction. The main challenges lie in the wording and use of plain language – 87% still use jargon and 97% use technical terms. In addition, asset managers are still having issues with font and layout. While these findings may seem pedantic, Ucits IV leaves little room for interpretation. Moreover, asset managers have been focused on establishing workflows and Kiid production. We’re now seeing a shift in attention to Kiid dissemination, and the Ucits IV regulatory filing and written notices that must accompany them.
Nine months on from implementation, where is the Luxembourg market in terms of Ucits IV?
David Glassey, Head of Legal and Compliance, Pioneer Asset Management:
The simplified notification is a major plus for tackling structural inefficiency even though not all jurisdictions have introduced clear requirements post-July 2011. The Kiid is a welcome development for investors, however, in terms of creation and delivery has presented a major challenge to providers. The master/feeder will assist providers looking to overcome some of the weaknesses of the product passport as well as other marketing and structural issues. The management company conducts of business requirements represent a crucial discipline. Cross border mergers remain a vexed fiscal and investor issue for providers. The management company passport could yet be a potential gem.
Michael Ferguson, Ernst & Young, Asset Management sector leader, Luxembourg:
Luxembourg’s initial focus has been on the “must-dos” – production and dissemination of Kiid and enhancing the management company’s infrastructure and processes to a MiFID [the Markets in Financial Instruments Directive] standard. Over the last three months, the focus has strongly shifted to the so-called opportunities – consolidating existing legacy management company structures and creating both local and cross-border master-feeder structures. Most asset management groups are now keenly awaiting local implementation of the Aifmd and the draft Ucits V provisions. As a result, everyone is now keenly focused on covering both pieces of regulation to avoid having to “dig the road up” several times over.
Keith Hale, head of Global Transfer Agency, Multifonds:
Over the past 18 months there was a flurry of Ucits fund authorisations and re-domiciliations ahead of the Aifmd framework, but market sources advise that this has died down recently. Some of the funds that were authorised were never launched. There could be many reasons for this, but hedge fund managers who endeavour to launch a hedge fund strategy in a Ucits framework may not really have the resources or expertise to manage within that framework.
What do Esma’s proposals mean for the ETF industry and investors?
Alain DuBois, Chairman, Lyxor Asset Management:
Esma’s recent consultation on ETFs is likely to tone down the debate about the different sorts of replication techniques and the type of risks that they create for investors. Esma’s first conclusion is that there is no need to regulate ETFs. ETFs are Ucits so the focus should be Ucits regulations, not ETFs specifically. This is important. Esma is also proposing many incremental improvements of the Ucits framework, which are all welcome. Perhaps their most important proposal is to regulate the collateral of securities lending, in line with what already exists for derivatives. Esma is also proposing the requirement to diversify collateral. Another proposal that will very much benefit investors is the transparency of the tracking error or all indexed funds. Esma has shown that it can make informed decisions that add significant protection for investors while creating a level playing field across all sectors of the industry.
What are the key regulatory issues facing the Luxembourg market?
Antonios Nezeritis, Luxembourg partner, Dechert:
The Aifmd will impact many Luxembourg investment vehicles, investment companies in risk capital, and some undertakings for collective investment which are governed by part II of the law of 17 December, 2010. Last year, a bill was submitted to Luxembourg parliament to amend the law applicable to Sifs [specialised investment funds] and adapt it to the directive. The bill provides for changes to the regulatory approval process and includes new provisions with respect to portfolio management, the delegation of certain functions to third parties, risk management and conflicts of interest. It is expected that one or more laws amending the legal regime applicable to other Luxembourg investment vehicles will follow shortly.
How will Fatca impact the Luxembourg market?
Jon Griffin, Managing Director, JP Morgan Asset Management:
On 8 February, 2012 the US Treasury published the much awaited draft Fatca regulations and industry participants are now undertaking the all important detailed review to figure out what it all means. There are a bunch of new terms and indeed exceptions for “deemed-compliant FFIs” [foreign financial institutions] that qualify as “registered deemed-compliant FFI’s” such as “local FFIs”, “qualified collective investment vehicles”, “restricted funds” and “certified deemed compliant FFIs”.
On the same day, an intergovernmental approach was also announced between the United States, France, Germany, Italy and the UK to improve international tax compliance and implementing Fatca. The draft regulations are open for comment until April 30.
At the Alfi spring conference, panellists will discuss “Fatca – what do we do now?”, which should be very timely.
©2012 funds europe
