June 2012

TALKING HEADS: EU regulations reach out to Asian markets

Euro-signFund Forum International takes place this month and it is worth reflecting on the success of European funds in Asia. With Asian regulators expressing concern about complexity in Ucits funds, and with a number of other regional investors questioning Ucits costs compared with locally regulated funds, what needs to be done to maintain the success of Ucits internationally? Jean-Baptiste de Franssu, ceo, Incipit
Since the financial crisis any regulators around the world have wanted to better understand products sold in their market so as to safeguard investors’ interests. Many players started to develop their investment strategies within the framework of Ucits, pushing sometimes to the limit the interpretation of the eligible assets directive – which was made easier by the fact that all European regulators did not interpret the
rules in the same way. This then led to the debate on complex and non-complex Ucits for which answers have yet to be provided. All those uncertainties and the time it has taken to address them have been, if anything, alarming for all those non-European regulators. And it certainly provided them with additional reasons to distance themselves from Ucits and focus more on the promotion of their domestic domiciled funds. In parallel, European regulators and authorities often demonstrated little appetite to reach out to those non-EU markets and authorities to keep them abreast of the on-going discussions and initiatives. Todd Ruppert, president and CEO, T. Rowe Price global Investment Services
Confidence is the umbilical cord of investor savings. The Ucits brand has been extraordinarily successful  as a pillar of confidence for the mutual fund industry. But with the onset of Ucits III and the entry of increased leverage, derivatives, opacity, complexity, and fees into Ucits, this brand may be tarnished, which will further impair investor confidence, as well as the fund industry. The issues are both regulatory and commercial – and they must be addressed simultaneously. Both the industry and regulators must work together to enable a solution – it cannot be done by one or the other.  The industry must self-regulate its appetite to push the envelope and the Alternative Investment Fund Managers Directive needs significant amendments in order to better dovetail with the directives which define complex and simple products. Bruno Prigent, global head, Societe Generale Securities Services
Ucits may appear from time to time slightly costlier and more cumbersome to implement than alternatives: this is the counterparty of better governance, a  very strong infrastructure and a more protective regime for end investors. If some regulators have strengthened the process of registering Ucits, it is only because they remain cautious with the use of derivatives. We, at SGSS, believe that Ucits is not a deterrent to successful distribution: as for any type of product, as soon as the fund is in [accordance] with the market requirements, success will definitely be an option. FrancisJackson, managing director, EMEA markets executive, JP Morgan Worldwide Securities Services
Asia is a key growth market for Ucits and is critical to the directive’s global success as more than 40% of Ucits net sales in 2011 were sourced from outside the European Union, predominately from Asia. In order to ensure long-term success, it is essential that the concerns of international regulators are addressed. The fairly radical proposals and overhauls taking place with Ucits V and MiFID II (Markets in Financial Instruments Directive 2) regulations need to be carefully calibrated to maintain the integrity of Ucits while ensuring that the regulators around the world are comfortable with the outcomes. Paul North, head of product management, EMEA, BNY Mellon
There are many new regulations being rolled out that will impact on how Ucits funds are operated and sold. The intent is laudable, but we need a way of summarising these benefits for the end investor and reassuring them that Ucits funds continue to represent good value. However, in the short to medium term, these changes will not help reduce operating costs; value must be determined by more than just the cost of up-front fees and annual management charges.  Value is a mixture of risk, returns, service, liquidity and the knowledge that the investor’s interests are properly reflected in the governance of the fund. Antonio Thomas, managing director, Royal Bank of Scotland (Luxembourg)
European regulators and industry bodies such as the Commission de Surveillance du Secteur Financier and the Luxembourg Fund Association have been working closely with their regional counterparts to ensure more transparency and communication. ©2012 funds europe

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