IMA RESPONDS TO EUROPEAN COMMISSIONS ASSET MANAGEMENT GREEN PAPER
The Investment Management Association has today submitted its response to the European Commissions consultation Green paper on the enhancement of the EU framework for investment funds (also known as the asset management green paper).
IMA strongly supports the European Commission in its push to increase the competitiveness and efficiency of the European funds industry by opening up the single European market, and believes the Green Paper correctly highlights the key changes required. It also reflects IMAs own priorities which were submitted to the Commission in the 2003 Heinemann report. The report emphasised the importance of a genuine European single market in asset management and estimated that it would bring economic benefits to the industry of at least 5 billion a year and could produce an increase in the overall size of a pension by about 9%, or 120,000 for the average investor.
In its response the Association provides the Commission with the practical information and data it needs in order to move on from agenda-setting to implementation and highlights the following priorities:
Simplifying the notification procedure
The cost to the industry as a whole of complying with the different requirements imposed on managers who wish to register their funds to be marketed in different Member States is estimated at some 20 million for initial notification and on going costs of 25 million per year. These costs are dwarfed by indirect costs, including opportunity costs as well as concerns about the operational and reputational risk involved in maintaining notification across a range of jurisdictions with different requirements.
IMA welcomes the fact that action has begun on this issue, in the form of a consultation document by the Committee of European Securities Regulators. The Association is concerned, however, that the document is too limited and would result in a regime which still goes well beyond the spirit of the UCITS directive. IMA, therefore, calls on the Commission to intervene to achieve more radical change if the regulators prove unable to do so.
Enabling fund mergers
IMA is calling on the Commission to make the enabling of fund mergers a priority. The benefits are clear funds would achieve economies of scale, with research indicating that TERs fall as funds under management increase.
IMAs response examines a number of the regulatory and fiscal issues and notes that there are number of precedents in EU law on which the Commission can build in order to ensure that a fund merger does not give rise to a taxable event.
Enabling fund pooling
IMA also calls on the Commission to prioritise fund pooling as a complement to fund mergers. In order for funds to truly benefit from economies of scale it is more cost efficient to manage one large pot of money than several smaller pots.
The Association submitted a report earlier this year4 which provided recommendations as to how pooling can be achieved in the single market.
Providing a passport for the management company
The requirement for management groups to appoint a local management company with substance in each of the jurisdictions where it operates funds adds significantly to operational costs and capital requirements. As well as reducing costs, the ability to operate a centralised management company should improve operational risk management and internal controls.
IMA believes that the UCITS directive already provides for a management company passport and that the Commission could achieve a result on this point quickly and without legislative change by enforcing this provision.
Harmonising the European private placement regimes
Currently, each member state accommodates non-UCITS funds within their own domestic product regulation. IMA urges the Commission not to seek to introduce product regulation for such funds at EU level, but rather to focus on the distribution of such funds. It calls on the Commission to align the private placement rules, allowing non-UCITS funds to be marketed cross-border to appropriate investors, particularly institutions, without having to incur the costs of complying with a range of different rules in different countries.
Sheila Nicoll, Deputy Chief Executive, IMA commented:
The Commission has done a great job of encapsulating the issues and there is now a very strong consensus as to what needs to be done. We have a clear and ambitious agenda aimed at driving down costs and increasing competition to the benefit of the European investor. It is now time to get on with making things happen.
IMAs letter and submission to the European Commissions Asset Management paper are attached.
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For further information, please contact:
Helen Stephenson, Communications Officer, IMA, 020 7831 0898
Out of hours contact:
Mona Patel, Head of Communications, IMA, 07834 089332
Notes to Editors:
1. The Heinemann report was commission by the IMA in 2003 and was written by Dr Friedrich Heinemann of the Zentrum fr Europische Wirtschaftsforschung. A copy is attached.
2. Statistics taken from A harmonised, simplified approach to UCITS registration by IMA and the European Fund and Asset Management Association (EFAMA). A copy is attached.
3. Research undertaken by Fitzrovia International, January 2004.
4. IMAs report on fund pooling Pooling - how can fund managers respond efficiently to different investor needs? is attached.
5. IMA represents the UK-based investment management industry. Its members include individual fund management groups, the investment arms of retail banks, life insurers and investment banks, and the managers of occupational pension schemes. They are responsible for the management of approximately 2 trillion and in particular represent 99% of funds under management in UK authorised collective investment schemes.
