Ambitions to build on Luxembourg’s global hub status for investment funds to make this country a global fund distribution centre are being held back by differing national approaches on regulations as well as prudential rules, despite efforts to harmonise European legislation and the EU’s cross-border fund framework.
This variation complicates efforts to sell identical investment products across Europe. Meanwhile, accessing the UK market post-Brexit seems to be getting even harder.
Asset managers want to sell their funds into markets where there is interest and demand for the funds. However, some countries are easier to do business in than others. Sara Hanvik, global head of distribution markets at SEB Investment Management AB, highlighted the Dutch and Swiss approaches to registering funds for distribution, calling the Netherlands “fantastically easy” and labelling the Swiss approach as requiring “a very long, very tedious” procedure.
UK more difficult
Hanvik, speaking at ALFI’s Global Distribution Conference in Luxembourg last week, addressed difficulties she’s recently encountered with getting funds registered for sale in the UK.
“I would say the UK after Brexit is becoming a very, very difficult market for us European management companies,” she said. She explained that SEB had sent in a registration application to the UK regulator, which included the “famous” legal comparison between Luxembourg law and UK law, at the end of July. She revealed that SEB had received a reply committing to a reply – by 23 February 2023.
“It kind of makes you feel – is this the process? Maybe we really need to look at how to approach the UK or maybe even exit it,” she said at the conference. “That is a situation that is not sustainable, not for my bank, where we cannot have like six to nine months processes in registering a fund.”
PRIIPS KID not accepted
The UK authorities have also prevented companies from switching to the PRIIPS KID, the new type of Key Information Document used in the EU, added Willi Müller, head of portfolio management and distribution at Union Investment Luxembourg SA. “We did not plan to keep up a second line of production of old KIDs in order to serve the UK market.”
While dealing with non-EU countries can be more difficult, even within the EU there are issues.
Some countries have “national final customer registers” or have special tax reporting obligations. For example, Austria imposes special additional reporting on certain institutional customers.
Different approaches
Asset managers have different strategies at their disposal. They could either go bilaterally as a management company domiciled in Luxembourg to the target country or they can appoint a fund platform which has a setup enabling an easier market entry to certain target countries. “In the end of the day, this depends on your appraisal of the target country,” explained Müller.
Muller contrasted the cross-border regulation currently in place with the earlier version. He said that the advantage of today’s regulatory environment is that “you have a little bit clearer picture coming to market, anything pre-marketing to market exit and your decision making process is embedded in the larger description and is more secure than it was before, since more points have been harmonised in Europe.”
Platform solutions
Pierre Mottion, head of distributed ledger technology & strategy at Clearstream, explained that fund platforms offer two main services to asset managers. One involves connecting them with the right set of distributors in a given country. The second is efficiently connecting the various parties involved once an investment decision has been made, from custody up to the transfer agent. “Our challenge on that front is to bring the wide diversity of asset managers and investment strategies to our distribution partners so that they can make their choice to include the fund in their own buy list,” he explained.
Müller said that he had seen a huge movement in the setup of platforms. “My impression is that platforms are using this opportunity in order to step in and provide a cross-border service at least, which is a lot quicker than national markets are adapting.”
The use of paying agents, according to Müller, is something that has been discouraged by the cross-border directive. However, he explained, the directive is not yet fully embedded in national law.
Hanvik said that her firm still uses paying agents. “There are lots of other requirements, you need to have a person speaking that language in the documentation and everything. And somehow, that isn’t fixed in a minute by Mancos,” she said.
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