EUROPE – The EU fund industry is not correctly equipped to respond to the challenges of strong competition for investor savings and a rapidly evolving demand for investment products, according to a report to the European Commission.
The report, compiled by the Expert Group on Investment Fund Market Efficiency, stated: “Although the UCITS framework has been critical in the fund industry’s development, its unnecessarily onerous requirements and inadequate organisational flexibility are holding the industry back.
“The consequences of these inefficiencies are reduced investor choice, untapped economies of scale, unexploited specialisation benefits and higher costs.”
The Expert Group - established by the European Commission following the Green Paper on investment funds – was tasked to gather the views of market practitioners on how to make the EU framework more relevant.
It was also mandated to advise the Commission on cost-effective ways to support a more efficient organisation of the European fund value-chain.
The group’s report - which reflects discussions between February and June 2006 - provides practical solutions to remove legal and regulatory inefficiencies stifling the successful development of European fund markets.
“Slight modifications to the legislative framework are necessary to allow the fund industry to evolve,” said the group.
“Some of these will require changes or additions to the existing directive; however, none involve tampering with core features of the scope of the directive.”
According to recommendations by the group on how to remove barriers to the further successful development of European fund markets, there is a need to reduce administrative delays in getting investment funds to the market.
Other recommendations include enabling the rapid and efficient merger of funds, allowing the pooled management of assets owned by different funds, breathing life into the management company passport, and providing more freedoms for the depository.
This is not an optional list of measures, said the group. Rather, it is “the minimum set of actions that must be implemented in a prompt and focused manner”.
The report continued: “What is required now is a sense of urgency. Valuable time has already been lost, as some of these issues have been debated for the past several years.
“As such, the Expert Group strongly recommends that the legislative changes are completed in a Lamfalussy style and subsequently implemented by member states in a homogenous manner within the next three years. Lengthier delays risk compromising the future success of the EU funds industry.”
The European Commission has organised an open hearing on the views of the Group in Brussels on July 19.