20 July 2015

Six recommendations to safeguard a vibrant asset management industry

The plans for an EU Capital Markets Union present a big opportunity to establish alternative funding opportunities for businesses and help steer investment where it is most needed. In such a context, the asset management industry could play a vital role. However, the EU should ensure that European asset managers are not bogged down by disproportionate EU regulation and can take full advantage of the single market without facing extra costs when distributing their funds across the 28 EU member states.

Open Europe and New City Initiative have published a new report setting out six recommendations to safeguard a sound and vibrant European asset management industry, which could provide vital new growth opportunities at a time when Europe is struggling to unlock investment.

The recommendations are:

  • National hurdles to the distribution of funds domiciled in other EU countries should be removed, as they contravene the spirit of the single market and the idea itself of a passport. EU-based asset managers would be more willing to bear some regulatory costs if they were guaranteed full and speedy market access to all 28 EU member states.
  • The threshold for the ‘de minimis’ exemption in the AIFMD should be raised from €100 million to €500 million.
  • UCITS funds that are only distributed to professional investors should not be obliged to appoint local paying agents in member states and should not be required to translate investor information documents in the language of member states where they are marketed. They could also be subject to less strict disclosure and reporting requirements.
  • The idea of introducing a Financial Transaction Tax (FTT), even among a limited number of EU member states, should be abandoned. Such a levy would be hugely harmful for the European asset management industry.
  • Proposals to ban the use of dealing commissions for the purchase of investment research should be dropped. A compromise can be found that offers more transparency for investors while ensuring the necessary flexibility for asset managers. An outright ban would have a disproportionate impact on smaller asset managers – and may even force some of them out of business.
  • EU-based asset managers who do not market their funds into other EU countries should be exempted from EU regulations – as they take no advantage from the passport. Asset managers covered by this new exemption would still have to register with the national regulator of their home member state, but would be subject to a lighter regulatory regime.

Asset managers face unjustifiable costs when trying to do business across the EU

EU membership offers UK asset managers the chance to access a potentially huge pool of capital. However, despite the introduction of a ‘passport’ that should allow asset managers to do business across the EU once authorised by one EU member state, regulatory and administrative hurdles remain in place at the national level that make it harder to take full advantage of the single market.

In this paper, we estimate that a UK-based fund manager marketing and distributing in all the other 27 EU member states plus Switzerland would face total initial costs of over €1.5 million. Total on-going maintenance costs – allowing for the continuation of cross-border marketing – could be near €1.4 million per year.

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These costs can represent an entry barrier for smaller asset managers, and contradict the idea itself of a single market. The asset management industry can play a vital role as an alternative source of funding for businesses across Europe – thereby helping economic recovery. Therefore, a functioning single market for asset managers is in everyone’s interest.

If you cannot see the PDF reader below, please click here to access the full report.

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