Passport to the future of funds distribution

Ucits III has been hailed as a global success, despite a number of setbacks.
The arrival of Ucits IV means the European funds industry can now look
forward to getting a much improved funds passport.

Before Ucits III, the European fund industry was highly fragmented. On its introduction, funds passporting helped significantly to reduce that fragmentation. In particular, pan-European groups have successfully used Ucits III to distribute their funds on a pan-European scale from a particular hub, such as Luxemburg or Ireland.

“If there were any doubts or criticismsof the Ucits funds structure, we just have to think back to how it was before,” says Daniel Lehmann, head of products at AllianzGI Europe.

Peter De Proft, director-general of the European Fund and Asset  management Association (EFAMA), says: “We have been generally welcoming of the scope for fund management restructuring that the directive allows. There remain some critical tax reforms that, unless resolved, will limit the directive from achieving its full potential.”

Ucits has become a global brand, finding favour in Asia and Latin America, to the extent they rival the long-established US mutual fund. But a number of problems remain, which the industry hopes Ucits IV will correct.

“The process for registering funds cross-border in the EU leaves some room for improvement,” says Lehmann.

As an example, he picks out the cost for translation requirements, which are significant: “With Ucits IV and its notification procedure, we take a big step towards making the cross-border registration process faster and more efficient.”

That is in part because the translation requirements are reduced. Under the new regime, a fund manager can sell funds immediately to another member state on notification of intent to its regulator. It is hoped that, with all documentation in place, the new system can complete in a week – under the current system, notification can take two months.

Marc Reynaud, chairman of BNP Paribas Investment Partners (Luxembourg) and head of Global Funds Solutions, explains: “The changes introduced by Ucits IV will be the direct notification by the regulator to the regulator of the other country for the approval of a new fund. In other words, if we want to have a Parvest sub-fund approved in Belgium today, we have to prepare a file and submit it to the CBFA [the Belgian regulator]. With Ucits IV, we will ask the CSSF [the Luxembourg regulator] to notify the CBFA directly. This is the rule for new funds, but existing funds will still have to follow the old procedure.”

Also streamlined is the fund prospectus. As it stands, says Lehmann, the Ucits III simplified prospectus is a “well-intentioned document that unfortunately does not help to provide investors with the key information they needed”.

ABOUT THE AUTHOR
James Norris
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