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Financing of the EU economy - Reducing fragmentation in the EU funds market
A Capital Markets Union should complete the Single Market for funds
By Greco Massimo - Managing Director, Global Investment Management, J.P. Morgan AM
UCITS are a great success story of EU legislation. The UCITS regulatory framework (and increasingly the AIFMD) has harnessed many of the benefits of the EU Single Market. Both the safeguards and the EU passport introduced by UCITS make these type of products a trusted and popular and portable brand in Europe and abroad. However, the EU Single Market for investment funds is incomplete; the passport only applies to the selling of funds and not to marketing. While the passport allows managers to vend products across the EU, rules for marketing investment funds are still set largely at the national level. Thus we often see impediments to distributing funds across the EU in a seamless way.
These barriers disadvantage not just fund managers who find it difficult and costly to access certain markets, but more importantly, investors lose out on investment options. Marketing barriers set at the national level are also hurting the competitiveness of the EU market as a whole. National silos in Europe are hindering the scalability of funds in Europe which can lose efficiency vis-à-vis large funds in other jurisdictions. For example, the United States has roughly 11,000 mutual funds with an average size of EUR 1.5bn. Europe by contrast has a far greater number of funds, 30,000, but remarkably smaller in size with an average fund size at less than EUR 300m.
There are a number of individual impediments to marketing and registering funds that EU policymakers could seek to address. These include, but are not limited to:
o Member State requirements for additional marketing materials
o Timeframes for admitting these marketing materials
o Additional prospectus/ KIID requirements at Member State level
o Onerous or diverging KIID filing requirements
o Local paying agent requirements
o Prohibitive regulatory fees for marketing
Bring forward a true Single Market that applies not just to the selling of funds, but also to marketing of these financial products as well.
While we hope policymakers look at this whole host of issues, we feel strongly that the EU should aspire to do something bigger: bring forward a true Single Market that applies not just to the selling of funds, but also to marketing of these financial products as well. Ultimately this will mean allowing a single point of entry for authorizing of marketing materials and registration of investment funds in one Member State. We look forward to working with legislators to develop these important initiatives in the context of the Capital Markets Union.