Report recommends safeguards for European funds industry
A report from Open Europe and New City Initiative sets out six recommendations designed to safeguard a sound and vibrant European asset management industry, which, it claims, could provide vital new growth opportunities at a time when Europe is struggling to unlock investment.
The report’s recommendations include the removal of national barriers to the distribution of funds domiciled in other EU member states, as these hurdles contradict the spirit of the single market. Open Europe and New City Initiative also call for EU-based asset managers who do not market their funds into other EU countries to be exempted from EU regulations, given that they take no advantage from the EU passport.
The report says: “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.”
Dominic Johnson, Chairman of New City Initiative, says: “New City Initiative is calling for the UK Government to press for reform in Europe in a variety of ways to both preserve the boutique asset management industry as well as improve growth prospects in Europe. Currently, the trade-off between high levels of regulation and a true free trade zone, with all its benefits, needs significant improvement. In this paper, we have made positive suggestions to re-balance this relationship into the long term.”
Vincenzo Scarpetta, policy analyst at Open Europe, says: “The asset management industry can play a vital role as an alternative source of funding for businesses across Europe – thereby helping economic recovery. The EU needs to do everything it can to make sure asset managers are not overburdened by regulation and can distribute their funds in all 28 member states without facing additional hurdles and costs. The recommendations set out in this paper show the way forward. A functioning single market for asset managers is in everyone’s interest.”
The report says that the fact that at a time when Europe is struggling to find its way back to economic growth, it becomes all the more important to safeguard a sound and vibrant asset management industry. “Millions of households across the EU are invested in mutual funds, while bonds and equities accounted for 43 per cent and 33 per cent respectively of total assets managed by the European industry at the end of 2013. This shows how important asset managers are to the economy.”
While the report recognises that, as with other parts of the financial services sector, the asset management industry can be susceptible to crises, it believes that the inherent risks are different and possibly more easily manageable than, for instance, in the banking sector. “While there were examples of different types of asset managers getting into trouble during the recent financial crisis, these seem to be largely isolated incidents rather than systemic flaws” the report says.
EU membership offers UK asset managers the chance to access a potentially huge pool of capital but 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, the report says.
“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 EUR1.5 million. Total on-going maintenance costs – allowing for the continuation of cross-border marketing – could be near EUR1.4 million per year.”