Global fund passport initiatives

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Theresa Rose
5 years ago
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1 Global fund passport initiatives 10th May 2017

2 1. The world, Europe, Luxembourg

3 Worldwide investment funds Market share (%) by assets Brazil 3,7% Americas (excl. USA & Brazil & Canada) 0,4% Canada 3,0% Asia & Pacific 11,5% Luxembourg 9,0% USA 47,6% Europe (excl. Lux) 24,3% Global net assets bn Africa 0,4% Figures as at December 31, 2016 Source: Investment Company Institute (ICI) 3

4 European fund industry UCITS & AIFs UCITS Country Assets EUR millions Market share Country Assets EUR millions Market share Luxembourg Luxembourg Ireland Ireland Germany United Kingdom France France United Kingdom Switzerland Netherlands Germany Switzerland Sweden Sweden Italy Italy Spain Denmark Denmark Others Others Total Total Figures as at December 31, 2016 Source: EFAMA 4

5 Luxembourg fund industry Global overview nr. of funds / fund units EUR millions Funds Fund units Net assets * from Dec 2014, data includes SICAR Figures as at January 31, 2017 Source: CSSF 5

6 2. UCITS and cross border distribution

7 UCITS: Europe s regulated investment funds UCITS stands for ndertakings for ollective nvestment in ransferable ecurities It refers to a European Directive, the UCITS Directive, which introduced a harmonised regulatory framework for the cross-border distribution and management of investment funds. In particular, UCITS must invest in transferable securities; are subject to strict risk diversification requirements (concentration by issuer, limits of control on other entities); must be open-ended (i.e. investors can redeem fund shares / units, usually on a daily basis); must comply with specific reporting and disclosure rules. 7

8 UCITS a long story UCITS UCITS III UCITS IV UCITS V 20 December January July July 2014 Driving Forces Permit cross-border offering of open-ended investment funds to EU investors More asset classes eligible (bank deposits, units of other UCIs, MM and use of derivatives) Permit industry consolidation, improve efficiency and increase investor protection Responsibility of depositary, policies on remuneration, sanction regime Benefits Harmonization of investor protection rules Marketing through simple notification process - passport Widening of investment power and product offering in UCITS Enhanced risk management procedure Principal amendments to UCITS regime: Simplified notification procedures KII EU-wide fund merger regime Management Company Passport Harmonize EU approach on eligible entities acting as depositories Clarify depository responsibilities Reduce conflicts of interest Facilitate enforcement Master-Feeder structures 8

Features of the UCITS product focusing on

of assets they are allowed to invest in.

compartments and share classes UCITS are

Management Company applies a procedure to

9 Features of the UCITS product focusing on Investor Protection Control and Safekeeping UCITS are controlled and supervised on different levels to ensure that the interests of investors are protected. Interaction of Management Company and Custodian and separation of duties. UCITS are subject to strict rules on what kind of assets they are allowed to invest in. Eligible Assets Multiple structuring possibilities Legal form: Corporate vs contractual Umbrella structure with compartments and share classes UCITS are designed to spread and reduce risk through a variety of investment limits. Diversification UCITS Risk Management The Management Company applies a procedure to ensure that there is an overview of all risks at all times and reacts immediately Investments can be sold in a relatively short period of time. All assets are valued in line with market conditions. Liquidity and Valuation Supervision Preaproval from regulator Information to Investors Offering Prospectus The KIID Half-yearly and annual accounts 9

10 Success factors of UCITS Harmonized regulatory regime Recognized brand Strong focus on diversification Investor protection Quick notification but... still some barriers to overcome! 10

11 Withholding tax on dividend payments made to nonresident investment fund vehicles European Courts have set some of the milestones for eliminating discriminatory treatment framework of investment funds, in particular through the following cases: Fokus Bank Case - 23 November 2004; Aberdeen Case - 18 June 2009; Santander Case - 10 May

12 Cross-border Distribution of Funds in the EU CMU Action plan flagship project of the European Commission ( ) for financial services Remove obstacles to cross-border distribution of investment funds inside EU Single Market Percentage of true cross-border funds increases over time 30% in 2016 compared to 18% only in 2005 UCITS and AIFMD Passports Theory vs Reality Room for improvement ( gold-plating, local marketing requirements, discriminatory tax treatment,...) 12

13 Identifying the obstacles EC Public consultation (Jun Sept 2016) to help identifying remaining barriers, such as: Lack of common interpretation/implementation of EU regulatory requirements Different levels of authorisation/notification fees Gold-plating, national administrative arrangements Differences in tax treatment of local and foreign funds Etc... 13

14 Tackling the barriers Examples of possible improvements recommended by EFAMA: Common understanding of Marketing and Pre-Marketing Single Information Portal managed by ESMA Pan-European tax reporting format for EU funds Etc... 14

15 Next steps EC communication to be published shortly Action plan expected to consist of a mix of legislative and nonlegislative tools: Targeted amendments to UCITS and AIFM L1 Directives (e.g. to prevent Member States from gold-plating ) ESMA Guidelines or Q&As (e.g. To clarify concept of Premarketing ) Industry support for the EC action plan will be key 15

16 Evolution of cross-border fund distribution Number of cross-border registrations Number of cross-border funds Luxembourg Ireland UK France Jersey Other Number of true x-border funds Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 16

17 Fund distribution at a glance Dec 15 Dec 16 Variation 15/16 True cross-border fund registrations % True cross-border funds % Registrations per true cross-border fund % Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 17

18 UCITS: Global Distribution World countries where UCITS are distributed Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 18

19 Total cross-border registrations by geographical areas Distribution Markets Europe 89,5% Africa 0.3% Americas 2.4% Asia Pacific 6,9% Middle East 0.9% Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 19

20 Growth in cross border distribution By geographical areas Region of distribution Total registration as at Dec 2015 Total registration as at Dec 2016 New registrations in 2016 % growth Europe ,8% Asia Pacific % Americas ,7% Middle East ,9% Africa ,5% Total ,1% Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 20

21 Breakdown of the number of registrations by investment strategy (top 15 strategies) Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 21

22 3. AIFMD

23 AIFMD Directive Objective Create a comprehensive and effective regulatory and supervisory framework for AIFMs at the European level AIFM means Any collective investment undertaking other than UCITS Which raises capital from a number of investors (i.e. at least 2) With a view to investing it in accordance with a defined investment policy for the benefit of those investors AIFM = Legal persons whose regular business is managing one or more AIF Hedge Funds, Real Estate, Private Equity 23

24 4. BREXIT When sorrows come, they come not single spies, but in battalions (Shakespeare Hamlet)

25 Brexit Next steps: Article 50 triggered on 29 th March 2017 Negociations between UK and EU on the new trade model Find an agreement 25

26 General impact areas The European Union single market is based on four fundamental freedoms designed to underpin a prosperous EU marketplace. 26

27 Areas of focus 27

28 Option for future relationships 28

The Luxembourg Fund Industry. Barcelona, June 2017

The Luxembourg Fund Industry. Barcelona, June 2017 The Luxembourg Fund Industry Barcelona, June 2017 1. About ALFI About ALFI The Association of the Luxembourg Fund Industry (ALFI), founded in 1988 Non-for-profit organisation More than 1,400 members Representative