By Huw Jones
LUXEMBOURG, March 17 (Reuter) - Centralized administration of mutual funds in the European Union would be hard to supervise and create risk for investors, a top industry executive said on Tuesday.
A draft reform by the EU's executive European Commission to update the bloc's mutual funds regulation is being held up by a dispute over whether it should allow centralization of fund management services like safekeeping of assets.
States like Luxembourg and Ireland, where many fund administration firms are based, fear an exodus to big financial centers like London and Frankfurt where huge funds are located.
The big funds want to save money by centralizing the administration of funds they have across the EU. Currently, a service such as safekeeping of a fund's assets must be in the country where the fund is registered.
"The fund industry in an industry which needs trust and needs stability and we should not forget there are lot of end clients investing in these funds," Jean-Michel Loehr, CEO of RBC Dexia Investor Services Bank, told a Reuters Funds Summit.
"Centralizing can be a good thing as long as it's not at the cost of risk and complication and having a governance structure that would be difficult to monitor from a risk point of view and from a supervisory point of view," Loehr said.
Loehr said that having a fund in one country, its administrator in another and a supervisor in a third EU state may mean investors not knowing who to go to.
"I think it's not a good development for the end investor," Loehr said.
Officials from big fund administration firms in Luxembourg said if centralization was allowed it would be at the cost of the smaller players who give a tailored service to rich individuals but can't compete regionally or globally.
These smaller firms typically poach employees from the big players that are forced to set up shop in Luxembourg.
"We have had to go as far as Poland to recruit people," an official from a large fund administrator said.
"But there is also a fear that if things are changed too radically, the management of fund may even move out of the EU," the official added.
(For summit blog: http:summitnotebook.reuters.com/)
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