EU funds reform raises watchdog concern
LUXEMBOURG (Reuters) - Centralizing administration of the European Union's 6 trillion euro mutual funds industry needs further study to resolve concerns over supervision, a top market regulator said on Wednesday.
European Commission plans to update the EU's legal framework for cross-border mutual funds are delayed due to clashes over whether funds could cut costs by using a single administrator instead of having one in each state where they operate funds.
Under current law, services such as depositories or safekeeping of assets must be based where the fund is domiciled.
Two top EU centers for cross-border funds, Ireland and Luxembourg, worry that so-called passporting would lead to funds being based there in name only with all functions outsourced, raising supervisory, tax and legal uncertainties.
Britain and Germany, home to many big funds, dispute this.
"It is a highly political decision," said Eddy Wymeersch, chairman of the Committee of European Securities Regulators.
"We understand the UCITS industry has to function more efficiently. There are too many funds, no ability to concentrate assets and this makes it expensive," Wymeersch told Reuters Funds Summit.
UCITS are undertakings in collective investment in transferrable securities, the EU funds framework which has already been reformed twice and now being reviewed by EU Internal Market Commissioner, Charlie McCreevy.
"The thing to be sorted is the passporting issue. We have to know exactly what is meant. It is a slogan more than anything else," Wymeersch said.
An analysis into what functions were absolutely necessary for the local supervisor to oversee was needed, he said.
"We don't want to regulate an empty box. It would be very difficult for a supervisor to accept their responsibility for funds over which they have no say," Wymeersch said.
Access to accounting data would be essential to see if a fund is run properly and the local supervisor should also have a role in calculating its net asset value, Wymeersch said.
"That also includes the right to investigate a transaction without relying on figures from another jurisdiction. Passporting would never relate to all services offered to and from the fund," Wymeersch said.
"I am not proposing a full or partial passport, just to start to discuss what is and is not needed," he said.
He made a public offer to McCreevy for CESR, which groups national securities watchdogs from the EU's 27 states, to conduct an indepth study of centralizing fund administration.
NO SOLUTIONS YET
Speaking separately at a funds industry event in Luxembourg, regulators and industry associations from Ireland and the Grand Duchy cast doubts on centralized fund administration.
"We have not seen solutions. There is no legal entity apart from the management company. We are prepared to work with whatever proposals are presented. We just feel this is going to be a very difficult issue," said Martina Kelly of Ireland's Financial Services Regulatory Authority.
Jean-Marc Goy, a counselor at Luxembourg financial watchdog CSSF, said there was no need for a management passport.
"If we were to introduce the management company passport how can we make sure a supervisor can still effectively supervise the management company and the UCITS products," Goy said.
"You would have the empty letter box that UCITS 3 wanted to avoid," Goy added.
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Huw Jones)
