The European Parliament adopted a major reform of the European Union’s €6 trillion mutual funds industry on Tuesday to create a more efficient sector that gives savers cheaper products.
The two-decades-old, EU-regulated system of cross-border mutual funds, known as undertakings in collective investments in transferable securities, or UCITS, is already seen as a gold standard for mutual funds across the world. The average size of the 40,000 UCITS in the EU is far smaller than US mutual funds, making them less efficient and bumping up costs for savers. Parliament voted by 589 to 28 in favor of the reform, with 38 abstentions.
The reform adopted by the EU assembly will make it easier for mutual funds to merge, and allow centralized management of funds an asset manager holds across the 27-nation EU. It will take far less time for asset management firms to notify regulators they want to offer new products across the EU and investors will get information that is easier to understand. “We have shown that Europe can move speedily to bring about useful regulatory improvements,” said EU Internal Market Commissioner Charlie McCreevy, who authored the reform.
EU states have joint say with the EU assembly and have already agreed informally to the text adopted on Tuesday. “It will allow savings in restructuring of funds and fund mergers. This will reduce costs,” said Peter de Proft, director general of EU asset management industry association EFAMA. Savings from a more efficient framework would quickly amount to a couple of basis points and costs for consumers should go down, de Proft said. The reform takes effect in mid-2011.
The introduction of centralized management of funds was fiercely opposed by Luxembourg and Ireland, who feared a loss of business for the funds servicing companies based there. Many of the EU’s big fund groups are located in London, Paris and Frankfurt. McCreevy drafted the reform without this provision, saying more work was needed on how centralized management of funds would be supervised to ensure proper investor protection.
Britain, France and Germany won a rearguard battle to introduce centralized management into the final text after regulators made suggestions on supervision. Luxembourg centre-right lawmaker Astrid Lulling said the insertion of centralized management was a matter of regret and created practical difficulties. “The recent events with the Madoff scandal and its implications for the asset management world is not going to entirely reassure us. If we vote this through now, it’s a leap in the dark,” Lulling said.
However, Wolf Klinz, the Liberal member who steered the bill through parliament, said he was confident Luxembourg’s financial market would not be damaged. “The supervision provision that will be put in place will be sufficiently effective to clear up any doubts expressed on this issue,” said French centre-right lawmaker, Jean-Paul Gauzes.
McCreevy said the Commission would examine “the potentially adverse impact” national tax rules may have on cross-border mergers of funds, particularly on investors. The reform’s supervisory aspects could also be strengthened at a later date, McCreevy added. (Reuters)