While there is a lot of work being done to harmonise the rules between EU member states, a research report published by the CFA Institute on how MiFID II and PRIIPs have modified the rules of fund distribution, reveals the challenge is still at large for the cross-border marketing and distribution of investment funds.
78% of 527 survey respondents stated there was insufficient clarity of EU cross-border fund marketing rules, with 48% siting regulations are not clear enough or only partially clear.
Despite the passporting features of EU regulation, it seems fund managers are still finding it difficult to circumvent the apparent inconsistencies in how EU Member States apply directives relating to the cross-border registration, distribution and marketing of funds.
For example, requirements in the Netherlands appear quite relaxed. The Dutch regulator, the Authority for the Financial Markets (AFM) does not impose the appointment of local parties, such as paying agents, on the product manufacturer, and only requires translation of KIIDs documentation. While it is often overlooked by its popular EU counterparts, the Netherlands offers a cost-effective option with a relatively short time to market.
On the contrary, the requirements in Spain, one of the fastest growing fund markets in Europe, remain rather complex. The UCITS passport into Spain requires several local agents to be appointed including a designed entity, local distributor, and entity responsible for the payment of Comision Nacional del Mercado de Valores (CNMV) fees. The marketing approval process can also prove challenging where coordination and communication is required between these third parties and the CNMV.
Ironically, a non-EU member state, Switzerland, another attractive market for foreign investment, introduced new regulations this year to better harmonise Swiss rules with European rules under MiFID II. The Swiss regulator – The Swiss Financial Market Authority (FINMA) – introduced changes on 1st January 2020 to ease some requirements including the translation of documents; with fund groups now no longer required to translate a fund’s prospectus, memorandum & articles/instruments of incorporation, financial reports and KIIDs.
Legislative changes aimed at reducing regulatory barriers to cross-border distribution and marketing of funds are in the pipeline, with Directive (EU) 2019/1160 and Regulation (EU) 2019/1156 due to take effect from 2 August 2021. These amendments aim to increase awareness of the requirements with respect to the cross-border registration of funds and reduce the speed and cost to market.
While these changes are welcomed, the old adage of knowing your customer (KYC) still prevails in marketing and distribution, especially in unchartered territories. Local market intel is second to none when devising a global fund distribution strategy and plan.
The Global Funds Registration (GFR) service at FE fundinfo offers fund managers and management companies requisite local knowledge of key fund markets, within Europe and beyond, offering advice to counsel, and a comprehensive set of services to manage fund registrations and maintenance.
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