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CESR day

It is time we saw real progress in opening up borders for pan-European marketing

Half a decade since the independent Committee of European Securities Regulators was established, I ask you to lend me your ears and consider whether we should bury CESR or praise it.

CESR was developed to improve co-ordination among EU regulators and act as an advisory group to assist the European Commission on financial issues. Various consultation papers were drafted and acronyms such as Mifid were born. Based on these consultations, the investment community entertained the idea that maybe, just maybe, cross-border marketing could be an achievable reality.

Some progress has been made in simplifying barriers to cross-border sales but it has not gone far enough. What we are finding are issues with translation, different definitions of eligible assets, notification period delays and disputes over risk management. Above all, there is the issue of the punitive taxation of cross-border funds in some countries. These issues are hindering progress on the free movement of capital.

“Ambition should be made of sterner stuff,” said Mark Antony in Julius Caesar and the sterner stuff has been missing from CESR’s inter-market harmonisation plans.

Take the two-month notification period regarding the adoption of a fund by another European regulator. In practice, this notification period is far longer than the agreed timescale and the new rules do not go far enough to address this inefficiency. Language barriers are also obstructing progress as translating prospectuses and application forms into another EU regulator’s language costs time and money. The Investment Management Association is lobbying for English to be adopted as the common written language but this proposal is likely to be met with resistance from non-English-speaking regulators.

Eligible assets are subject to different definitions from the various EU regulators. This lack of consistency is holding up Ucits notifications even though it is against the principle of the Ucits passport. The principle is that once a fund is approved by the home regulator, it should automatically gain approval after two months by another EU regulator. It should not be possible for one EU regulator to second-guess another but it is happening and it is causing unnecessary delays.

Further costs and disruptions can occur with umbrella funds. When only some of those funds are intended for marketing in a particular country, local regulators can require the removal of the other funds from scheme documents. This is time-consuming and should be addressed in current consultations.

Another stumbling block is risk management. Local regulators consider the risk controls of a fund to be within the scope of their authority but this cannot be the case if the passport system is to work effectively. Surely, under a mutually recognised passport system, this issue must reside with the regulator that initially approved the fund and not with each individual regulator? Again, this issue must be clarified.

One area where we can praise CESR is in forging links with regulators outside the EU. CESR recently announced a working plan to help implement international financial standards with the US Securities and Exchange Commission. We hope that negotiations can extend to other markets, such as Hong Kong and Taiwan. One major flaw to CESR’s success on a regional basis is the exclusion of Switzerland, which has arduous regulatory requirements that could be eased through negotiation. If Norway has representation on the committee, why is Switzerland absent?

In short, we welcome CESR’s efforts to enable cross-border marketing but there are still considerable barriers to overcome. Further action must be taken to persuade local regulators to accept that a fund approved by one regulator is automatically acceptable in other EU jurisdictions.

Above all, progress needs to be made on the issue of cross-border taxation of funds, which all too often penalises funds managed by non-domestic players. Unless EU taxes are harmonised, cross-border marketing will remain a time-consuming and expensive exercise. Fundamentally, will tax be CESR’s Brutus?


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