Moody’s has warned that proposed changes to Ucits regulation could lead to reduced choice for fund investors.
Last week, the European Commission put forward a number of proposals for the Ucits V regime, including expanding oversight responsibilities and increasing exposure to liability for depositories of Ucits funds.
Currently, depositories’ responsibilities include monitoring investment restrictions and calculating net asset values for funds. Under the proposals, they would also have to monitor the ownership of assets that are not physically held, such as over-the-counter derivatives.
Moody’s Investors Service notes that depositories would have greater potential liability for their actions and those of their sub-custodians, increasing the costs passed on to asset managers. Changes to IT systems and due diligence processes would also create financial burdens.
Moody’s warns: “Eventually, if related costs increase to such an extent that investing in some emerging countries or in complex assets becomes unviable, asset managers may be forced to limit the available choices for the end investor.”
Martin Currie head of product development Toby Hogbin says it is particularly worrying that the changes could affect funds investing in emerging markets, which are expected to drive returns in coming years.
He says: “It is a real and valid concern that these depository rules will lead to reduced market access and therefore a reduction in potential returns for investors.”
The EC has not put forward an implementation date for Ucits V but commentators suggest it could be introduced as soon as 2013.