Ucits fund merger rules could raise costs by 50%, warns IA


The new rules on fund mergers under Ucits V could increase costs by up to 50 per cent for asset management firms, the Investment Association warns.

Under the Ucits V draft directive asset managers must notify all existing unit holders of a potential fund merger and must do so “on paper of (where certain conditions are met) another durable medium”, which could increase fund merger costs by 25 to 50 per cent, the Investment Association says.

In its response to the European Commission’s call for evidence paper on EU regulation in financial services, the Investment Association has asked the Commission to revise the rules around fund mergers, in particular to the way investors are notified of the prospective merger.

“We do not see why the information requirements here should be provided in a different manner than any other information to the unit holders,” it states.

The trade body claims it is a “very costly requirement” incorporating the costs of preparation, printing, posting and “additional resource time”.

But the Investment Association states: “If, for instance, the merging fund has 100 investors and £1m in assets and the receiving fund has 50,000 investors and £10bn, there will be no material impact on the unit holders in the receiving fund.

“However, the costs of informing them would be so prohibitive that the merger would not be viable.”

One Investment Association member, who is not named in the document, told the trade body that it could cost an additional £54,000 to £71,000 to provide information to 10,000 shareholders in a receiving Ucits.

According to the Investment Association, there were 48 UK domestic fund mergers during 2009 with an average number of unit holders per fund of 6,240. The trade body found that the cost of providing the information on that number of mergers would have been £4m.

The Investment Association says if this calculation is extended across the Europe Union it could cost tens of millions of euros every year.

“It is very costly to meet these requirements, to the extent the merger may no longer be cost effective. There is a real risk that the efficiency could falter at the outset, if it is not recognised that the benefits of a merger could be outweighed by the costs of undertaking the merger in certain circumstances,” says the Investment Association’s submission.

“Indeed, the notification requirements could have the unintended consequence of endangering domestic mergers in the future.”

The EU paper, which has been open for feedback between 30 September 2015 and 31 January 2016, aims to look at possible “unnecessary regulatory burdens” and inconsistencies in rules affecting the financial services industry.

In its response, the Investment Association also suggested changes or adjustments in the current remuneration system of Ucits, Aifmd and Mifid firms.

The Investment Association interim chief executive Guy Sears says: “The success of the EU regulatory framework is critical to ensuring that the investment industry and the capital markets union initiative are able to achieve their mutual goals of supporting greater investment, increased productivity, and growth and job creation across the EU and beyond.

“The single market, fund passporting rights, the Ucits regime and a relatively harmonised single rulebook have all undoubtedly brought significant benefits to the UK’s asset management industry.”