Investment managers seeking to navigate three new European regulations will need to take a holistic approach in order to fully understand their effects on the landscape, according to a new white paper.
Northern Trust’s Funds regulation: A brighter distribution future? outlines the ramifications of the Undertakings for Collective Investment in Transferable Securities (UCITS) IV Directive, the U.K.’s Retail Distribution Review (RDR) and the European Union’s Alternative Investment Fund Managers (AIFM) Directive on the investment management industry. The regulations are set to converge in 2012.
“The challenge for the regulators is to ascertain the appropriate level of oversight so that the market becomes more, and not less, efficient,” says Wilson Leech, head of Northern Trust’s global fund services business. “The challenge for investment managers is to understand the impact the regulations will have on their business and their investor base and the overhead required to support and implement these. Whether managers are based in Europe, the United States or Asia-Pacific, these regulations may impact how they do business so they need to be prepared.”
According to Karen Hamilton, head of product development for fund administration at Northern Trust, despite the challenges involved in UCITS IV and RDR, the end result should be positive for fund managers in terms of driving distribution.
“UCITS IV takes the principle of harmonization further through the ability to create a master feeder fund, and passport a fund management company (meaning managers will have the opportunity to have one pan-European UCITS management company, rather than one in every jurisdiction), while the RDR will remove the commission structure allowing more funds to invest in the U.K. marketplace,” she says.
“The AIFM Directive is the newest piece of legislation facing the funds industry and is the most controversial,” adds Hamilton. “There are still significant areas where the industry is seeking greater clarification, so investment managers should not make any sweeping changes until it is clear what the directive will entail.”