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Regulation

Luxembourg group calls cross-border regulation changes ‘restrictive’

Association of the Luxembourg Fund Industry warned Tuesday that changes to European regulations approved by the European Parliament to facilitate cross-border fund distribution are "restrictive" for investors.

The European Parliament last week adopted the final rules, amending the text of Undertakings for the Collective Investment in Transferable Securities and Alternative Investment Fund Managers directives.

Aiming to align regulatory fees and marketing requirements across all European markets, the European Commission proposed in March 2018 amendments to fund management legislation to help money managers distribute investment funds cross-border without appointing a third-party firm or setting up a local representative.

Investment funds are pools of investors' capital that collectively invest through financial instruments that make loans to companies and projects in the real economy.

Currently, some 70% of assets invested in these funds are held by vehicles authorized for distribution only in the country of origin of the money manager running the fund. Under the proposal, money managers will be able to market their funds to asset owners and retirement plans in the rest of the European countries without having to meet individual national criteria.

Money managers could save up to €440 million ($497 million) annually in cross-border distribution by launching fewer country-specific funds, the EC estimated.

But under the changes to Europe's key directives, alternative investment fund managers are required to inform their respective home country of their cross-border premarketing activities within two weeks of beginning them. Any acquisition of alternative investment fund units during the first 18 months from the start of premarketing needs to be a result of such marketing, according to the rules.

Also, under the rules, letters to national regulators of UCITS or AIF industries needs to be submitted and contain a series of information about the cross-border activity by money managers. The national regulators of the host country will retain comparable roles to supervise marketing under the directives.

Responding to the decision by the European Parliament, ALFI called the changes "somewhat restrictive given that these rules are designed to apply to transactions between professional investors requiring not as much protection as retail investors."

ALFI also said: "Although these rules are not entirely suited to the investor protection objective and the way the industry is organized, it has the advantage of providing a harmonized framework and a level playing field throughout the EU."