Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CHALLENGES & OPPORTUNITIES

and Peru. Many countries still maintain their borders closed to foreign-domiciled funds, such as China, India, Indonesia or Brazil.

Even in hospitable countries, distribution of foreign funds, including UCITS, is not that simple. Asia is a fragmented market where each jurisdiction has a different investment fund regulatory and tax regime, culture, language, industry stage and the cross-regional relationship amongst local regulators is complex. There the challenge comes in dealingwith different rapidly evolving regulations and registration process (often involving translation requirements in local language of disclosure documents and long lead times to obtain a license) in each separate jurisdiction. • As an illustration, one of the main complaints among asset managers wishing to register their UCITS funds for distribution in Hong Kong is the lack of a clear timeline for the regulatory ap- proval. Furthermore, the Hong Kong regulatory authority has recently introduced new require- ments for funds authorised for distribution in Hong Kong and reformed existing Securities and Futures Commission (SFC) codes regarding unit trusts, mutual funds and investment-linked assurance schemes. Overall, these initiatives coincide with a global trend towards a more stringent regulatory approach to ensure greater investor protection as pursued also in the US and European jurisdictions 30 . Consequently, asset managers must now provide a Key Facts Statement (KFS) for structured products distributed to retail investors in Hong Kong, similar to the European UCITS Key Investor Information Document (KIID) introduced by UCITS IV as at 1st July 2011. Therefore UCITS funds distributed in Hong Kong will have to produce two sets of documents (the KFS and the KIID). The situation is similar in Singapore, where both the Product Highlight Sheet (PHS) and the KIID will be required. • With regard to Taiwan, a partnership with a master agent is required to do business there. The Taiwanese regulator has put in place further administrative measures which make it more difficult to sell foreign funds and registration can take a long time. Increased reporting require- ments, together with demand for product information and market advice has added strain to budgets 31 . Once registration has been obtained, another key issue is to maintain the registered status in the various countries of distribution. Asset managers have to cope with financial report- ing, statistical reporting and publication requirements, with specific formats and translation requirements differing from one country to another. The post-registration duties can be very cumbersome and time-consuming. Again, table 6 provides a comparison of the various post-registration duties for foreign funds in the top 7 target markets as at January 2011. It should be noted that UCITS IV has no impact on these post-registration requirements. In all EU countries, updated prospectus and UCITS certificates must also be transmitted to the local authorities to maintain registered status. 3.1.2 Post-registration requirements

3.1

30 Source: Citi, “Key regulatory reforms for asset managers”, January 2011 31 Source: Ignites Asia, “Managers confront stalled flows, rising costs”, 29 March 2011

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