Cross-Border Distribution of UCITS

CONTEXT................................................................................................................................................................... 7 1.1 UCITS fund distribution channels and business models............................................................. 7 1.1.1 Evolution of fund distribution channels in Europe and current trends.................... 7 1.1.2 Open and guided architecture................................................................................................. 10 1.2 Fund sales trends in Europe................................................................................................................. 15 1.2.1 Fund sales to insurers, pension funds and other financial intermediaries........ 15 1.2.2 Fund sales to the retail sector................................................................................................ 17 1.2.3 Direct sales of funds to the retail sector, an analysis by distribution channel....... 18 1.3 Analysis of UCITS cross-border distribution market................................................................. 21 1.3.1 The leadership of Luxembourg and Irish hubs ............................................................... 22 1.3.2 The cross-border distribution of domestic products ................................................... 26 1.3.3 Top target markets for cross-border distribution in Europe ................................... 27 1.3.4 Distribution perspectives outside Europe ......................................................................... 28 FUND DISTRIBUTION MODELS & PLAYERS.......................................................................................... 33 2.1 The CSD and TA models......................................................................................................................... 33 2.1.1 The CSD model: The French example.................................................................................. 33 2.1.2 The TA model: The Luxembourg example.......................................................................... 34 2.1.3 Comparative analysis of both models.................................................................................. 35 2.2 The global TA model.................................................................................................................................. 37 2.3 Players’ roles and responsibilities for the principal distribution markets........................ 37 2.3.1 Players shared by both CSD and TA models.................................................................... 37 2.3.2 Players specific to the CSD model......................................................................................... 39 2.3.3 Players specific to the TA model............................................................................................ 39 CHALLENGES & OPPORTUNITIES.............................................................................................................. 41 3.1 Administrative and regulatory requirements................................................................................ 41 3.1.1 Registration requirements for foreign funds................................................................... 41 3.1.2 Post-registration requirements...................................................................................................... 44 3.2 Taxation issues............................................................................................................................................ 47 3.2.1 Taxation of funds and investors.............................................................................................. 47 3.2.2 Tax representative appointment and reporting to local fiscal authorities......... 48 3.3 Information referencing issue.............................................................................................................. 49 3.3.1 The lack of a pan-European fund database penalises cross-border distribution.. 49 3.3.2 The Fund Processing Passport, an EFAMA initiative.................................................... 49 3.4 Operational workflow ............................................................................................................................... 53 3.4.1 The growth in cross-border business and open/guided architecture tends to exacerbate operational complexity .................................................................................... 53 3.4.2 Various initiatives have emerged to increase automation and standardisation... 55 3.4.2.1 Market place groups’ initiatives............................................................................ 56 3.4.2.2 Electronic messaging initiatives............................................................................ 57 3.4.2.3 Fund platforms.............................................................................................................. 58 3.5 Distribution networks & agreements and trailer fee management.................................. 65 3.5.1 Open architecture has resulted in ever more complex distribution networks....... 65 3.5.2 The lack of standardisation in distribution agreements creates inefficiencies...... 66 3.5.3 Trailer fee management has become a key issue............................................................. 66 3.5.4 Recent initiatives to improve fund sales agreements...................................................... 67 3.5.4.1 Recommandations issued by EFAMA................................................................... 68 3.5.4.2 DMFSA’s initiative.......................................................................................................... 68

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BIBLIOGRAPHY.................................................................................................................................................... 71

APPENDIX: REGULATION REFERENCES............................................................................................................ 75 • Regulation at the European Union level • Regulation at domestic level as at April 2011

Cross-border distribution of UCITS | page 5