IDEAL FUND

Fund Governance Over recent years the goal of protecting investor interests has led to discussions on fund governance taking a front seat with regulators and within the industry. However, instead of a clear and harmonised set of rules, what we see are different laws stating fragmented guidance, “corporate” governance regulatory regimes, and a set of national and European codes of conduct self-imposed by the industry. The only degree of harmonisation lies in the UCITS directive’s basic focus on investor protection and related responsibilities dictated therein. Despite this, there have been few issues of any significance arising from the fund industry in Europe. However, to ensure proper safeguards exist for investors in retirement products, it is crucial to establish a clear framework for protecting their interests. In order to achieve this, there are core challenges to be addressed. Fund governance, in protecting investor interests, should ensure that conflicts of interest between the fund and the manager, employees, and any other stakeholders are identified and prevented, but this remains a challenge. Even in the U.S. where consistent and regulated governance with the focus on independent directors has been at the forefront of the retail fund industry, this challenge remains very real today. “The statute that governs our industry, demands that mutual funds be organised, operated, and managed in the best interests of their shareholders rather than in the interest of their advisers and underwriters. Yet for all of the Act’s noble intentions, that’s simply not the principle under which our industry operates today.” 3 CORE CHALLENGES FOR THE EUROPEAN FUND INDUSTRY Focus on managing inherent conflicts

No clearly defined fund governance framework

Mutual funds generally operate under “corporate” governance regimes designed for the corporate and/or different voluntary codes of conduct. Furthermore, different fund legal structures existing within the market have different governance forms, making it more difficult to achieve a harmonisation within the industry.As such, mutual funds or FCPs, which have no legal personality, have only a board at the fund management company level whereas investment companies have a board at the fund level (since they are a corporate legal structure) and at the fund management company level, as well. Often the split of roles and responsibilities between those charged with fund governance and those responsible for management companies is not fully understood by the members, who are also often the same people. There is also overlap between structures which adds unnecessary costs that investors must pay. Outside the well regulated UCITS regime, there is little structure around governance at all. It is important that any shift in governance requirements for long-term investment vehicles ensures a consistent framework regardless of the product type. Strengthening the fund governance framework for retirement products Recognition that retirement investment vehicles are systemically vital to the future financial health of Europe, in addition to the fact that they do not face the same governance challenges as listed corporate, are pre-requisites in taking steps to promote a consistent and clear governance framework. PROPOSED SOLUTIONS

3 Source: John C. Bogle,“Designing a New Mutual Fund Industry”, February 20, 2007

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