National barriers
“We believe that following Brexit, the need and necessity to modernise and clarify this overly regulated and, in some instances, unnecessarily complicated sector is greater than ever,” KMG Capital Market’s CEO Kevin Mudd stated. “Cross- border competition and efficiency must be introduced and the only way to achieve that is by deregulating national barriers and introducing harmonised rules across allMember States”.
“We strongly believe and assert that the underlying purpose of the CMU initiative must specifically be to abolish national barriers, which have proven to prohibit and limit the cross-border distribution of funds for instance,” he explained.
We made our views known on these shortcomings to the EU’s Inception Impact Assessment Initiative in relation to “Reducing barriers to cross-border distribution of investment funds”.
Definition consistency
“The uncertainty of different legislative obstacles, mainly at the national level of the Member States, restricts to a large extent the marketing of funds”, Mudd explained. “Removing barriers mainly at national level and clarifying definitions to have the same interpretation across all Member States are the key elements for the facilitation of the cross- border distribution of funds outside of their domicile Member States”.
Mudd went on: “For instance, the Alternative Investment Fund Marketing Directive (AIFMD) was introduced (and/or proposed for implementation) in the 31 EU / EEA Member States and those which have transposed it into national law and national rules have ended up with significantly different rules and regulations between them. This was the obvious result of the flexibility and elasticity of rules and definitions which were allowed within the wording of the AIFMD”.
Future developments must be directed towards the creation of a CMU where all parties involved are clearly defined, with roles and responsibilities adequately, evenly and realistically allocated and barriers that prevent and/or have a material impact on the cross-border distribution of funds, or financial services in general, are reduced or abolished.
Legal certainty
A pivotal element for the efficient and continuous distribution of funds across a CMU is legal certainty. What should have been a simple and cost efficient process – the cross-border distribution of AIFs - has unfortunately proved to be a very expensive and burdensome process. The creation of a CMU presupposes common definitions in relation to marketing and pre-marketing activities. Regrettably, the interpretations across the EU actually vary widely, which is the primary source of much uncertainty and confusion.
The main question to be asked here is: Why there is no common definition between all Member States? Why do market players need to adhere to different rules and procedures? Does this lack of legal certainty translate to lack of trust between the regulatory authorities of those States?”
Our specific recommendations are:
1. The creation of a common/uniform interpretation of terms – a standardised glossary is a necessity.
2. The removal of the necessity to inform individual countries of marketing activity. Meeting regulatory promotional requirements in one EU country should automatically mean meeting them in any other.
3. The abolition of the need for manufacturers to take responsibility for distribution when dealing through regulated intermediaries.
4. The elimination of legal requirements in some countries that require the involvement of local agents.
5. The establishment of a uniform agreement across the EU on what constitutes a “well informed, certified, experienced or sophisticated investor” to fit between retail and professional categories. This should include uniform offering document requirements and investor safeguards and abolish local restrictions on the distribution to such a class.
Kevin Mudd, CEO of KMG Capital Markets – the first Super ManCo (AIFM and UCITS Management Company) to be regulated in Cyprus - has over 30 years’ experience in fund management, portfolio management, managing clients’ assets, product design, fund structuring, marketing and distribution. KMG Capital Markets is currently the external AIFM to 17 Luxembourg funds, managing a wide variety of alternative investments, circa € 500 million.
Kevin takes a strong interest in the shaping of the financial services industry to ensure high standards and realistic regulation through active participation in and directorships of professional bodies such as CIFA, CIFSA and FECIF.
