ALFI identified the main barriers to cross-borders distribution.
On 7 October 2016, ALFI responded to the public consultation on cross-borders distribution of investment funds issued by the European Commission in June this year.
ALFI has identified and has drawn the attention of the Commission to the main barriers to the cross-borders distribution of investment funds as follows:
- Marketing requirements and marketing documentation
For products which are already subject to strictly harmonized EU rules, mainly UCITS and to some extent AIFs, one may question the rationale of the host member States continuing to be competent for defining the scope of marketing activities and the content of marketing documents. ALFI supports the introduction of common EU rules on marketing through a single rule book issued by ESMA to which national regulators, asset managers and practitioners could refer to. Such a single rule book should provide clarification with regards to what constitutes a common definition of marketing or distribution for both UCITS and AIFs as well as what constitutes reverse solicitation.
- Introduction of new rules for distribution or marketing to professionals
ALFI supports the introduction of the possibility to market investment funds, both UCITS and AIFs, to professionals in any language, as defined by the investment fund or its management company and accepted by professional investors so that the need for multiple versions of marketing documents in several different languages could be avoided. Professional investors are sufficiently skilled and experienced and would therefore not need the same high level of protection as retail investors.
- Local paying agent and local representative requirement
Member States have defined a wide range of requirements in respect of local agents to be appointed before an investment fund may be distributed on a cross-border basis into the territory of the host State. ALFI understands that the objective of the legislators and competent authorities in each Member State is to protect investors. However, these requirements are not always clearly justified and most of these facilities could be provided on a cross-border basis without compromising investor protection. ALFI therefore calls for a core/single set of common rules applicable across the EU. Such rules should also contemplate the removal of the requirement to appoint a local paying agent or a local representative where it cannot be justified by any value added for local investors.
- Centralization of notification processes
Significant barriers to cross-border marketing are embedded in the form of different approaches to filing requirements in the case of updating an existing notification or in the case of market exit. ALFI would support a streamlining of notifications at an EU level as well as a centralization of notifications at the ESMA level. In addition, ALFI would call for a streamlining and harmonization of the regulatory fees invoice processing at an EU level.
- Digital investor passport
ALFI supports the introduction of a digital investor passport that would allow a consumer to open accounts or purchase other investment services with more providers and individually manage his/her digital account in a consolidated manner.
- Withholding taxes and tax reporting regimes
Withholding taxes on income received by investment funds: Dealing with withholding taxes on income received by investment funds remains a delicate exercise that triggers significant costs. ALFI supports a common, standardized reclaim form for all Member States and an agreement on the simplification of the related tax documentation.
ALFI further supports the idea to limit withholding tax rates applicable to income received by investment funds from EU source countries to the standard rate of 15% in order to significantly reduce the costs triggered by applications for refunds or exemption.
Tax reporting regimes applicable in investors’ countries of residence: Cross-border distribution of investment funds entails dealing with different tax reporting regimes having different levels of complexity and a high level of application and management costs. ALFI supports the introduction of an EU-wide common standard set of tax reporting rules for all EU Member States provided it does not encourage Member States to introduce new tax reporting requirements.
- Cross-border distribution of AIFs - Introduction of a definition of semi-professional investors
ALFI would welcome the opening of the AIF market to a larger number of investors. This may be achieved by opening the AIFMD passport to a new category of investors i.e. semi-professional investors, including, for example, well informed investors and high net worth investors, in line with articles 31 and 32 of the AIFMD.
- Private Placement Regimes (“PPRs”)
ALFI supports the work of ESMA and calls for an extension of the National PPR deadline, with Member States consent, until an adequate EU PPR will be defined and applicable, taking into consideration reciprocity, as there is a need to ensure that EU funds / EU managers are not put at a disadvantage compared to non-EU funds / non-EU managers.
Also, ALFI supports ESMA’s work assessing the potential application of the AIFMD passport to certain non-EU AIFMs and AIFs on the basis of the list of criteria (including the effectiveness of cooperation arrangements; investor protection; market disruption; obstacles to competition; and monitoring of systemic risk). ALFI would support the application of the AIFMD passport to non-EU AIFMs and AIFs and consideration should be given to the option of interconnecting not only national but also regional initiatives, such as the UCITS and AIFMD passport in Europe, the ASEAN framework for cross-border offering of collective investment schemes and the intended mutual fund recognition between Hong Kong and mainland Chinese fund products. This would take global fund distribution to a new level.
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