The turf war over fund managers

There’s a turf war brewing in Europe and, for once, it’s not about Britain. The European Union is wrestling over what the asset management industry should look like after Brexit.

That could set the scene for an attempt to curb the dominance of Luxembourg and Ireland—and risk causing chaos across the industry. At present, the rules for Undertakings for Collective Investment in Transferable Securities—Europe’s version of US mutual funds—allow a firm to register a fund in one EU country and then sell it across the bloc.

In practice, that means a tonne of funds are incorporated in Luxembourg or Ireland for tax purposes, while the actual business of managing the portfolio is delegated elsewhere— be it Paris, London, Melbourne or Hong Kong.

For years, Paris and Frankfurt have jealously eyed that accumulation of funds. So, Brexit provides an opportunity, or an excuse, to tighten up the rules. Specifically, the European Commission may take the opportunity to insist that portfolio managers are based in the same country as the legal structure of the fund they oversee.

Recent guidance published by the European Securities and Markets Authority, an EU agency that promotes regulatory harmonisation across the bloc, looks like it may do just that. It says the portfolio managers should be in the same member state—as in individual country, not the bloc as a whole—as the fund is incorporated. While the original rules allowed just two senior officers to be located in the member state of incorporation.