Isolation on mutual funds plan

IRELAND and Luxembourg have been isolated in their bid to prevent mutual funds being managed centrally amid fears that they would both lose business to the bigger financial centres.

The International Financial Services Centre hosted more than 3,700 funds worth more than €586 billion, according to 2005 figures. EU-wide funds are worth an estimated €6 trillion.

Both countries had convinced internal market commissioner Charlie McCreevy to omit the so-called management company passport in his update of rules forcollective investment in transferable securities (UCITS).

A Government spokesperson said it supported the broad thrust of the proposals but had particular concerns about the management company passport, such as who should an investor turn to when a fund is established in one country but has its management company in another.

It is also concerned that the fund’s regulator could ensure the fund is operating in accordance with its rules. So, for instance, the Irish Financial Regulator should have enforcement powers over funds located in Ireland, even if managed abroad.

However, most finance ministers, led by Germany, France and Britain, said they preferred a single management company based in one country.

The European Parliament’s relevant committees also supports this and they added in the management company passport to UCITS when they were reviewing the commission’s draft.

France, in its role as EU president, said the passport for fund management would help improve the integration of the European market for asset management.

The new provisions are aimed at increasing the efficiency of the current framework by allowing UCITS managers develop their cross-border activities and make savings due to economies of scale.

For investors it should allow a greater choice of investment funds operating at lower costs. It also provides investor protection.