Mr. Chairman, Ladies and Gentlemen,
It is a great pleasure to welcome all of you this morning on behalf of the Government of Luxembourg. I am particularly pleased to observe that this conference has become a key rendez-vous for the investment fund industry and I would like to assure you today that as Minister of Treasury I shall continue to actively work to keep Luxembourg an attractive European center of excellence for the investment fund industry. We will continue to consolidate our safe and predictable business environment through an appropriate and flexible regulatory framework with a truly international cross-border dimension for investment funds.
Luxembourg believes in a European market without borders. The success stories of the Luxembourg based steel industry, satellite and broadcasting enterprises, as well as of the 157 banks and thousand of investment funds with now more than 1 500 billion euros assets under management are a result of our ambition to be a truly international and European economic centre. The Luxembourg Government strongly supports the full realization of a truly European market for financial services. But tearing down borders does not entail in all circumstances a need to harmonize everything in the same manner. In this context, I would like to share with you today some thoughts on the European Commission’s Green Book on Investment Funds.
The Commission and we in the Council of Ministers of the European Union will be faced with a fundamental choice: should we build upon the existing UCITS framework or should we rather scrap the current directives and define a new regulatory regime?
I truly believe that the current legislative framework is a success story. We should keep the product-based framework and, where needed, make further improvements to it. The UCITS-label is a well known brand name in Europe, as well as in third countries. It stands for a high level of investor protection. Third countries, in particular investors from a number of Arab countries, are showing a growing appetite for UCITS products. There is a huge marketing potential for UCITS in these countries. Abandoning the current framework would be, in my view, throwing the baby out with the bath-water. My recent trips abroad to present the financial centre of Luxembourg have confirmed that the UCITS-label has an excellent reputation outside Europe. We should bear in mind that the global dimension of financial markets is an important factor when we prepare the future of the European investment funds regulation. The UCITS framework is a great asset for Europe. Let’s keep it and improve it to make it work even better in the future.
Our priorities should be the elimination of the notification procedure and the streamlining of the simplified prospectus. Both are in line with our striving for better regulation.
A prominent argument of those who favour an overhaul of the current UCITS framework is the high cost-level in the European funds industry as compared to that in the US market. My response is that there is room for significant cost reductions in the current framework. The elimination of the notification procedure, or at the very least its simplification, offers the potential for notable direct cost savings. It would also eliminate, or at least reduce, the considerable delays in marketing new products on a cross-border basis. Increased competition in the funds sector could result in further cost reductions. The clarification of the notion of eligible assets is likely to improve the smooth functioning of the product passport. This exercise should however not result in a rigid regulation hindering product innovation.
The simplified prospectus is a marketing and disclosure document which sets out the key information about a fund. The purpose of the simplified prospectus is twofold: first, to provide the average retail investor with the essential relevant information he or she needs to take an informed investment decision, and second, to ensure comparability of products. The simplified prospectus should be a short and standardized document, which is structured and written in a clear and concise way so that it can be easily understood by the average retail investor. Ideally, the simplified prospectus should be a one page fact sheet.
An increased harmonization of the content and format of the simplified prospectus should not be used to introduce additional disclosure requirements, in a "race to the top". Its aim should rather be to identify the information deemed essential for the average retail investor to make an informed investment decision. Consumer and investor associations could give valuable input to the process.
As I indicated, UCITS are a success story. That does not mean that we should include in that framework all kind of similar instruments. An extension of the UCITS framework to alternative investments, such as hedge funds, private equity funds, venture capital funds or real estate funds seems counterproductive to us. UCITS need to retain their image of high quality mass-market products offering a high level of protection to the retail investor. Throwing too much into the UCITS-pot might harm the excellent reputation of the UCITS-label in Europe and abroad.
Alternative investment products are not aimed at retail investors, but at sophisticated investors. These investors are deemed to have the necessary expertise to assess the risks associated with the alternative investment products. It can therefore be argued that an EU-wide harmonization of these products with the aim of ensuring a high level of investor protection is not necessary. Furthermore, a too restrictive regulatory framework could hinder product innovation and future market developments. Our focus should be to facilitate the cross-border offering of alternative investments.
Finally, I would like to say a word about some ideas surronding the management company and depository passport. UCITS structures where the fund, the management company and the depository are in different jurisdictions give rise to complex issues as regards the effectiveness of supervision, the investor protection, the tax regime and the level playing field among investment funds.
The depository passport would give rise to serious prudential concerns. A harmonization of the depository regime could be viewed as a prerequisite to the depository passport.
In addition, a structure where the management company and the UCITS are located in two different jurisdictions entails an uncertainty concerning the domicile and the nationality of the UCITS.
In our view, a passport for management companies and depositories cannot be introduced before satisfactory solutions have been found to all the issues on the table.
Mr. Chairman,
The European market in financial services, including investment funds, is a success which benefits investors and the economy. UCITS has proved to be a reliable, understandable and popular retail product in Europe. UCITS are also perceived as a high quality product in third countries. In my view, the current product based framework is a success story and represents a viable long term basis for the development of the investment funds industry. Let us continue to work together to open up markets without overregulation. I truly appreciate that the Green Book gives Member states an opportunity to express their views at an early stage of the thinking process of the European law making machine.
Open borders, fair competition, adequate labor laws and transparent markets are essential for our economies to remain efficient and to grow. That is also true when it comes to take-over bids. Let me therefore state in the context of the recent debate on how protectionist Member States should be when it comes to international take-overs that I do not think that by closing our borders to foreign investors we strengthen the European economies. This does not mean that we must automatically welcome all offers of take-overs merely by the fact that they come from abroad. We should judge them on their own merits, i.e. on their effects on the target company from a social, industrial and financial perspective. The Luxembourg Government does so with regard to the recent take-over bid in the steel sector. As a country that welcomes international companies and that is known for its international oriented flexible legal environment, we therefore do not think that take-over bids should be made possible or impossible by legal provisions. The task of the law should be to give a clear legal framework. The Luxembourg draft law on take-over bids is drafted in this manner and will keep Luxembourg as an attractive place to host international companies.
I thank you for your attention.