public consultation on the main barriers to the cross ... · public consultation on the main...

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Contribution ID: 93c8541b-567e-4bdb-bc9b-8c3388095550Date: 05/10/2016 19:18:52

Public consultation on the main barriers to the cross-borders distribution of investment funds across the EU

CMU action on cross-border distribution of funds (UCITS, AIF, ELTIF, EuVECA and EuSEF) across the EU

Fields marked with * are mandatory.

Introduction

Creating a deeper single market for capital - a Capital Markets Union (CMU) which will strengthen Europe’s economy and encourage investment in all 28 Member States is one of the European Commission’s key priorities. The CMU is intended to mobilise capital in Europe and channel it to companies, including SMEs, and infrastructure projects that need it to expand and create jobs. By linking savings with growth, it will offer new opportunities for savers and investors.

Cross-border investment funds have an important role to play in achieving this aim. If funds can do business more easily cross border, they can grow and become more efficient, allocate capital efficiently across the EU, and compete within national markets to deliver better value and greater innovation for consumers.

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The EU has a successful track of promoting the cross-border distribution of funds. The 1985 introduced a marketing passport for funds for the first time and a legislative Directive (85/611/CEE)

regime where the most important aspects are now harmonised. Accordingly there should be no restriction on their sale across the European Union. Since then, and following several legislative updates, the UCITS market has grown to €8 trillion assets under management. Around 80% of UCITS funds are marketed cross-border (Source: European Commission staff calculation). More recently, the Alternative Investment Fund Managers Directive (AIFMD), agreed in 2013, introduced a passport for non-UCITS funds. There are currently about €5 trillion of asset under management for AIFs, with 40% of funds marketed across border (Source: European Commission staff calculation). AIFs which are managed by authorised AIFM in accordance with AIFMD should, in accordance with that Directive, be freely available for sale to professional investors in the European Union. Overall, 57 % of the funds (UCITS and AIFs) are marketed on cross-border basis (Source: European Commission staff calculation).

However, there is more that can be done to deepen the single market for funds: one third of UCITS that are marketed cross-border are only sold in one Member State in addition to their home country, and mainly back to the Member State where the Asset Management Company is domiciled. Another third is not sold in more than four Member States outside of their home country. EU UCITS funds are also significantly smaller than US mutual funds. There are more than 30,000 UCITS funds available for sale in Europe in contrast to 7000 mutual funds in the US and while the average European mutual fund is valued at approximately €200 million, its counterparts in the US are almost seven times as large. This has consequences for the economies of scale these funds can reap and fund costs. The costs of marketing across borders may fall disproportionately on smaller, start-up or more specialised funds.

The remaining barriers to cross-border distribution are varied – and may include the impact of concentrated fund distribution channels in individual member states, cultural preferences for funds managed in investors' home states, and a lack of incentives for managers to compete cross-border. However, one obstacle that has been consistently cited, and which may be relatively more important for smaller managers, are the regulatory barriers to distribution. Regulatory barriers have been identified in response to the (Green Paper: Building a Capital Capital Markets Union green paperMarkets Union, ) and to the COMM(2015)063 Call for Evidence on the EU Regulatory Framework for

(Call for Evidence: EU Regulatory Framework for Financial Services, Commission Financial ServicesServices, 2015) as including burdensome registration procedures, costly and diverse marketing requirements, inconsistent administrative arrangements and tax obstacles. Eliminating unjustified barriers would support fund managers to engage more in cross-border marketing of their funds, increase competition and choice, and reduce costs for investors.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31985L0611


http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0063

http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm

http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm

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The Commission is seeking further details and evidence from stakeholders including fund managers, investors and consumer representatives in order to understand where and how the cross-border distribution of funds could be improved. Input from distributors is also welcome in order to build a fuller picture of the barriers to distribution. In order to build upon earlier responses to the CMU consultation and to the Call for Evidence on the EU regulatory framework for financial services, specific examples and where possible quantitative and financial evidence on the financial impact of the barriers, would be welcome. This includes the impact of marketing rules, administrative arrangements imposed by host countries, regulatory fees and notification procedures and also the most pertinent features of the tax environment. The Commission will use this information in its assessment on taking action to address the barriers, supporting the development of the CMU and increasing choice.

This consultation seeks feedback in the following areas:

Marketing restrictions: EU funds marketed cross-border are usually required to comply with national requirements set by host Member States, which differ across the EU. Significant costs can be incurred in researching each EU Member State's financial promotion and consumer protection regime, and providing appropriate materials on an on going basis.

Distribution costs and regulatory fees: EU funds can be subject to regulatory fees imposed by home and host Member States that vary significantly in both scale and how they are calculated. The costs themselves and the need to research them are reported as acting as a barrier to cross-border distribution.

Administrative arrangements: Where EU funds using the marketing passport are sold to retail investors, host Member States sometimes introduce special administrative arrangements intended to make it easier for investors to subscribe, redeem and receive related payments from those funds, as well as receive tailored information to support them in doing so. These are an additional burden that may not always justified by the value added for local investors.

Distribution networks: With increasing use of online platforms to distribute funds, we want to understand the barriers that hinder the use of online and direct distribution across borders.

Notification processes: Where funds are marketed on a cross-border basis and there is a need for documentation to be updated or modified, asset managers are required to give written notice to the competent authority of the host Member State. This can add cost and time to the process.

Taxation: differential tax treatments can sometimes create barriers to cross border business. Feedback is sought on how best to promote best practice and avoid discriminatory tax treatment.

The Commission is grateful for the input of respondents informing the next stage of this work. The public consultation is open from 2 June 2016 to 2 October 2016.

This consultation complements other work by the Commission work seeking to improve the single market for investment products and asset management and improve outcomes for consumers and investors:

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As set out in the CMU action plan, the Commission will undertake a comprehensive assessment of European markets for retail investment products, including distribution channels and investment advice, drawing on expert input. The assessment will identify ways to improve the policy framework and intermediation channels so that retail investors can access suitable products on cost-effective and fair terms. The assessment will examine how the policy framework should evolve to benefit from the new possibilities offered by online based services and fintech.

The Green Paper on retail financial services, which seeks to identify the specific barriers that consumers and firms face in making full use of the Single Market and ways in which those barriers could be overcome, including by making best use of new technology, subject to appropriate safeguards.

The Call for Evidence (CfE) on the EU regulatory framework for financial services, which is assessing the evidence and feedback received on rules affecting the ability of the economy to finance itself and grow, unnecessary regulatory burdens Interactions, inconsistencies and gaps, and rules giving rise to unintended consequences.

In parallel, following up on a call from the ECOFIN, the Commission has established a Member State Expert Group on barriers to free movement of capital, with the aim to map national barriers, identify the most damaging to the internal market and find the most efficient ways to remove them, including through voluntary commitments by Member States. National barriers to cross-border distribution of funds will also be discussed in that context. Through a collaborative process with Member States, a Report on barriers and a Roadmap for lifting or easing them is foreseen for adoption by end 2016.

In addition, the Commission has wider initiatives underway on the Single Market and Digital Market. The Single Market Strategy comprises targeted actions in three key areas: creating opportunities for consumers, professionals and businesses, encouraging modernisation and innovation and ensuring practical delivery that benefits consumers and businesses in their daily lives. It aims to facilitate cross-border provision of services and to address key barriers for business services and construction. The Digital Single Market strategy intends to ensure, among other goals, better access for consumers and businesses to online goods and services across Europe. It also addresses the issue of the "level-playing field" between various service providers and envisages a comprehensive assessment of online platforms.

Please note: In order to ensure a fair and transparent consultation process only responses and included in the report received through our online questionnaire will be taken into account

summarising the responses. Should you have a problem completing this questionnaire or if you require particular assistance, please contact [email protected]

More information:

on this consultationon the protection of personal data regime for this consultation

http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/index_en.htm

http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/docs/privacy-statement_en.pdf

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1. Information about you

*Are you replying as:

a private individual

an organisation or a company

a public authority or an international organisation

*Name of your organisation:

BlackRock

Contact email address:The information you provide here is for administrative purposes only and will not be published

[email protected]

*Is your organisation included in the Transparency Register?(If your organisation is not registered, , although it is not compulsory to be we invite you to register hereregistered to reply to this consultation. )Why a transparency register?

Yes

No

*If so, please indicate your Register ID number:

51436554494-18

*Type of organisation:

Academic institution Company, SME, micro-enterprise, sole trader

Consultancy, law firm Consumer organisation

Industry association Media

Non-governmental organisation Think tank

Trade union Other

*Where are you based and/or where do you carry out your activity?

United Kingdom

*

*

*

*

*

*

http://ec.europa.eu/transparencyregister/public/homePage.do?locale=en

http://ec.europa.eu/transparencyregister/public/staticPage/displayStaticPage.do?locale=en&reference=WHY_TRANSPARENCY_REGISTER

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*Field of activity or sector ( ):if applicableat least 1 choice(s)

Banking

Distributors / platform

Family office

Institutional investors

Insurance

Investment management (e.g. hedge funds, private equity funds, venture capital funds, money market funds, securities)

Law firm

Legal advisors

Market infrastructure operation (e.g. Stock exchanges)

Pension provision

Retail investors

Retail investors representatives

Other

Not applicable

Choice of questions

*I want to see the following part(s) of this consultation:only questions relevant to asset managersonly questions relevant to distributorsonly questions relevant to investors

including those relevant to fund managers, distributors, investors and all questionsother respondents

Important notice on the publication of responses

*Contributions received are intended for publication on the Commission’s website. Do you agree to your contribution being published?( )see specific privacy statement

Yes, I agree to my response being published under the name I indicate (name of your organisation)/company/public authority or your name if your reply as an individual

No, I do not want my response to be published

*

*

*


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More questions about you

The following questions are addressed in particular to asset managers and where appropriate, distributors

(professional associations are invited in addition to consolidate information on behalf of their Members).

Question 1.1 - What types of funds do you market and to which types of investors do you market directly?

UCITS / type of investors

Yes No

Retail investors(who are neither high net worth individuals nor professional investors)

High net worth individuals

Asset Management Company

Insurances

Banks

Pension funds

Other professional investors

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AIFs / type of investors(excluding EuVECA, EuSEF and ELTIF)

Yes No

Retail investors



Insurances

Banks

Pension funds


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EuVECA / type of investors

Yes No

High Net worth individuals


Insurances

Banks

Pension funds


EuSEF / type of investors

Yes No

High Net worth individuals


Insurances

Banks

Pension funds


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ELTIF / type of investors

Yes No

Retail investors



Insurances

Banks

Pension funds


Question 1.1.a - If you have a general policy of differentiating between high net worth individuals and other retail investors then please also provide information on this:

We have no such general policy.

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Question 1.1.b – Which channels do you use to distribute funds cross-border? Does your cross-border distribution policy differ depending on the type of investor you wish to address and the Member State?

Yes No

Direct marketing

Online marketing (website, online platform,etc.)

National distributors network: Insurance

National distributors network: Bank

National distributors network: Financial advisors

National distributors network: Others

Please specify which other channels you use to distribute funds cross-border:

Where wide distribution of a product is desirable it will be registered with

the local authorities in the target jurisdictions, in accordance with the

requirements of the UCITS Directives or the AIFMD as required. In limited

circumstances we may rely on national private placement regimes (where

available) as part of the sales process.

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Question 1.1c – Please expand upon your response to question 1.1, 1.1a and 1.1b:

The determination of target market must be made on a fund by fund basis both

by BlackRock as product manufacturer and by its distribution partners.

BlackRock’s product governance process aims to ensure that our products are

designed for and sold to appropriate target investor categories. In broad

terms, the first categorisation of client types considered will be retail

versus professional clients. Within those two broad categories there are a

number of broad sub-categories which are considered as part of assessing both

suitability of and demand for a particular product.

Examples of the sub-categories would be as follows:

• Retail: general public, charities, high net worth individuals and

family offices, some local government/public authorities

• Professional: pension funds, insurance companies, other financial

institutions such as asset managers and other entities that have ‘opted-up’

to professional status under MiFID

The sub categories of these investor types will have each have different

levels of sophistication, risk attitudes and investment objectives and

requirements. As part of implementing MiFID II we are currently working with

trade associations such as EFAMA and the Investment Association to design a

standard industry template to meet the target market requirements of the

MiFID 2 product governance rules for product manufacturers. This work will

be finalised following the results of ESMA’s forthcoming consultation on

target market requirements for product manufacturers and distributor. These

are expected to reflect the varying experience, needs, time horizons and loss-

bearing ability of potential clients. At this stage given that high net

worth individuals have different need and objectives at this stage we

consider it unlikely that we would define a high net worth individuals as a

specific stand-alone target market without taking into account a number of

other criteria. This approach is reflected into the arrangements we enter

into with distribution partners who typically target a variety of clients

including both high net worth individual and other retail investors. Among

distribution partners there is often a great disparity in high clients are

segment by assets both within the same jurisdiction and across jurisdictions

Question 1.2 – Please provide your definition of high net worth retail individuals. Does this definition vary from one national market to another one?

As noted in Question 1.1 we do not have a house definition a high net worth

retail individual. Segmentation of clients by assets varies from distributor

to distributor and from country to country.

Question 1.3 – What is the sum of Assets under Management of these funds?

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UCITS / type of investors

AuM in €

Pure retail investors


Asset management company

Insurances

Banks

Pension funds


AIFs / type of investors(excluding EuVECA, EuSEF and ELTIF)

AuM in €




Insurances

Banks

Pension funds


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EuVECA / type of investors

AuM in €



Insurances

Banks

Pension funds


EuSEF / type of investors

AuM in €



Insurances

Banks

Pension funds


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ELTIF / type of investors

AuM in €




Insurances

Banks

Pension funds


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Question 1.4 – Where are your funds mainly domiciled?(In % of the number of your UCITS and AIFs)

% UCITS % AIF

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany 9

Greece

Hungary

Iceland 15

Ireland 42 15

Italy

Latvia

Liechtenstein 16

Lithuania

Luxembourg 16

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain 9 8

Sweden

Switzerland

The Netherlands

United Kingdom 9 8

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Question 1.5 – Do you use the UCITS passport in order to market your UCITS funds in other EU Member States?

Yes

No

Don’t know / no opinion / not relevant

Question 1.5a – If you do not use the UCITS passport, please explain why this is:

BlackRock uses the UCITS passport to market its funds domiciled in Ireland,

Luxembourg and Germany into other member states.

It does not use the UCITS passport to market its UK UCITS on a cross border

basis.

Question 1.6 – Do you use the AIFMD passport in order to market your EU AIFs in other EU Member States?

Yes

No


Question 1.6a – If you do not use the AIFMD passport, please explain why this is:

BlackRock does not use the AIFMD passport to market its UK AIFs as these are

designed around the specific needs of UK retail and professional clients.

These AIFs adopt a variety of forms including dual priced unit trusts

constituted as Non UCITS Retail Schemes or closed-ended investment trusts

aimed at retail clients and therefore ineligible for the AIFMD passport or

institutional funds designed to be limited specific types of UK

institutional clients with a specific tax status such as charities or pension

funds.

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Question 1.7 – Do you use a marketing passport for all your UCITS, AIF, ELTIF, EuVECA and EuSEF?

Yes No

UCITS

AIF

ELTIF

EuVECA

EuSEF

Question 1.7a - What percentage of your funds have you received permission to be marketed in

(a) at least one other Member State

and (b) at least two other Member States

with the passport? What value of Assets under Management do these represent?

% of your funds Value of assets it represents

In at least other oneMember State

76 437611

In at least other twoMember States

65 424650

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Question 1.8 - In how many Member States, if any, do you market your funds (including sub-funds) on a cross border basis?

19 member States

Question 1.8a – Please provide an aggregate figures or an estimate:

19 jurisdictions for UCITS and 16 jurisdictions for AIFs

Question 1.9 - In which Member States do you actively market your UCITS and AIFs?

UCITS AIF

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

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Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

Question 1.9a – Please provide the UCITS allocation between Member States. If this is not straightforward to obtain, please provide an estimate.

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Number of UCITS funds / sub-funds

Asset under Management

Austria 1786

Belgium 4705

Bulgaria

Croatia

Cyprus

Czech RepublicSee below aggregated with Slovakia and Greece

DenmarkSee below aggregated with Sweden and Finland

Estonia

FinlandSee below aggregated with Denmark and Sweden

France 5847

Germany 55894 million

Greece

Hungary 103

Iceland Home state

Ireland 29204 million

Italy

Latvia

Liechtenstein 3937

Lithuania 145

Luxembourg 424

Malta 755

Norway

PolandAggregated with Czech and Greece

Portugal

Romania 11377

Slovakia See below

Slovenia 12579

Spain $316704 million

Sweden

Switzerland

The Netherlands

United Kingdom

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Question 1.9aa – Please provide any further details (e.g. assumptions your estimate is based upon) to your answer to question 1.9a:

Figures in Dollars

Nordic region (Denmark, Sweden and Finland) are aggregated and represent 9041

Other EU represent 12 ( Czech, Greece and Slovakia)

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Question 1.9b - Please provide the EU AIF allocation between Member States. If this is not straightforward to obtain, please provide an estimate.

Number ofAIFM funds / sub-funds


Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France 162

Germany 169

Greece

Hungary

Iceland

Ireland 50

Italy

Latvia

Liechtenstein 120

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania 29

Slovakia

Slovenia 163

Spain 48136

Sweden

Switzerland

The Netherlands

United Kingdom

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Question 1.9bb – Please provide any further details (e.g. assumptions your estimate is based upon) to your answer to question 1.9b:

Denmark, Finland and Sweden represent 1172

Other European Union represent 402

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Question 1.9c - Please provide the ELTIF allocation between Member States. If this is not straightforward to obtain, please provide an estimate.

Number ofELTIF funds / sub-funds


Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

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Question 1.9cc – Please provide any further details (e.g. assumptions your estimate is based upon) to your answer to question 1.9c:

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Question 1.9d - Please provide the EuVECA allocation between Member States. If this is not straightforward to obtain, please provide an estimate.

Number ofEuVECA funds / sub-funds


Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

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Question 1.9dd - Please provide any further details (e.g. assumptions your estimate is based upon) to your answer to question 1.9d:

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Question 1.9e – Please provide the EuSEF allocation between Member States. If this is not straightforward to obtain, please provide an estimate.

Number ofEuSEF funds / sub-funds


Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

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Question 1.9ee - Please provide any further details (e.g. assumptions your estimate is based upon) to your answer to question 1.9e:

2. General overview

Questions addressed in particular to asset managers (professional associations are invited in addition to consolidate information on behalf of their Members) and where appropriate, distributors who

market or advise funds to investors.

Other respondents are welcome to respond to some or all of the questions below.

Question 2.1 – What are the reasons for any limitation on the cross-border distribution of your funds?

Regulatory costs and/or marketing

requirements costs are too

high

Lack of demand outside

your home market

Host Market size is

too small

Tax issues

Other

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

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Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

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If the openness of the distribution network to third parties is a reason for a limitation on the cross-border distribution of your funds, please rank it from 1 (being the less open market) to 5 (being the most open market):

1(less open)

2 3 45

(most open)

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

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Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

Question 2.1a – Please expand upon and provide more detail on your response to questions 2.1 and 2.1a - please explain what the issues are and how they limit the cross-border distribution of funds? Please cite the relevant provisions of the legislation concerned if possible:

Question 2.2 – In your experience, which of the following issues are the major regulatory and tax barriers to the cross-border distribution of funds in the EU?For the issues you consider to be major barriers, please rank them in order of importance (1 - most important; 6 -

.relatively less important)

1(most

important)

2 3 4 56

(relatively less

important)

Not an

issue

Different definitions across the EU of what marketing is

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Marketing requirements imposed by host Member States

Regulatory fees imposed by host Member States

Administrative arrangements (see

section 6 for further

details on administrative

imposed arrangements)

by host Member States

Lack of efficiency of notification process

Difficult/cumbersome refund procedures for claiming relief from withholding taxes on distributions by the UCITS, AIFs, ELTIF, EuVECA or EuSEF

Higher taxation of investment funds located elsewhere in the EU/EEA than of domestic funds

Differences between the tax treatment of domestic and foreign fund managers as regards withholding tax/income reporting responsibilities and opportunities on income distributed by UCITS, AIF, ELTIF, EuVECA or EuSEF

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Differences between Member States in tax reporting

Other

3. Marketing requirements

Where EU funds are marketed to investors, they are usually required to comply with national requirements set by host Member States. These marketing requirements, especially those relating to the content of communications*, differ across the EU. For example, some Member States require ex-ante approval of the marketing communications whether other Member States monitor the communications ex-post, and some Member States adopt a principles-based approach whereas others apply detailed rules.

Respondents to the CMU consultation viewed that these varying national requirements as a significant barrier to marketing funds cross-border, with significant costs incurred in researching each EU Member State’s financial promotion and consumer protection regime, and providing appropriate materials on an on-going basis.

In the case of UCITS, the current disclosure regime has been established over a number of years, based on home Member State control with a maximum harmonisation regime (except for language translation) applying to the key investor information. However, anecdotal evidence suggests that at least some Member States require additional disclosures or review material before a UCITS may be marketed. While any consideration of this issue should give due attention to the concerns which have led regulators to require additional disclosures and to review marketing material, it may be better that any concerns, where justified, are addressed at the EU level, in order to eliminate barriers to the further development of the single market in this area.

* Marketing communications comprise an invitation to purchase investment funds that contains specific information about the funds. In other word, this includes all the marketing materials that are used in order to promote or advertise a specific investment funds. For the purpose of these questions, the prospectus and the Key Information Documents are not considered as marketing communications.

The following questions are addressed to all respondents.

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Question 3.1a – Are you aware of member state interpretations of marketing that you consider to go unreasonably beyond of what should be considered as marketing under the UCITS Directive*?

* Article 91 to 96 of the of the European Parliament and of the Council of 13 July 2009Directive 2009/65/EC

Yes

No


Question 3.1aa – Please explain your answer to question 3.1a:

The issues BlackRock's distribution teams have with marketing rules is not

primarily with specific investor protection requirements in member states.

Rather the issues arise out of a lack of standardised approach to marketing

requirements for different audiences ( e.g. retail as opposed to

professionals) between member states and different approaches to pre-approval

and the content and language of marketing documentation. In particular the

gold plating requirements for pre-approval of marketing documents which do

not allow certainty as to use of documentation. This means that it is

generally not possible to reuse marketing documentation in one jurisdiction

in another jurisdiction. In a handful of jurisdictions the process for pre

approval of marketing documentation and websites is significantly more time-

coming than in others.

In many jurisdictions there are regular changes in definitions of marketing

requirements which makes it necessary to use external counsel to ensure we

remain fully up to date with the actual status of local requirements. The

estimated initial cost varied from €5,000 and €13,000 per jurisdiction - in

particular where changes to local marketing requirements are not published

in English on the regulator's website.

Question 3.1b – Are you aware of member state interpretations of marketing that you consider to go unreasonably beyond the definition of marketing in AIFMD?

Yes

No



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Question 3.1bb – Please explain your answer to question 3.1b:

The most challenging issue are different treatments of seed marketing prior

to launch in order to raise capital and on-going marketing post launch.

Unlike UCITS which are offered on a continuous basis many AIFs which are

closed-ended or which only offer periodic opportunities to invest may need

significant prelaunch commitments from investors (such as private equity) and

hence need to conduct pre launch marketing to be viable. The regulations

permitting this vary from jurisdiction to jurisdiction - some jurisdictions

permit inclusion of draft terms in communications to potential investors

while others only allow managers to talk about generic strategies . This is

a particular issue for private equity and real estate AIFs reflecting the

illiquid nature of the underlyings. A recent example of helpful guidance on

pre-marketing has come from the AMF which has recently clarified a regime for

effective pre-marketing of funds:

http://www.amf-france.org/en_US/Actualites/Communiques-de-presse/AMF/annee-

2016.html?docId=workspace%3A%2F%2FSpacesStore%2F9456b35b-c749-4ed2-8a0e-

8f6bc8a67815

Question 3.1c – Are you aware of any of the practices described above having had a material impact upon the cross-border distribution of investment funds?

Yes

No


Question 3.1cc – Please explain your answer to question 3.1c:

The lack of access to an effective pre-marketing regime for AIFs can lead to

a failure to reach a critical mass on launch. Even where the product is able

to raise sufficient capital from investors on launch, many AIFs which are

closed-ended are closed to new investors. In jurisdictions without a pre-

marketing regime this disadvantages investors who cannot access AIF on

launch terms (such as initial founder fees) and who have to wait for further

offerings or secondary market deals before being able to invest.

38


market or advise funds to investors and National Competent Authorities


Question 3.2 – Which of the following, if any, is a particular burden which impedes the use of the marketing passport?

Yes No

Different interpretations across Member States of what constitutes marketing?

Different methods across Member States for complying with marketing requirements (e.g. different procedures)?

Different interpretations across Member States of what constitutes a retail or professional investors?

Additional requirements on marketing communications imposed by host Member States?

Translation requirements imposed by host Member States?

Other domestic requirements

39

Please specify what other domestic requirements are a particular burden which impedes the use of the marketing passport:

The requirements for key risk indicators in the Netherlands limits the use of

generic documentation

Requirements for specific disclaimers vary by jurisdiction - e.g name off

paying agent or license number - there are specific requirements in both

Spain and Germany which differ from usual requirements and require the

preparation of bespoke documentation.

Question 3.2a – Please explain your answer to question 3.2:

We note the lack of an effective pre-marketing regime.

A number of jurisdictions such as Netherlands, France, Belgium and the UK

have a higher benchmark for marketing to retail clients than for professional

clients.

In Belgium the marketing regime for professional investors has 2 tiers: one

for discretionary managers and one for advisors. In the latter case the

assumption is made that documentation for advisors has to be retail compliant

and any documentation which mentions a product will need pre-approval by

FSMA. This includes the prior approval of websites. When launching a new

fund range is experience is that the process can take up to several months

until the regulator is satisfied that all documentation meets local

requirements. Although there are indicative timings for reviewing documents

our experience is that these are often extended which means there is no

defined timetable for the discussions which has knock on effects with local

distributors.

A number of jurisdictions such as the Czech and Slovak Republics require

translation of fact sheets even when aimed at local distributors /

institutional clients and use of a local language website - internal language

expertise and external counsel.

At the other extreme a number of the Nordics countries allow the use of

English documentation which minimises translation costs.

Question 3.3 – Have you seen any examples of Member States applying stricter marketing requirements for funds marketed cross-border into their domestic market than funds marketed by managers based in that Member State?

Yes

No


40

Question 3.3a – Please explain your answer to question 3.3:

Our experience in France, is that there appears to be a lack of consistency

as to the type of marketing literature which needs pre approval and which

products are deemed to be complex leading to different approached for each

product. The implementation of MiFID target market could offer a way to

provide a more consistent and targeted approach to this process in the near

term.

Question 3.4 – Are domestic rules in each Member State on marketing requirements (including marketing communications) easily available and understandable?

Yes

No


Question 3.4a – If your answer to question 3.4 is no, please specify in which Member State(s) the rules are not easily available and understandable:

Austria Belgium Bulgaria Croatia

Cyprus Czech Republic Denmark Estonia

Finland France Germany Greece

Hungary Iceland Ireland Italy

Latvia Liechtenstein Lithuania Luxembourg

Malta Norway Poland Portugal

Romania Slovakia Slovenia Spain

Sweden Switzerland The Netherlands United Kingdom

41

Question 3.4ab – If your answer to question 3.4 is no, please provide details and explain why the rules are not easily available and understandable in this/these Member State(s):

A common feature in this areas are delays in publication of marketing rules

and delays in translating the rules. As managers we place more confidence in

a translation from the national regulator rather than unofficial

translations from consultants.

Both Belgium and France require pre-approval of marketing literature and so

access to comprehensive translated versions of the marketing literature is

critical.

For example Belgium generally publishes marketing rules in Flemish and

French. We have had experience that recent publication of a translation of

the Royal Decree relating to marketing was delayed increasing uncertainty as

to how to comply with rules by non-native speakers.

In Germany, the publication is in German and English but the English

translated version is not always the most recent version. This is also our

experience in France. The Czech regulations are only available in Czech.

In the jurisdictions in which we are active we have no examples of failure to

publish marketing rules at all.

Question 3.5 – When you actively market your funds on a cross–border basis to retail do you use marketing investors/High Net worth retail individuals/Professional investors

communications (Leaflet, flyers, newspaper or online advertisement, etc.)?

Yes No

Retail investors


Professional investors

42

Question 3.5a – Please provide the percentage of your funds marketed on a cross–border basis using marketing communications in the host country:

% of your funds marketed on a cross–border basis using marketing communications in the host country

Retail Investors Approximately 20%

High net worth retail individuals

Professional investors Approximately 80%

43

Question 3.5b – To what extent are marketing communications important in marketing your funds to ? Please retail investors, high net worth individuals and professional investorsexplain your answer:

BlackRock primarily works with a range of intermediaries. These

intermediaries often rely on product manufactures to put together marketing

literature designed for end investors.Black Rock also produces a more limited

range direct marketing to end investors depending on jurisdiction e.g UK,

Netherlands and Germany. The use of direct marketing depends on brand and

market penetration and is often linked to open architecture.

The changing market environment is important - for example some countries

which have RDR regimes have seen growth in execution only sales whereas

countries such as Italy remain largely intermediated.

Question 3.6 – What types of marketing communication do you use for retail investors?

Yes No

Leaflet / flyer

Short booklet

Newspaper advertisement

TV advertisement

Radio advertisement

On line advertisement

Other

Please specify what other type(s) of marketing communication you use for retail investors:

Social media - this depends on the jurisdiction and its readiness to accept

use of social media and the availability of clear guidelines on the use of

social media.

44


Question 3.15 – Do you consider that rules on marketing communications* should be more closely aligned in the EU?

* Marketing communications comprise an invitation to purchase investment funds that contains specific information about the funds. In other word, this includes all the marketing materials that are used in order to promote or advertise a specific investment funds. For the purpose of these questions, the prospectus and the Key Information Documents are not considered as marketing communications

Yes

No


45

Question 3.15a – Please explain your answer to question 3.15 – and if appropriate, to what extent do you think they should be harmonised:

The rules on marketing communications are not consistent in many

jurisdictions. This means that it is frequently not possible to produce a

set of standard marketing document with key information on funds which adds

to the cost of production. Investors and their advisors frequently require

information on criteria such as the most recent historic performance and

ongoing yield and return. Where these are permitted to be disclosed the

standards used vary by country (for example Germany and UK have different

performance requirements)

A particular concern is the failure to update guidance on the use of

marketing technology and development of social media on a pan-European

level. While there are some national initiatives there is no guidance on how

social media can be used if at all on a cross-border basis which translates

into a barrier on how to use social media. Initiatives for a common

framework such as those from the Social Media foundation could provide a

useful benchmark as to how to design a common framework. Cross border

distributors need ongoing support and guidance as new technology comes on

line - for example use of regulatory sandpit concept to new marketing

initiatives could be helpful in designing future policy. More generally the

ability to have a increased dialogue with European supervisory authorities on

evolving markets initiatives would be helpful. Publishing examples of good

and bad practice and feedback on peer reviews and individual thematic

reviews provides useful context to firms wishing to improve the overall

quality of marketing literature.

We believe that agreement at ESMA on common standards for the disclosure of

information falling outside the KID/KIID would be beneficial. We note that

there are significant differences between the UCITS KIID and the PRIIPs KID

relating to key issues such as performance. For example supplementing the

PRIIPs KID with UCITS- style past performance data would fall within the

definition of marketing in many member states leading to uncertainty as to

whether the UCITS methodology will be permitted for the marketing

documentation of a PRIIPs.

Question 3.16 – Is there a case for harmonising marketing communications for other types of investment products (other than investment funds)?

Yes

No


46

Question 3.16a – Please explain your answer to question 3.16 and what should the other products be:

In principle we agree for products such as exchange traded products (other

than UCITS ETFs which should be covered by rules on UCITS) structured notes

and other instruments marketed to retail investors but we believe the initial

focus by ESMA should be on harmonising disclosures for investment funds.

Question 3.17 – What role do you consider that ESMA – vis-a-vis national competent authorities – should play in relation to the supervision and the monitoring of marketing communications and in the harmonisation of marketing requirements? If you consider both should have responsibilities, please set out what these should be.

We recommend that ESMA set out standard comprehensive requirements for a

range of commonly used marketing literature and common terms and definitions

such as different definition of professional investor and complex product

where in practice we see divergences from the basic MiFID definitions. NCAs

should then specifically confirm whether they impose any additional

requirements on their website and, if so, set out exactly what these

additional requirements are.

We are aware that a number of national competent authorities strongly support

the need to retain pre-approval of marketing literature. We believe that

this need can be minimised and phased out over time with the development of a

number of key measures:

- the development by ESMA of a comprehensive set of detailed cross-border

marketing Guidelines

- these Guidelines should include a comprehensive set of definitions of

commonly used terms and approved visual presentations / narrative descriptions

- ESMA should put in place a mechanism to update rules and guidance to

reflect new marketing technologies

- ESMA Guidelines should distinguish between marketing communications for

professional investors/ eligible counterparties and retail investors. The

Guidelines should also take into account any restrictions on the intended

target market of the product as defined under MiFID

- ESMA guidance should include examples of good and bad practice to encourage

substantive compliance

- the ability of member states to pre-approve marketing literature produced

outside their jurisdiction which is designed to be compliant with ESMA

Guidelines should be strictly time-limited. The use of standard compliance

templates (as is the case for fund authorisations in many jurisdictions)

showing where/how documentation complies with the ESMA templates can

facilitate this process.

-where marketing literature contains more bespoke requirements by exception a

longer time delay from national competent authorities could be put in place.

This should not exceed the standard time frame for approving a retail product

by the home state

47

Question 3.18 – Do you consider that detailed requirements – or only general principles on marketing communications* should be imposed at the EU level when funds are marketed to retail investors?

* Marketing communications comprise an invitation to purchase investment funds that contains specific information about the funds. In other word, this includes all the marketing materials that are used in order to promote or advertise a specific investment funds. For the purpose of these questions, the prospectus and the Key Information Documents are not considered as marketing communications

Yes No

General principles

General principles and detailed rules

Detailed rules

Question 3.18a – Please explain your answers to question 3.18:

We believe that general principles by themselves will not be sufficient to

reduce the difference in approach between NCAs and that ESMA will need to

supplement general principles with more detailed guidelines especially in

relation to standard marketing material. We appreciate it will be

challenging for ESMA to cover all types of marketing literature in one go and

it is likely that ESMA will need to prioritise its work. It would

nevertheless be a major step forward to have a set of standards covering the

most common types of marketing communications so that managers have the

choice of providing ESMA-compliant marketing across all EU member states.

Question 3.19 – Do you consider that the requirements on marketing communications should depend on the type of funds or the specific characteristics of some funds (such as structured funds or high leverage funds) when those funds are marketed to retail investors?

Yes

No


48

Question 3.19a – Please describe the specific requirements:

We recommend that the focus on specific requirements is also linked to the

MiFID target market analysis. It is likely that managers may decide that

some funds are not designed for retail clients or execution distribution

channels. In that case the requirements on marketing literature should

reflect this decision. We believe it is important to differentiate between

marketing conducted on a direct as opposed to an intermediated basis

Question 3.19b – Please describe the types of products which should have additional requirements on their marketing and their specific characteristics:

As well as the MiFID target market analysis a further way of identifying

products which require further requirements is that of complex/non-complex

product identification requirements under MiFID.

While it is not always possible to provide a comprehensive overview we would

recommend the use of good and bad practice reports by regulators.

The broader use of KIID risk indicators (as permitted in the Netherlands)

could be useful.

Question 3.20 – Do you consider that detailed requirements – or only general principles on marketing materials, at the EU level – should be imposed when funds are marketed to professional investors only?

Yes No

General principles

General principles and detailed rules

Detailed rules

49

Question 3.20a – Please explain your answers to question 3.20:

A number of distributors who are classed as professionals will use material

in discussions with their end retail clients.

4. Costs

Respondents to the CMU and CfE noted the relatively high cost of distributing funds – in terms of work to comply with regulation, fees charged by regulators and distribution costs. This section asks about the overall costs to asset managers wishing to market cross–border, and section 5 asks about fees charged by the regulatory authorities specifically.


market or advise funds to investors.


Question 4.1 – What proportion of your overall fund costs relate to regulation and distribution depending on the Member State where the fund is marketing regardless where it is domiciled? If this is not straightforward to obtain, please provide an estimate. Alternatively, please provide man hours spent on each.

50

REGULATORY COSTS (in % of your overall costs or in man hours)

Legal costs: Third party (Law firms, consultants agency,

etc.)

Legal costs: Internal legal analysis

Regulatory fees Administrative arrangements Marketing requirements Others

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

51

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

52

DISTRIBUTION COSTS (in % of your overall costs or in man hours)

Traditional Network distribution Online Network distribution

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

53

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

54

OTHERS COSTS - linked to taxation system

Costs in order to get the information

Costs to fulfil the obligation

Austria

Belgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Italy

Latvia

Liechtenstein

Lithuania

Luxembourg

Malta

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

Switzerland

The Netherlands

United Kingdom

5. Regulatory fees

55

As noted in section 4, the range of regulatory fees charged by host Member States have been referred to by a number of respondents to the public consultations as hindering the development of the cross-border marketing of funds across the EU. A formal notification process applies in respect of the passporting of all EU investment funds. In many cases national competent authorities apply a fee to the processing of such notifications. A preliminary assessment by the Commission services shows that the level of fees levied by host Member State on asset managers varies considerably, both in absolute amount and how they are calculated, including some Member States who may not apply fees.

Notification procedures contained in the various fund legislation do not currently include any reference to regulatory fees. In some cases, such as EUVECA and EUSEF, all supervisory powers are reserved to the home competent authority and host authorities expressly prohibited from imposing any requirements or administrative procedures in relation to marketing. The Commission services are interested in views as to whether notification fees are compatible with an efficient notification procedure, the passporting rights provided for in legislation and, if fees were to be allowed, how to ensure that they are proportionate and not excessive.

Questions addressed in particular to asset managers (professional associations are invited in addition to consolidate information on

behalf of their Members)

Other respondents are welcome to respond to some or all of the questions.

Question 5.1 – Does the existence and level of regulatory fees imposed by host Member States materially affect your distribution strategy?

Yes

No


Question 5.2 – In your experience, do any Member States charge higher regulatory fees to the funds domiciled in other EU Members States marketed in their Member State compare to domestic funds?

Yes

No


56

Question 5.2a – Please explain your answers to question 5.2 and provide evidence:

Question 5.3 – Across the EU, do the relative levels of fee charged reflect the potential returns from marketing in each host Member State?

Yes

No


Question 5.3a – Please explain your answers to question 5.3 and provide examples:

The levels of fee are not correlated to potential returns or size of the

market

Question 5.4 – How much would it cost you, in term of regulatory fees [one-off fees and ongoing], to market a typical UCITS with 5 sub–funds to retail investors in each of the following Member States (this excludes any commission paid to distributors)?Please respond for each Member State where you market your UCITS funds.

One off fees (in €) On–going fees (in €)

Austria

EUR 1,100 for a single fund, EUR 1,100 for an umbrella fund plus EUR 220 starting with the second sub-fund for each additional sub-fund. (€1100)

EUR 600 for a single fund; EUR 600 for an umbrella fund plus EUR 200 starting with the second sub-fund for each sub-fund (€2000)

Belgium EUR 300 per sub-fund (€1500)Annual fee of EUR 2,055 per sub-fund per year. (€10,275)

Bulgaria

Croatia

Cyprus

Czech Republic No fee was payable (€0) No fees payable (€0)

57

Denmark

A fee of DKK 5,445 must be paid to the Local Regulator for each announcement, notification and application regarding marketing of shares of a fund or shares of additional sub-funds (DKK 27,225)

A yearly fee of DKK 17,424 per umbrella must be paid to the Local Regulator.(DKK17,424)

Estonia

FinlandA notification fee of €1,600 for the first UCITS plus €200 for each additional UCITS. (€1000)

No fees payable (€0)

France

A fee of EUR €2,000 per sub-fund must be paid to the Local Regulator for each announcement, notification and application regarding marketing of shares of a fund or shares of additional sub-funds. (€10,000)

A yearly fee of EUR 2,000 per sub-fund must be paid to the Local Regulator. (€10,000)

Germany

EUR 115 (in the case of umbrella funds, each investment compartment is subject to the duty to pay fees). (€575)

EUR 500 per fund (€2,500)

Greece

One-off application fee of EUR 1,024 per UCITS plus EUR 1,024 for each additional sub-fund within an umbrella UCITS. (€5,120)

EUR 1,024 per UCITS plus EUR 1,024 for each additional sub-fund within an umbrella UCITS. (€6,144)

Hungary No fee was payable (€0) No fees payable (€0)

Iceland

Ireland No fee was payable (€0)

All funds authorised by the CBI shall be liable to pay a minimum levy of €1,525. Umbrella funds will also pay a contribution per sub-fund of €235 up to ten sub-funds and a further levy of €145 on sub-funds numbers greater than ten, to a maximum of twenty sub-funds, resulting in a maximum contribution for umbrella funds of €5,325. (€1,760)

58

Italy No fee was payable (€0)

i) UCITS registered for offer to Qualified Investors (as defined in the Matrix) only – EUR 4,000 per year; (ii) UCITS registered for offer to non-Qualified Investors – (a) EUR 4,000 plus (b) for umbrella funds with more than two sub-funds, EUR 1,700 per year for each sub fund (in addition to the first two). (€5,100)

Latvia

Liechtenstein

Lithuania

Luxembourg

An initial fee of EUR 2,650 per fund to be marketed in Luxembourg is payable to the Local Regulator. For a fund comprised of various sub-funds (i.e. an umbrella fund), the initial fee is EUR 5,000. (€5000)

Annual fees of EUR 2,650 per fund to be marketed in Luxembourg are payable to the Local Regulator. For a fund comprised of various sub-funds (i.e. an umbrella fund), the annual fees are EUR 5,000. (€5000)

Malta

EUR 2,500 for each UCITS and EUR 450 for each of its sub-funds intended to be marketed. (€2,250)

EUR 3,000 for each registered UCITS and EUR 500 for each of the first 15 registered sub-funds (with no annual supervisory fee payable for any additional sub-funds). (€5,500)

Norway

Poland

EUR 4,000 for registering a single entity fund (without subfunds), EUR 4,500 for registering an umbrella (€4500)

No fees payable (€0)

Portugal No fees payable (€0)

A monthly fee of EUR 100 per umbrella fund is charged to the local distributor of a UCITS of which shares or units were issued or redeemed during a given calendar month. (€1200)

Romania

Slovakia No fee was payable(€0) No fees payable(€0)

Slovenia

SpainEUR 1,000 per umbrella UCITS (€0)

Annual fees of EUR 2,500 per umbrella UCITS (€2500)

Sweden No fee was payable(€0) No fees payable(€0)

Switzerland

The NetherlandsFee of EUR 1,500 per fund(€7,500)

No fees payable as far as we are aware(€0)

59

United Kingdom£600 or £1,200 for a new umbrella. (£1200 ) / £0 if adding 5 funds to an existing umbrella..

Periodic fees depending on structure and number of funds e.g. AUT with 3-6 sub-fund = £1138 fee (£1138)

Question 5.5 – How much would it cost you in terms of regulatory fees [one-off fees and ongoing], to market a typical AIF with 5 sub–funds to professional investors in each of the following Member States (this excludes any commission paid to distributors)?Please respond for each Member State where you market your AIFs.

Cost in €

Austria

Notification fee to be discharged prior to application of €1,100, for umbrella the initial fee increases by EUR 220 for each sub-fund. (€1980) plus annual fee of Annual ongoing fee of €1,400

Belgium No fee was payable(€0)

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark No fee was payable(€0)

Estonia

Finland Notification fee of €1600 per AIF (€8000)

France

Application fee to be discharged prior to application of €2000 and annual fee of €2,000 plus €2,000 for each additional sub-fund within an umbrella AIF (€10k initial, €10k ongoing)

GermanyNotification fee of €772 plus €772 for each additional sub-fund (€772 x 5 = €3860) Approx €4k ongoing

Greece

Hungary

Iceland

Ireland

No fee was payable(€0)……………………………………Ongoing = All funds authorised by the CBI shall be liable to pay a minimum levy of €1,525. Umbrella funds will also pay a contribution per sub-fund of €235 up to ten sub-funds and a further levy of €145 on sub-funds numbers greater than ten, to a maximum of twenty sub-funds, resulting in a maximum contribution for umbrella funds of €5,325. (€1,760)

60

ItalyNo notification fee, annual fee of €4,000 per umbrella

Latvia

Liechtenstein

Lithuania

Luxembourg€5,000 per umbrella notification fee and €5,000 per umbrella annual fee

Malta €4,300 notification fee and annual fee of €3,500.

Norway

Poland

Portugal

Romania

Slovakia

Slovenia

SpainNotification fee of €2,500 and an annual fee of €3,000

Sweden No initial or annual fee was payable(€0)

Switzerland

The Netherlands No initial or annual fee was payable(€0)

United Kingdom No initial or annual fee was payable(€0)

Questions addressed to National competent Authorities

Questions addressed in particular to:

asset managers (professional associations are invited in addition to consolidate information on behalf of their Members)

and National Competent Authorities.


61

Question 5.8 – Where ongoing fees are charged, are they related to use of the passport?

Yes

No


Question 5.9 – Do differing national levels of, and bases for, regulatory fees hinder the development of the cross–border distribution of funds?

Yes

No


Question 5.9a – Please explain your answer to question 5.7

The extent to which this effects developments depends on the market

opportunity of the relevant jurisdiction. This is a combination of the size

of the relevant market and its openness to cross-border players. Similar

sized markets may have different market penetration by cross border players.

In addition to the fees disclosed above BLK's registration and listing teams

pays approximately €60,000 per year maintaining a data base of current

regulatory requirements.

The filing process itself is also expensive - for example in Italy it costs

in the region of €70,000per year to external providers for registration and

depository activity due to the significant amount of manual work needed for

the upload of the legal documentation into CONSOB website.

The ability to upload documentation to a single central European repository

would represent a significant reduction of costs.

Question 5.10 – On who are regulatory fees are charged: managers or funds? Please describe if there are different practices across the EU:

There are a number of different billing processes across the EU but

typically regulatory fees are charged to the fund but the difference in

billing procedures may mean fees may need to be paid by the manager.

6. Administrative arrangements

62

Where EU funds using the marketing passport are sold to retail investors, host Member States sometimes introduce special administrative arrangements intended to make it easier for investors to subscribe, redeem and receive related payments from those funds, as well as receive tailored information to support them in doing so. Examples cited in earlier evidence include a requirement for UCITS funds to appoint a paying agent located in the host Member State, and a requirement for information contacts to be located in the host state. These have advantages for investors in allowing them to deal with local organisations, but a number of respondents to the CMU green paper viewed these requirements as an additional burden which is not always justified by the value added for local investors, especially when taking into account the development of new technologies. Moreover, UCITS and any funds marketing to retail investors are required in any case to have arrangements in place which allow investors to be confident that they know how to go about subscribing and redeeming to the fund. However the infrastructure through which payments are made and received and through which information is provided may generally no longer require a physical presence in a host Member State. Clarification that infrastructure can be provided through technical means as well as by local agents may be one way to address this issue. Views are sought on whether this would be likely to reduce costs and support the further integration of the single market.

In order to better assess this potential issue, and other administrative arrangements, it would be very helpful to have tangible evidence from stakeholders. The perspective of retail investors is also particularly welcomed in order to address and consider investor protection issues.


behalf of their Members)


Question 6.1 – What are the main barriers to cross-border marketing in relation to administrative arrangements and obligations in Member States? Please provide tangible examples of where you consider these to be excessive:

Administrative arrangements fall into four broad classes by impact:

1. Requirement to both appoint and use a third party local paying and

facilities agent/CSD - Both initial set up and ongoing costs are high and

prevent economies of scale by manager e.g France

2. Market practice to appoint and use a local paying agent- while initial

set- up costs can be high, there may be ongoing benefits e.g. as a result of

sub-transfer agency role e.g. Italy

3 Requirement to appoint but not to use a local paying agent - Initial costs

incurred from selecting and negotiating and agreement but on-going costs

63

minimal as service rarely , if ever, used - e.g. UK

4.Requirements to offer facilities but where the obligations can be fulfilled

by an affiliate of the manager. Low initial and on-going costs - e.g.

Netherlands

There are two markets where the majority of our costs are incurred: France

and Italy.

In France local administrative requirements require the appointment of an

agent centralisateur, acting as transfer agent to the local CSD, Euroclear

France. This model has been adapted from the model used for the

distribution of domestic French funds, typically within an integrated

distribution model. Relative to the facilities agent part of the agent

centralisateur’s services, these could equally well be provided by any

authorised entity (as proposed by ESMA in ELTIF).

The Euroclear France system has a specific local market practice of allowing

the Euroclear France custodians to transfer positions free of payment without

informing the foreign fund's transfer agent / local centralising agent or the

asset manager.

The risk impacts of these secondary market transfers for the Asset Manager

are the following:

- Asset Managers’ books and records do not correctly reflect the

actual clients’ positions

- The retrocession commissions are incorrectly calculated for

clients

- Manual adjustments are required to correct retrocessions and

client positions

- Rejected redemptions on client accounts in Euroclear France

As well as registration fees with the AMF there are also additional fees for

share classes to be listed in Euroclear France.

In other jurisdictions the payment and calculation of retrocessions is

carried out using a centralised process at the fund’s transfer agent.

Overall, the use of a local bank to direct payments to a local CSD which then

transmits orders to the transfer agent of the fund represents an

unnecessarily complex process.

Such agreements with the agent centralisateur may take four to six months to

negotiate, requiring significant legal input and between twenty to forty

hours of operational oversight.

Italy

In Italy traditionally there has been a requirement to appoint a banca

corrispondente exercising the role of an intermediary between distributors,

the management company and depositary institution. The local paying agent

fulfils a number of roles :

- acting as withholding tax agent versus the final client - this facilitates

the payment of appropriate tax to the local tax authorities

-acting as payment agent managing payments from and towards the depositary

bank and managing payments towards the final client

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- In addition the paying agent provides services to distributors in the

context of third-party fund

distribution including

- Order capture, management, routing and execution

- Trade management

- Transfer management

- Corporate actions

- Official communications and reporting to final client

(shareholders letters)

- Maintenance of shareholders’ book (nominee/ omnibus

account)

- Cash and stock reconciliation

-Retrocession and fee management

UCITS IV directive (introduced by art 19-quarter of Consob Regulation on

Issuers) changed the role of the "local" paying agent, as it provides that:

- the paying agent can be based outside of Italy in another EU Member State,

and

- each individual distributor can perform the local paying agent activities

becoming the sole interface between Italian retail investors and the foreign

UCITS.

In practice Italian distributors have not developed the structure needed to

insource the local

paying agent activities which are still handled by correspondent banks.

In addition In Italy the distribution of funds to retail clients requires

preparation of an Italian subscription form which contains detailed

information regarding:

- Activities performed by the local paying agent

- Timing of subscriptions/ redemptions/ switches

- Information included in the confirmation letter

- Costs applied by distributors and the LPA for the distribution of funds in

Italy

- Tax regime applied in Italy to capital gains from investments

There is also a need to deliver the Italian subscription form to all the

distributors across Italy with potential

increase in costs for the fund houses and potential delays in the funds’

launch date.

Question 6.2 – Do you consider requirements imposed by host Member States, in relation to administrative arrangements, to be stricter for foreign EU funds than for domestic funds?

Yes

No


65

% of your overall costs

Question 6.2a – Please explain your answer to question 6.2

This is a reflection of the provisions of the UCITS directive which doesn't

impose facilities agent requirements on purely domestic funds.

Question 6.3 – What would be the estimated savings (in term of percentage of your overall costs) if you were no longer required to apply these administrative arrangements in the Member States where you market your units?

between 0 and 100

Question 6.4 – In the absence of the administrative arrangements described in your response to Question 6.1, what arrangements would be necessary to support and protect retail investors?

We recommend updating requirements designed to support retail investors in a

more flexible manner as follows

1. The entity providing the facilities should belong to certain specific

categories only such as a bank.

In some cases, an affiliate of the management company may fulfil some of the

duties The investor does not usually understand the role that a local

paying agent plays especially if the investor has no link to the relevant

bank or to the manager.

The investor will seek information on the fund, such as prices or reported

amounts on the Internet, from the management company or from their

distributor or execution platform. Our experience is that investors do not

seek additional information from local banks acting as paying agent unless

they also fulfil the role of a local distributor.

2.Facilities should include the possibility to directly subscribe to the

units or shares of the fund and to make repurchase and redemption

requests.

This is only required in a minority of cases where sales occur away from the

investor’s local distributor or execution only platform.

As European legislation has been amended to facilitate cross-border payments

only two key elements are needed in the case of the direct sale:

- the account details of the UCITS’ transfer agent – this is generally set

out in the prospectus and / or application form

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- Account details for making redemption or dividend payments. These should

be specified in the UCITS account opening form and the subscriber’s identity

verified upon account opening to ensure payments can be made without delay.

3. The entity should act as a contact point for investors and facilitate the

handling of any issues that retail investors have relating to the

fund.

Investors usually contact their local distributor or execution platform to

resolve issues they may have. Fund managers typically include clauses in

their distribution agreements requiring intermediaries to ensure that

investor queries are properly and promptly handled.

Investors do not however contact a bank, such as a paying agent, which is not

directly linked to the distribution process

4. Facilities should ensure payments to retail investors, including in

relation to any distribution of proceeds and capital.

In some cases, local regulators allow payments directly to the fund’s

principal transfer agent All European investors now possess an IBAN

which facilities effective low costs cross-border payments the need for a

local correspondent bank to facilitate cross payments to the fund’s transfer

agent or registrar is largely redundant.

Reducing the number of stages between the end investor’s account and the

transfer agent should lead to a corresponding decrease in the costs of

transacting.

In some jurisdictions managers may decide to employ the services of a sub-

transfer agent to facilitate the management of flows to the transfer agent.

We believe this should be an option for the manager rather than mandated as a

direct obligation placed on the fund.

5. The rules or instruments of incorporation of the fund, its sales document

and its latest annual reports should be made available to retail investors

through the facilities agent.

Sometimes the local affiliate of the asset manager e.g. local sales branch

can fufill this obligation. All distributors are required to make the

KIID available to investors on a pre-sale basis

We recommend that asset manager terms of business/distribution agreements

require intermediaries to make all necessary information about the UCITS

available to their clients. This is already current best practice.

We recommend that UCITS managers have a website where information can be

obtained as is common practice for most managers.

Where the UCITS is planning direct sales without a local execution platform

or distributor, then in addition to internet site, we recommend the

alternative of a low cost / Freephone number to assist investors who require

operational support.

In the longer term a central filing platform for fund documentation at ESMA

(see answer above) could also be opened up to individual investors

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Question 6.5 – Do you consider that the administrative arrangements should differ if the fund is marketed to retail investors or professional investors?

Apart from the suggestions raised in our response to question 6.4 for retail

investors we do not believe that there additional arrangements required for

professional investors. Generally professional investors will contact the

manager directly for fund documentation and to put in place appropriate

payment procedures

Question 6.6 – What is the impact in term of costs of making these facilities available in each Member State? Please quantify them in relation to each measure and for each Member States where you distribute your funds:

The costs vary significantly from member state to member state ranging from

a few thousand euro to

Question 6.7 – Which alternative/additional administrative arrangements would you suggest in order to ensure greater efficiency in cross–border marketing and appropriate levels of investor protection?

See answer to question 6.4

Question 6.8 – Are there any measures you would suggest to improve the efficiency and effectiveness of administrative arrangements within and across Member States?

Overall there should be a move to remove the number of steps required to

process transactions in fund units to minimise cost and complexity of fund

settlement processes

7. Direct and online distribution of funds

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behalf of their Members) and where appropriate, distributors


Question 7.1 – What are the main issues that specifically hinder the direct distribution of by asset managers?funds

Yes No

Marketing requirements

Administrative arrangements

Regulatory fees

Tax rules

Income reporting requirements

Lack of resources

Others

Please specify which other main issues specifically hinder the direct distribution of funds by asset managers:

One of the greatest challenges to direct distribution is lack of brand

recognition which is why many managers will usually seek distribution

arrangements with local distribution partners such as a local distributor,

insurer or platform.

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Question 7.1a – Please expand on your answers to question 7.1

In terms of direct distribution platforms one of the keys to success is

consistency of processes and documentation. The more processes and

documentation have to be tailored for a specific jurisdiction the greater the

costs for entering new markets. In particular we note differences in

marketing documentation as noted in our responses to Section 3 on barriers to

marketing.

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Question 7.2 – What are the main barriers that hinder the or the online distribution of fundssetting up new distribution platforms or other digital distribution ways?

A successful cross-border online platform will seek to have as many

processes in common across all jurisdictions

Our research show that many investors value the support of an investment

advisor before making an investment decision. Many investors do not invest

and still hold high levels of cash. Access to advice is therefore key to

increasing investment in funds and increasing demand for online services

especially maong mass retail and mass affluent clients.

We note the growth of digital advice models. In BlackRock's recent

ViewPoint: Digital Investment Advice :RoboAdvisors Come of Age at

https://www.blackrock.com/corporate/en-gb/literature/whitepaper/viewpoint-

digital-investment-advice-september-2016.pdf we make a number of

recommendations to develop a consistent digital advice framework to support

the growth of online distribution models:

• Know your customer and suitability. Suitability requirements

require advisors to make suitable investment recommendations to clients based

on their knowledge of the clients’ circumstances and goals, which is often

gained from questionnaires. These rules apply equally to digital advice,

though the means of assessing suitability may differ somewhat.

• Algorithm design and oversight. Digital advisors should ensure that

investment professionals with sufficient expertise are closely involved in

the development and ongoing oversight of algorithms. Algorithm assumptions

should be based on generally accepted investment theories, and a plain

language description of assumptions should be available to investors. Any

use of third party algorithms should entail robust due diligence on the part

of the digital advisor.

• Disclosure standards and cost transparency. Disclosure is central

to ensuring that clients understand what services they are receiving as well

as the risks and potential conflicts involved. Like traditional advisors,

digital advisors should clearly disclose costs, fees, and other forms of

compensation prior to the provision of services. Digital advisors should

similarly disclose relevant technological, operational, and market risks to

clients.

• Trading practices. Digital advisors should have in place reasonably

designed policies and procedures concerning their trading practices. Such

procedures should include controls to mitigate risks associated with trading

and order handling, including supervisory controls. Risks associated with

trading practices should be clearly disclosed.

• Data protection and cybersecurity. Digital advisors must be

diligent about sharing and aggregating only information that is necessary to

facilitate clients’ stated objectives. Digital advisors should use the

strongest data encryption, conduct third party risk management, obtain

cybersecurity insurance, maintain business continuity management plans, and

implement incident management frameworks.

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Question 7.3 – Are there aspects of the current on marketing, administrative European rulesarrangements, notifications, regulatory fees and other aspects (such as know your customer requirements) that hinder the development of cross–border digital distribution of funds beyond those described in earlier sections?

Yes

No


Question 7.3a – What are these aspects of European rules?

In UCITS we support the increasing focus on developing a common rule book to

iron out national inconsistencies but also highlight outstanding issues such

as the need to harmonise cross-border marketing requirements to allow for the

development of new marketing rules such as social media as noted in our

response to Question 3 and further efficiencies in the operation of the

European passport. We believe that multiple marketing requirements in each

member state as mentioned above will mean that it is inefficient to develop a

cross border marketing fund platform without significant customisation on a

country by country basis.

Question 7.3b – Are there aspects of the current on marketing, administrative national rulesarrangements, notifications, regulatory fees and other aspects (such as know your customer requirements) that hinder the development of cross–border digital distribution of funds beyond those described in earlier sections?

Yes

No


Question 7.3c – What are these aspects of national rules?

There is an urgent need to simplify the process of conducting Know Your Client

(KYC) and Anti-money laundering (AML) checks on consumers. More consistent

KYC and AML processes would simplify the process for a consumer in one member

state to buy a product based in another member state;

Without a more streamlined, digital process consumers will fail to engage

with the development of new on-line services such as digital advice mentioned

above. We much welcome the call made by Lord Hill at the Public Hearing on

Retail Financial Services for the creation of a European digital ID/ e-ID,

for consumers dealing with the financial services industry which should

facilitate consumer dealings without sacrificing standards of consumer and

crime prevention.

We note the FCA's recent Feedback Statement on Call for Input: Regulatory

barriers to innovation in digital and mobile solutions at

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https://www.fca.org.uk/news/fs16-02-regulatory-barriers-to-innovation-in-

digital-and-mobile-solutions.

This summarises a number of key barriers to the adoption of digital solutions

which we endorse.

More specifically in terms of streamlining the AML process

The application of AML legislation may typically include a risk assessment

based on various criteria such as customer risk, country risk, risk

associated with products, transactions or the distribution, selling of the

product. Where an investment fund deals with an intermediary such as a

platform acting on behalf of its customers, the relationship is seen as a

correspondent relationship and as such the Intermediary used is subject to

enhanced due diligence measures.

Challenge

As the requirements are based on a risk based approach there are limited

prescribed requirements and as such interpretation and/or implementation of

legislation can vary in terms of industry participant. Risk avoidance adds

additional layers to the following requirements:

• Assessment of the risk of own activities applicable to each asset

manager and their transfer agent

• Purpose of the relationship with factors such as size of

relationships, geography, delivery channels

• Implementation of identification and verification measures on the

identity of the intermediary and its customers/beneficial owners where

relevant

• Enhanced due diligence measures and additional information based on

each risk assessment applicable to each Intermediary. Between a management

company and a transfer agent, there may be divergences on the actual measures

to be undertaken to perform Enhanced Due Diligence on the Know Your Client

aspects of the clients

Cost for the Industry

The current process is repetitive and labour intensive. Customers are asked

for the same information numerous times by each asset manager or their

appointed administrator and/or service providers, this creates inefficiencies

and risk and the quality of data varies with no obvious tangible benefit.

In order to keep pace with requirements asset managers are seeing increased

cost from:

• Renewing, updating and maintaining Know Your Client including

outdated independent certification process requiring wet signatures, stamps

etc.

• Enhancing transaction monitoring systems

• Recruitment of specialists and training

• Implementation of new regulations such as FATCA, CRS

• Procedural updates and maintenance of sanction lists

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• Increasing management information systems

• Anti-bribery and corruption activities

• Language barriers involving translation costs

• External verification sites where access to information may be more

difficult

• On-site visits

All these issues have to be addressed by online platforms. Running an open

architecture platform in different jurisdictions increases the complexity and

so the focus should be on finding ways to automate, consolidate and

standardise processes where possible.

For example a document repository(s) where participants can go to obtain

investor documentation. This would lead to economies of scale in terms of

shared operational services, enhanced customer experience (the intermediary

will only need to upload documentation once and then keep that record

updated) and process efficiencies.

Question 7.4 – What do you consider to be the main reasons why EU citizens are unable to domiciled in another Member State?invest in platforms

We believe marketing and AML represent significant reasons. In addition the

issue of national bias towards products is a more complex issue and requires

building up confidence in the successful application of cross-border asset

protection and systems of redress. In addition to the operational issues

raised above there is also the issue of cultural bias which means that

consumers will typically want product documentation in their national language

(s) and consumers may not realise that the UCITS Directive already allows

them to make complaints in their national language. In addition the thought

of seeking redress in a foreign language can be daunting. Redress can entail

both negotiating the complaints process of a foreign-based firm as well as

potentially a foreign regulator or ombudsman, or possibly even court in

extreme cases. However, there may be elements of successful pan-European

redress processes such as in the area of delayed or cancelled flights which

could be applied in the financial services sector.

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Question 7.5 – What would you consider to be appropriate components of a framework to support cross–border platform distribution of funds? What should be the specifications for the technical infrastructure of the facilities? Please clarify among others how you would address the differences in languages.

We believe that the component parts include:

- coordination of AML and KYC requirements between jurisdictions

- consistent marketing requirements so that documents can simply be

translated without having to be redesigned

- the launch of an European digital identity for financial services

- suitability and client take on procedures which recognise the differences

in consumer behaviour when dealing online than in a face to face environment

-development of common European standards for digital advice.

8. Notification process

A number of respondents to the CMU green paper and the Call for Evidence noted difficulties with the notification process where funds marketed on a cross–border basis and there is a need for documentation to be updated or modified. Where initial notification in the case of UCITS or AIFM is between national competent authorities, without involvement by asset managers, in the event of a change in the information provided to the competent authority of the home Member States, asset managers are required to give written notice to the competent authority of the host Member State.


behalf of their Members) and where appropriate, to national competent authorities.


Question 8.1 – Do you have difficulties with the UCITS notification process?

Yes

No


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Question 8.2 – If you have difficulties with the UCITS notification process, please describe them:

Question 8.3 – Have you experienced unjustified delay in the notification process before being able to market your UCITS in another Member State?

Yes

No


Question 8.3a – Please describe your experiences with such an unjustified delay in the notification process before being able to market your UCITS in another Member State:

Question 8.4 – Do you have difficulties with the AIFMD notification process?

Yes

No


76

Question 8.4a – If you have difficulties with the AIFMD notification process, please describe them:

Our overall experience of using the passport has been very positive. Our

Irish AIFM was authorised on 22 July 2013 and almost immediately began

passporting in excess of 100 Irish AIFs across multiple Member States.

As a very early adopter of the AIFMD passport for the cross-border marketing

of multiple AIFs across a number of Host Member States, we appreciate the

broadly harmonised ability to access different jurisdictions. The ability

under AIFMD for an EU AIFM to conclude passport applications with a single

home regulator creates significant efficiencies and a consistent process.

We were particularly appreciative of the opinion provided by ESMA on 1 August

2013 which clarified that Member States which, at that time, had not yet

implemented AIFMD should nevertheless still enable AIFMD compliant passported

AIFs to market to professional investors within that jurisdiction.

Question 8.5 – Have you experienced unjustified delay in the notification process before being able to market your AIFs in another Member State?

Yes

No


Question 8.5a – Please describe your experiences with such an unjustified delay in the notification process before being able to market your AIFs in another Member State:

Question 8.6 – What should be improved in order to boost the development of cross–border distribution of funds across the EU?

We strongly support calls for a centralized notification platforms for

European investment funds to which all NCAs and fund managers can connect

to. Instead of notifying multiple host national competent authorities with

individual passporting applications, the national competent authority of the

home Member State would simply file the application on a central platform

which, we suggest, could be run jointly by ESMA and national competent

authorities. In our view the optimal outcome would be for ESMA to host the

platform. We recommend developing the provisions set out in the recently

published Proposal for amending the EuVECA Regulation in this respect.

77

Additional functionality could be built into such a platform to allow the

inclusion by the UCITS management company of relevant fund documentation (e.

g. prospectus, instrument of incorporation, report and account and KID/KIID

and other documentation, if required, in appropriate language versions) to

act as a comprehensive up to date source of information for investors on the

fund in which they are invested.

We suggest that an ESMA-managed central record could cover:

• all initial registrations

• subsequent amendments of fund literature

• updates of marketing material, and

• de-registration of the fund from a Member State.

For UCITS, it could also include any subsequent update of constitutional

documents, such as the articles of incorporation, the prospectus, the annual

and semi-annual report and accounts, the UCITS KIID and PRIIPs KID, as well

as the activation of additional share classes.

Reporting under AIFMD

The AIFMD, which came into force in 2013, imposes ongoing reporting

requirements for managers of AIFs managed and/or marketed in the EU – the

frequency of reporting varies from quarterly to annually depending on the AUM

of the fund and the manager. For EU domiciled AIFs reports are made to a

single regulator. Non EU AIFs marketed by private placement in multiple

jurisdictions must, however, file separate forms in each EU jurisdiction in

which private placement occurs. In principle, this is the same form, however,

the firm needs to be filed via different national platforms, each using a

different format, timing and delivery mechanism. The complexity of complying

with multiple filings decreases the attractiveness of using a single fund

wrapper to market a fund strategy to investors in multiple jurisdictions,

even though this approach enables managers to create scale diversified

portfolios which benefit investors.

The implementation of new reporting regimes require large internal teams to

be mobilised to build and manage new reporting platforms. Smaller managers

may need to retain third party vendors to assist in implementation and to

handle the periodic reporting. Either of these paths increase costs, which

are ultimately directly or indirectly borne by investors. Although the

reports are all based on the ESMA Reporting Annex, the mechanics regarding

how to submit the information to the regulator are just different enough to

be inefficient for registrants. His creates significant operational

complexity, leading to different technical standards and/or different

interpretation of data fields even on the basis of a common template.

In our recently published ViewPoint Improving Transparency: The Value of

Consistent Data over Fragmented Data at https://www.blackrock.com/corporate

/en-gb/literature/whitepaper/viewpoint-improving-transparency-august-2016.pdf

we make a number of recommendations:

- ee encourage EU competent authorities to move towards standardisation of

data requests. This ranges from reaching agreed measures and definitions of

78

key terms through to a common approach on the detail and the frequency of

requests.

- we encourage standardisation on how information is reported Electronic data

delivery whenever and wherever possible should be the objective. This would

substantially improve the accuracy and quality of data as well as the

timeliness of reporting.

- the EU has multiple reporting platforms. A significant step, given the

questions that need to be addressed around regulatory remit and data sharing,

would be for the EU to commit to a single internal reporting platform.

Reporting platforms represent significant technology projects and close

cooperation with regulators on testing and sorting out technical

specifications is a precondition of successful implementation. Detailed

technical engagement between regulators and industry is very much on an ad-

hoc basis and lacks adequate coordination at the EU level. Under AIFMD in

the EU, instead of building 30 different reporting engines (28 at national

level and one each for ESMA and the European Systemic Risk Board) developing

a single platform as is proposed for reporting under the Transparency

Directive would free-up much needed regulatory resources and provide enhanced

operational simplicity – a significant win-win.

9. Taxation

Many respondents to the CMU Green Paper pointed to tax issues as impeding the cross-border sale of funds. The issues seem to range from lack of access to tax treaties to difficulties in obtaining refunds of withholding taxes to discrimination of funds established in other Member States.

Provided that their approach is in accordance with EU rules, Member States are free to choose the tax systems that they consider most appropriate. However, in addition to assisting Member States to tackle tax avoidance and evasion, the Commission is seeking to identify and promote best practices around preventing double taxation/double non-taxation and to address any unjustified discrimination. This complements the multinational work underway, in particular at OECD level, in the same areas.


behalf of their Members) and where appropriate, distributors


79

Question 9.1 – Have you experienced any difficulties whereby tax rules across Member States impair the cross–border distribution and take–up of your UCITS or AIF or ELTIF or EuVECA or EuSEF?

Yes No

UCITS

AIF

ELTIF

EuVECA

EuSEF

Question 9.1a – Please describe the difficulties, including whether they relate to discrimination against UCITS or AIF (including ELTIF, EuVECA or EuSEF) sold on a cross–border, and provide examples. Please cite the relevant provisions of the legislation concerned.

We support EFAMA's comments in this respect

Question 9.2 – Have you experienced any specific difficulties due either to the absence of double taxation treaties or to the non–application of treaties or to terms within those treaties which impede your ability to market across borders?

For example: difficulties in determining the nationality of your investors or difficulties in claiming, or inability to claim, double tax relief on behalf of your investors.

Yes

No


80

Question 9.2a – Please, describe those difficulties, and if applicable, how these can best be resolved – for example through amendments to double taxation treaties. Please share any examples of best practice that could help to address these issues.


Question 9.3 – Feedback to earlier consultations has suggested that the levying of withholding taxes by Member States has impeded the cross–border distribution of UCITS or AIFs (including ELTIF, EuVECA and EuSEF).

Withholding taxes are usually reduced or even eliminated under double taxation treaties. But in practice it has been claimed that it is difficult for non-resident investors to collect any such withholding tax reductions or exemptions due under double taxation treaties. Have you experienced such difficulties?

Yes

Question 9.3a – Please provide examples of the difficulties with claiming withholding tax relief suggest possible improvements and provide information on any best practices existing in any Member States. Please cite the relevant provisions of the legislation concerned.


Question 9.4 – What are the compliance costs per Member State (in terms of a percentage of assets under management) of managing its withholding tax regimes (fees for legal and tax advisers, internal costs, etc.)? Do they have a material impact on your UCITS or AIF (including ELTIF, EuVECA and EuSEF) distribution strategy?

We do not have easy access to the relevant costs. The effect on distribution

strategy is not a linear one as the impact of the costs depends on the

overall market strategy in a particular member state.

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Question 9.5 – What if any income reporting or tax withholding obligations do you have in the Member States where the UCITS or AIF (including ELTIF, EuVECA and EuSEF) is located and what if any difficulties to you have with reporting formats?

What kind of solutions and best practices, if any, would you suggest to overcome these difficulties?

If a single income reporting format were to be introduced across the EU, what would be the level of costs saved?

Would this have a material impact on your UCITS or AIF (including ELTIF, EuVECA and EuSEF) distribution strategy?

We support EFAMA's comments in this respect.

Question 9.6 – Are there any requirements in your Member State that the UCITS or AIFs (including ELTIF, EuVECA and EuSEF) need to invest in assets located in that Member State in order to qualify for preferential tax treatment of the proceeds of the UCITS or AIF (including ELTIF, EuVECA and EuSEF) received by the investors in the UCITS or AIFs?

We are not aware of any.

Question 9.7 – Have you encountered double taxation resulting from the qualification of the UCITS or AIF (including ELTIF, EuVECA and EuSEF) as tax transparent in one Member State and as non–tax transparent in another Member State?

We support EFAMA's comments in this respect.

Question 9.8 – Have you encountered difficulties in selling a UCITS or AIF cross–border because your UCITS or AIF (including ELTIF, EuVECA and EuSEF) or the proceeds produced by the UCITS or AIF (including ELTIF, EuVECA and EuSEF) would not receive national (tax) treatment in the Member State where it was sold? Please provide a detailed description, including quotes of the national provisions leading to the not granting of national treatment.

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In addition to the comments raised by EFAMA we highlight a number of comments

regarding the Spanish 500 investor requirement

1. Spanish Tax regime applicable to investment in UCITS.

Under the Spanish Individual Income Tax (“IIT”) law, capital gains triggered

on the transfer or redemption of shares or units in UCITS are subject to

Spanish withholding tax1, currently at a 19% rate. Such withholding tax is

levied on account of the final IIT payable by the Spanish investor on the

capital gain.

However, Spanish resident individuals may benefit from the possibility laid

down in Article 94 of the IIT Law of deferring payment of the IIT

corresponding to capital gains obtained as a result of the transfer or

redemption of units or shares of foreign UCITS, provided that the proceeds of

the transfer or redemption are re-invested in the acquisition of other UCITS2

under the following requirements:

(i) The proceeds derived from the sale or redemption of the shares or units

issued by the foreign UCITS are not made available to the IIT taxpayer in any

way.

(ii) The foreign UCITS must be registered with the Spanish regulator (“CNMV”)

for its distribution.

(iii) In the case of foreign UCITS in the legal form of a corporate entity,

the foreign UCITS must have at least 500 shareholders and the IIT taxpayer

may not have held a stake equal to or greater than 5% in the twelve-month

period preceding the switch.

(iv) The acquisition, subscription, transfer and redemption must be made

through a distributor registered with the CNMV.

This tax benefit has been essential in the development of the investments

funds industry in Spain. To be considered as transferable according to these

rules is crucial for the marketing of an UCITS, since, in practice, investors

and distributors check whether the UCITS qualifies for the transfer before

making any investment.

The 500 shareholders requirement

The IIT law requires that any foreign UCITS incorporated in the form of a

corporation (e.g.a plc or a SICAV) must have at least 500 shareholders in

order to be transferable according to the rules above explained.

The rule refers to shareholders (a natural or legal person with a direct

holding in the UCITS). Therefore, the number of underlying shareholders in a

fund of funds, a unit-link or a pension fund is discounted when making the

calculation of the number of shareholders for this purpose, as the fund, the

unit-link or the pension fund will be viewed as the investor for these

purposes.

In the case of a distributor with a nominee account (including omnibus

accounts), it is possible to include the number of investors that hold their

positions through the nominee account. The Spanish distributor may be

required by the Spanish tax authorities to submit proper evidence e.g. a list

83

of names, a certificate from sub-distributors, that the number of final

investors exceeds 500.

Filing of the information

Foreign UCITS incorporated as investment companies are required to provide

the CNMV with information on the number of shareholders (when these exceed

500), as regulated under Circular 2/2011, of 9 June, on information of

foreign collective investment schemes registered with the CNMV. In

particular, it is regulated in Rule 4 that sets forth that:

The communication which must be made with regard to the verification of the

number of shareholders, assets and maximum percentage of a shareholding in a

company, which, in accordance with the provisions of article 52 of the

Personal Income Tax Regulation, must be sent electronically to the CNMV using

its CIFRADOC system that allows for this information to be sent.

According to Article 52 of the IIT Regulations, whoever is appointed by the

management company of a foreign UCITS as designated agent in order to carry

out this reporting (typically, one of the Spanish distributors), must submit

the relevant information regarding the foreign UCITS to the CNMV, at least on

an annual basis: i.e., the number of shareholders, the UCITS’s net wealth and

the date on which the last communication was made. This information must be

filed with the CNMV at least once a year.

Belgian Net Asset Tax

In Belgium, foreign funds are subject to a 0.0925% tax on the value of the

shares outstanding in Belgium if acquired through the intervention of a

Belgian intermediary or if it is known that they are held by a Belgian

resident. As fund distribution is heavily intermediated, it is not always

clear where the end investors are from. A conservative approach to

calculating the NAT results in tax being overpaid.

10. Other questions and additional information


84

Question 10.1 – Are there any other comments or other evidence you wish to provide which you consider would be helpful in informing work to eliminate barriers to the cross–border distribution of UCITS or AIFs (including ELTIF, EuVECA and EuSEF)?

Should you wish to provide additional information (e.g. a position paper, report) or raise specific points not covered by the questionnaire, you can upload your additional document(s) here:

c5dea3d5-64ee-41aa-8c14-4fc8bb6a56e2/viewpoint-digital-investment-advice-september-2016.pdf26fdf97d-70db-42fd-912f-b2ffa6f06cee/viewpoint-improving-transparency-august-2016.pdf

Useful linksConsultation details (http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/index_en.htm)

Specific privacy statement (http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/docs/privacy-statement_en.pdf)

More on the Transparency register (http://ec.europa.eu/transparencyregister/public/homePage.do?locale=en)

Contact

[email protected]

http://ec.europa.eu/finance/consultations/2016/cross-borders-investment-funds/index_en.htm



http://ec.europa.eu/transparencyregister/public/homePage.do?locale=en