To provide a global overview of the progress achieved by different initiatives across Europe and to debate on the steps ahead, SGSS recently held a seminar on European financial services infrastructure. The challenge of presenting an update on recent regulatory developments was taken up by Benoit de la Chapelle-Bizot

Framework complete, but…

He confirmed to the audience that the new European legal framework for Alternative Investment Funds (AIFs) is complete. But he added that 25 of the 27 current EU member states are against the granting of a passport to authorise offshore fund managers to trade their funds within the EU, unless several conditions are met. One, there must be an appropriate co-operation agreement between the authorities of any individual member state and the relevant offshore location. Two, appropriate anti-money-laundering measures must be in place. Three, the fund manager’s country of location must comply with OECD tax standards.

2015: offshore passports in issue

Subject to these conditions being met, and subject to assessment by ESMA, passports will begin being granted to offshore funds in 2015. Meanwhile, he added that the AIFMD is presenting a separate challenge: "that of drafting 100 measures of execution". Further negotiations are needed with member states, ESMA and the industry itself, he said. "There are a lot of loopholes and a number of difficulties. Some compromise and ambiguity lies ahead."

A consensus complicating the picture is the lack of empowerment of European authorities. "For EMIR we’ll have exactly the same difficulties," he said. "And what will be the emergency powers of ESMA? Moreover, it is really difficult to negotiate a European regime without knowing all the possible consequences of the Dodd-Frank act. The AIFMD was mapped out without a full awareness of the impact of Dodd-Frank. There will be a strong political debate around these issues. We need to have a decision and we hope the industry will help to defend European interests."

The evolution of asset managers and their industry was a focus of attention in the wide-ranging round table discussion that followed Benoit de la Chapelle-Bizot’s address. Nicolas Gonzalez, Head of Product Development at SGSS, suggested that the extent of any evolution would depend upon how asset managers leverage the new opportunities that will open up for them under UCITS IV, especially in relation to distribution. "Master-feeder structures are the new distribution tool and their adoption should accelerate existing trends," he observed. He added that a good deal of work needs to be done to provide support in the middle office and in fund administration. "There will be a need to invest in these functions and when establishing relationships with third-party providers we will need to be certain that those providers can accompany us on the new distribution journey."

Returning to the theme of the AIFMD, Alain Pithon, Deputy Managing Director of the French Asset Management Association, added that it is too early to say how fund managers will react to the eventual new regime. Several questions face fund managers, he said. "This is a question about strategy rather than about organisation. We need to establish what we want to do. What tools are available to asset managers? How do we address the new competition for offshore funds? After many years of unending discussion competition is beginning aggressively."

Against this backdrop, optimism is higher in Luxembourg about its prospects in the new landscape than 12-18 months ago, asserted Pascal Berichel, Head of Fund Distribution Services at SGSS. “A year ago people were expecting a huge UCITS IV earthquake, but we don’t now expect widespread mergers between funds, and Luxembourg will probably increase its 30% market share.” The governance of infrastructure remains a key question, he added. If the planned new Luxembourg CSD initiative is successful in replacing transfer agencies, there is a risk that as a monopoly it could charge