Cross-Border 2019 UCITS and Beyond Article

Firms that can align their product offering with new distribution trends, while understanding how to capitalize on the benefits of upcoming regulation, will be positioned to succeed in 2019. Cross-Border 2019: UCITS and Beyond Custody and Fund Services Asset managers faced strong regulatory headwinds over the past year as they adjusted to the Markets in Financial Instruments Directive 2’s stricter product governance requirements that forced many to reevaluate their distribution channels. In 2019 the regulatory winds are shifting and, along with changing investor preferences, may provide a tailwind by creating new product and distribution opportunities. With these opportunities come new challenges that may require new workflows and expertise. Whether considering the cross-border market for the first time or continuing to expand globally, keeping up with these developments is critical for asset managers. Regulatory Tailwinds The EU is set to finalize key regulatory changes that should improve the distribution of Undertakings for Collective Investments in Transferable Securities (UCITS) funds in Europe, as well as support the growing interest in Environmental, Social, and Governance (ESG) investing. Improving UCITS Distribution in Europe Distributed in over 80 countries, the EU’s UCITS fund framework is at the core of the cross-border industry. By the end of Q3 2018, UCITS funds’ total net assets reached €9.9 trillion, according to European Fund and Asset Management Association (EFAMA). For all of its success, a persistent problem with the UCITS framework is the prevalence of too many small funds. At the end of 2017, there were nearly 33,000 UCITS funds with an average size of $303 million, as opposed to the US, where there are fewer than 10,000 mutual funds with an average size of $2.3 billion, according to EFAMA. The proliferation of European Investment Funds Total Net Assets (Trillions) Source: EFAMA, September 2018 UCITS AIFs €6.1 €9.9