Ireland defeated on fund reform

THE GOVERNMENT has been outvoted by its EU partners on a key reform of the European mutual fund industry that could cause jobs to relocate from the Republic. Britain, France and Germany all backed the draft plan, which includes a controversial proposal to create a "management company passport". This passport would enable a mutual fund in one state to manage funds it operates across Europe without having to open offices and retain certain functions in each country.

Supporters of the plan say it will allow funds in the €6 trillion retail sector to merge and pool resources, leading to greater economies of scale and efficiencies.

"The investor will have greater diversity of products and lower cost. It will ensure proper protection of investors, thanks to better supervision," said French finance minister Christine Lagarde at an EU finance ministers' meeting in Brussels yesterday.

Ireland and Luxembourg opposed the proposed new EU directive, which is called the undertakings for collective investment in transferable securities.

"From a regulatory point of view, while funds are supervised through their management company, we would be concerned that the fund's regulator be in a position to ensure that the fund is operating in accordance with its rules. So for example, the Irish Financial Regulator should have enforcement powers over funds located in Ireland, even if they are managed abroad," said a Government spokeswoman.

Despite misgivings from a few other states, the reform passed under the qualified majority rules that govern decisions for laws agreed in the financial services sector at the council of ministers.

Sources in the European fund industry have alleged that Irish and Luxembourg opposition to the company passport is inspired by fears that both states' financial centres could lose business to bigger centres such as Paris, London and Frankfurt. They say that some big pan-European funds won't bother to retain management operations in the Republic when the passport is introduced.

But the Irish Funds Industry Association, which initially opposed the full company passport, welcomed the proposed reform yesterday, noting it would provide new opportunities for the Irish industry.