Once upon a time, a tortoise and a hare agreed to a race. As they set off, the hare sped away into the distance, leaving the tortoise in the dust. The hare ran and ran, covering a great distance in a short amount of time. Happy about his progress, he was so confident about winning the race that he decided to have a quick sleep to refresh himself. But when he awoke, what did he find? The tortoise had steadily made progress and crossed the finishing line.
Like the hare in Aesop’s fable, while Luxembourg happily sleeps with the knowledge of being the largest European fund domicile and second only to the US in the world, others are making moves to overtake us.
A message from Her Majesty
Beyond the usual competitors, one could cite Ireland and France, we are starting to see other players make moves for a larger slice of the market. Most notable among these is the United Kingdom, who outlined ‘The UK investment management strategy’ in a recent HM Treasury document. Here, the Chancellor of the Exchequer commits to ‘making the UK one of the most competitive places in the world for the investment management sector’. The strategy to put this in place could be described as ‘commercial’ to say the least and makes for interesting reading for those in the industry.
Reforms on the table
Among proposed reforms are updates to the regulatory environment as well as new marketing rules: however, it is the refreshed tax regime which will raise a few eyebrows. The cornerstone of future tax change is the abolition of stamp duty reserve tax: a tax charged on fund managers on surrenders of units in funds. This tax has long plagued the investment management industry as a major deterrent to domiciling funds in the UK. In addition, the UK government plans to look into providing clarification that managing non-UCITs funds in the UK will not affect the tax residency of the fund. All this will make the UK much more attractive to foreign investors and boost its reputation as a funds hub.
Getting our act together
While the UK is quietly taking action to improve its reputation and competitivity, a similar strategic document with clear stated objectives from the Luxembourg side is worryingly absent. While we have long being renowned as quick, smart legislators: could a certain level of complacency be causing this to slide? There are a number of areas that we could look to further develop in order to keep our competitive edge:
- industry players can strive to innovate and remain fit for purpose
- regulators can speed-up their processes and prioritize investor protection
- legislators can support future development by building a solid legal framework
Only a collective effort from the industry, regulators and legislators will mean that the battle can yet be won.
