New regulations adopted and published by the Mexican government early last week will change how mutual funds are distributed in the country and should make the industry more transparent and competitive than it is now, according to industry executives in that country.
The new regulations are designed to improve corporate governance, create greater flexibility in existing rules and open the distribution of mutual funds, according to Sergio Duque, a spokesperson with the National Banking and Securities Commission (CNBV), the regulatory body that oversees Mexico's banking and asset management industries.
The new regulations were passed by the Mexican legislature April 24 and were published in the government's Diario Official June 4, he said.
One of the most significant changes the rules will bring to Mexico's fund industry is that funds will be required to operate independently from their asset management companies, according to the Duque. The change will bring Mexico's structure more in line with that of the U.S. mutual fund industry, he said.
The new regulations will also require 40 percent of a mutual fund's board members to be independent, he said. Previously, there was no requirement that there be independent directors. The rule is designed to increase transparency within the industry as well as minimize potential conflicts of interest between funds and their managers, Duque said.
The rules will also allow fund companies to form distribution alliances with entities other than banks and brokerage firms and will allow insurance companies to sell mutual funds, he said.
That should help smaller fund management companies compete with the large banks which do not sell non-proprietary funds, said Manuel Somoza, president and general director of fund manager Prudential Apolo of Mexico City, a subsidiary of Prudential of Summit, N.J. Banks are currently the predominant distribution channel for mutual funds in Mexico.
"The new regulations open the possibility for independent firms to engage in strategic alliances with large retailers to sell funds," he said. It would be too costly for Prudential Apolo to set up a branch network, he said. However, the rules will allow the firm to align with large retailers like department stores to distribute funds, he said.
The new regulations will allow Skandia's subsidiary, Skandia Vida of Mexico City to sell funds in Mexico, according to Ake Svensson, director of business development for Skandia. Until now, Skandia Vida was barred from selling funds because it is an insurance company, he said. Skandia is in the process of developing a business plan to distribute its own and other companies' funds and it has hired a local marketing director, he said.
Last year, Skandia Vida sold $300 million worth of insurance products, according to Marcus Hebler, Skandia Vida's deputy chief executive officer.
The new rules are part of an effort by the National Banking and Securities Commission and the Mexican government to create more structure and competition in the mutual fund industry, Hebler said.
By allowing firms to establish co-distribution alliances, the rules should expand distribution and the increased competition will push down the expense ratios of Mexican funds, which can be as high as 500 basis points for some equity funds, he said.
As of last September, the Mexican mutual fund industry held approximately $19 billion in assets under management, according to the National Banking and Securities Commission.