India created the outsourcing industry. It pulls in $47 billion a year by "exporting" the contracting in of business processes. It's so identified with the practice, that it even is the subject of an NBC situation comedy, "Outsourced."

So, if you're thinking of setting up shop as a fund company there, says Paul O'Neil, chief executive officer of International Financial Data Services in Luxembourg -- a haven for funds that want to reach European and Asian customers -- sit down and absorb this thought:

You better be careful about whatever services you want to outsource there. Because the country is moving to ban, within its borders, the outsourcing of certain functions in capital markets.

The Asian country's main financial regulator, known as the Securities and Exchange Board of India or SEBI, in January proposed to institute rules that would ban outsourcing of key activities "related to intermediation services" to third parties.

“Since the third parties may not be subject to regu latory discipline and the activities and, not the account ability, can be outsourced, outsourcing raising a variety of concerns both for the regulator and the outsourcing intermediary,” SEBI said, in a paper describing its proposal. 

Compliance, customer service and grievance procedures, for instance, would not be allowed to be outsourced. Brokers could not outsource the operation of trading terminals or management of orders. Computer security -- a big source of revenue in the outsourcing business -- also would have to be managed in-house.

SEBI "found that it was getting out of hand, out of control,'' said O'Neil, in an afternoon session on global fund operations at the National Investment Company Service Association 2011 Conference & Expo. "People were not taking responsibility and were trying to delegate" such key activities.

The move is an instance, he said, of how fast things change when you're trying to distribute funds in nations around the globe -- since each have their own regulations that must be complied with. How fast? In this case, O'Neil said, firms that are outsourcing key activities such as trading or anti-money laundering must cease the practice within four months.

Such rule changes "can make you turn on a dime," he said.

One country, though, that knows how to turn on a dime in getting funds approved and into the market is Luxembourg, he said. "They get it" and have developed mechanisms that allow quick review and approval of funds that are being formed. 

As a result, Luxembourg, with 500,000 citizens, accounts for 27 percent of assets held in funds in Europe, by statistics O'Neil keeps. By comparison, France accounts for 18 percent and the United Kingdom 10 percent.

"They're very nimble, very understanding of the regulations, they understand the value of the brand, they understand the benefit they bring," he said. Ireland is the same way, he said.

Local requirements can be costly, even if unavoidable, said Nimish Bhatt, senior vice president and director of operations at Calamos Investments, a diversified investment firm based in Naperville, Ill.

Italy, Germany and Switzerland, for instance, require funds to publish their net asset values in local newspapers. That can cost $250,000 a year. But it's unavoidable, he said.

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