Dallas McGillivray is the global compliance director for INVESCO Asset Management's U.K. business. McGillivray recently discussed global compliance issues for mutual fund companies with Mutual Fund Market News reporter, Andrew Brent. An edited account of their conversation follows.
MFMN: What are the biggest regulatory obstacles for fund companies going into Europe and going global? What specific problems has INVESCO encountered?
McGillivray: I think the biggest obstacle going into Europe is the different [laws] across Europe. Although they all come from the UCITS [Undertakings for Collective Investment in Transferable Securities] Directives or EC Directives, they get interpreted different in different countries. Therefore, what you think is a disclosure requirement in one country may not be specifically spelled out in another country. The differences in the speed and the sophistication in the markets is the real issue.
On a global basis, the biggest regulatory obstacles are trying to get distribution globally from one domicile fund. If you have a [fund] in Luxembourg and you want to market that in every jurisdiction in Europe, down in South Africa, Australia, etc., you just can't do it because all of the regulatory constraints don't allow you to. And then if you're investing on a global basis, you need a certain infrastructure. If you have a fund manager who makes a trade for you [in another country] you need to get the information back into the administration system where the fund is domiciled in a speedy time so that you can make valuation points, so the systems infrastructure that you need if you're a global player is huge.
As far as what problems INVESCO has encountered, we have the same problems as Fidelity or Scudder or anyone else.
MFMN: What, if any, regulatory advantages exist for fund companies outside the U.S. versus within?
McGillivray: A lot of the regulators around the world are at different stages of maturity. The SEC is a grown-up user and it has specific rules, but there [are other factors] than just the SEC. If you look at ERISA [Employee Retirement Income Security Act], the last time it was changed was back in the seventies. The U.S. is a mature market, but some of the legislation is so out of date, it's crazy.
The other big issue globally versus within the U.S. is, because the U.S. is such a litigious market, I don't think transparency is always there when it is in other markets, where the regulator always wants to work with you, not as a business partner exactly, but wants to ensure that management is in control of its business. I think the SEC is more of a big stick approach.
MFMN: What, if anything, is being done to create a standard for systems regarding transactions, settlements, etc. across borders?
McGillivray: There isn't really. Everyone is trying to get into straight-through processing, but there isn't one system out there that every fund management company in the world uses. There are a lot of off the peg [off the shelf] systems that need to be tailored and there are a lot of bespoke [proprietary] systems being built. I think they're all trying to create and do the same job to settle transactions, etc., but I don't think there's one
system out there that everyone will be using. If there was one big clearing system in the world, sure it would make things a lot easier, but I don't see that happening.
MFMN: What will be the implications of the new UCITS Directive amendments (MFMN 3/12/01) for the European fund industry?
McGillivray: There will be a few advantages, but the thing is, like all UCITS Directives, it will be implemented immediately in some countries and it will take time to get on the statute book in others. And then there will be different interpretation on what is said.