October 10, 1991
TO: MEMBERS - ONE PER COMPLEX NO. 49-91
INTERNATIONAL MEMBERS NO. 6-91
RE: INSTITUTE PRESENTATION AT IOSCO CONFERENCE
__________________________________________________________
Attached are the text of an Institute presentation and
paper, which was the subject of a panel entitled "Meeting the
Demand for Pooled Investments in a World Market" during the
recent meeting of the International Organization of Securities
Commissions (IOSCO).
The paper describes the explosive growth of the worldwide
mutual fund markets and notes that mutual funds have become
established as a preferred investment choice of the growing
middle class throughout the world. Notwithstanding this
substantial growth, however, progress in cross-border mutual fund
sales has lagged far behind efforts toward easier cross-border
transactions in other financial areas. Thus, in most parts of
the world, existing impediments to cross-border fund sales have
caused investment managers to take the only effective available
route to international expansion: the establishment of separate
foreign subsidiaries in various local markets.
The paper further notes that restricting the development of
mutual fund markets to a single route requiring the establishment
of a foreign subsidiary limits both market efficiency and
investor choice. Thus, the availability of a second route to
international expansion--cross-border fund sales--would enhance
market efficiency and investor choice, while also permitting the
realization of economies of scale and other beneficial synergies.
One major barrier to cross-border fund sales, differences in
the regulatory approach adopted in different jurisdictions,
arises from variations in the particular legal form and structure
adopted by mutual funds in those jurisdictions. Instead of
focusing on regulatory differences resulting from varying
organizational structures, the paper proposes a shift in the
focus when considering cross-border mutual funds sales. The
analysis of any cross-border sales proposal should address seven
core investor protection concerns essential to the regulation of
a publicly-offered, redeemable securities product rather than
structural differences.
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The paper describes seven core investor protection concerns
inherent in mutual fund regulation and discusses the manner in
which these concerns have been addressed in the laws of six
countries: the U.S., the U.K., France, Germany, Japan and
Mexico. It is significant that each jurisdiction recognizes and
seeks to address each of the identified investor protection
concerns.
Early efforts to harmonize disparate regulatory schemes are
also examined in the paper. The 1972 OECD Standard Rules for the
Operations of Institutions for Collective Investment in
Securities and the European Community's Directive on Undertakings
for Collective Investment in Transferable Securities are examples
of two such efforts.
The paper concludes with the optimistic prediction that by
ignoring organizational structure and focusing on core investor
protection concerns, we can achieve greater success in breaking
down existing regulatory barriers to cross-border mutual fund
sales to the benefit of the world economy and the world's
investors.
We will keep you informed of developments.
Catherine L. Heron
Vice President - Tax & Pension
Attachments