EY Luxembourg’s publication responding to the regulatory environment, applicable to the wealth and asset management, banking and insurance industry from a Luxembourg perspective.
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Wealth Management in Luxembourg
Asset management: achieving a competitive advantage
Today’s asset management industry is marked by increased competition, heightened regulatory scrutiny and growing customer demands for more information and greater transparency – all set against the backdrop of a volatile market. As firms grapple with business issues such as product innovation, evolving fee structures and industry consolidation, they also find themselves needing to devote more time than ever to managing regulatory demands.
Luxembourg provides solutions to many of today’s challenges faced by the asset management industry. With over US$3 trillion of assets in investment funds, covering both traditional and all alternative asset classes, Luxembourg is the largest international investment fund domicile in the World and the leading cross-border distribution hub for investment funds.
EY can assist you to set up in Luxembourg, enhance your current product range and operating model, and face issues that affect the asset management industry:
- Luxembourg UCITS
The UCITS (Undertaking for Collective Investment in Transferable Securities) is the globally recognized brand for retail investment funds, such as equity, bond, money market and mixed funds, as well as funds of funds.
With over US$2.5 trillion of assets in UCITS investment funds, Luxembourg is the No. 1 global center and distribution hub for UCITS.
UCITS can be distributed relatively easy to all investors – both retail and all types of institutional investors – in key distribution markets across Asia, Latin America, Europe and the Middle East.
Current and future developments impact UCITS, management companies, and service providers include:
- UCITS V
- UCITS VI
- European guidelines on exchange traded funds (ETFs) and other UCITS issues
- Luxembourg’s provisions on management company “substance”
- Alternative Investment Fund Managers – AIFM
In 2013, a new regime will be implemented across the European Union (EU), regulating the managers of alternative investment funds (AIF) – i.e., investment funds that do not classify as UCITS. The objectives of the Alternative Investment Fund Managers Directive (AIFMD) include enhancing investor protection, increasing transparency for investors and regulators, and better managing systemic risks related to alternative funds.
Authorized AIFM will benefit from a passport to market the AIF they manage to professional investors throughout the EU, similar to the passport for the marketing of UCITS to retail investors. The AIFM regime is expected to create a global “AIF brand” comparable to the UCITS brand. Luxembourg is well positioned to “replicate” the Luxembourg UCITS success story for the distribution of alternative funds, benefiting from its reputation and expertise as a hub for UCITS products.
While the main focus of the AIFMD is on managers of alternative funds, the AIFMD will not only impact EU and non-EU AIFM, but also EU and non-EU domiciled Alternative Investment Funds (AIF), service providers to these funds and their investors.
The AIFMD has ramifications far beyond achieving basic compliance:
- Alternative investment groups (including promoters, sponsors, advisers, general partners and managers of all types of non-UCITS funds) should conduct a strategic review of their fund ranges and their operating models
- Service providers, especially depositaries, custodians, administrators and valuers, will also need to assess the strategic impact on their service offering and operating model and consider how they will react to new obligations and risks introduced by the AIFMD
- Investors will need to consider the accessibility of products, and the AIFMD’s impact on their investment process
- The Luxembourg Specialized Investment Fund − SIF
The Specialized Investment Fund (SIF) is Luxembourg’s leading alternative investment fund (AIF) investment fund vehicle. The SIF regime has been used extensively to launch all types of AIF products including hedge funds, private equity funds, real estate funds, commodities funds, thematic funds investing in specific segments (such a microfinance or the environment) or exotic assets (tangible such a luxury goods and intangible such as intellectual property), as well as traditional funds primarily for non-retail distribution.
The SIF regime may be used to create funds with different characteristics, such as multiple compartments (sub-funds), multiple share classes, direct and indirect funds, funds of funds, master-feeder structures, exchange traded products and structured products.
SIFs enjoy more flexibility than UCITS, especially in terms of eligible investments and structuring. SIFs may be offered to a wide range of eligible, well informed investors.
The Alternative Investment Fund Managers (AIFM) Directive will further boost its use significantly over the coming years.
- The wider asset management agenda
Faced with a difficult economic environment, evolving needs of investors and distributors, an overwhelming regulatory and tax agenda, increased demands for robust governance and internal control and transparency, leading asset management industry groups are thinking beyond compliance and operations.
The asset management industry is responding to these challenges and opportunities by:
- Enhancing product ranges and product distribution
- Streamlining operating models (e.g., consolidation, cross-border servicing)
- Enhancing governance models
- Reviewing delegation arrangements
- Adopting a structured approach to managing regulation
- Why Luxembourg for investment funds?
Luxembourg is the leading global location for all types of investment funds.
The success of Luxembourg in attracting investment funds, and becoming a major financial center, may be attributed to a number of factors such as:
- Reputation of the Luxembourg brand in the investment fund industry
- Attractive range of investment fund solutions
- Regulatory environment including accessibility, knowledge and responsiveness of the regulator
- Stability and certainty:
- Political, economic and social environment
- Legal environment and taxation regime
- Ability to achieve tax neutrality for products by considering direct and indirect taxation implications at fund and investor levels
- Operational factors such as relocation costs, local infrastructure, and the qualifications and knowledge of the multicultural, multilingual international workforce
- Service provider considerations such as their expertise and ability to meet specific local distribution market requirements from Luxembourg
- Central location at the heart of Europe with easy access to other financial centers
- Global Fund Distribution
UCITS can be marketed to all types of investors in most key distribution markets. The UCITS brand is recognized worldwide.
A comparable global brand for the marketing of alternative investment funds (AIFs) emerged following the implementation of the alternative investment fund managers (AIFM) Directive.
UCITS and AIFs benefit from a "passport" enabling them to be marketed to investors across Europe. Marketing outside Europe is subject to the national regimes of each country where the marketing takes place.
Luxembourg is the leading location for global cross-border distribution of investment funds. Luxembourg investment funds are distributed across Europe, Asia, Latin America, Africa and the Middle East.
EY Global Fund Distribution (GFD) is a set of innovative services developed by EY to support asset managers with the cross-border distribution and registration of their UCITS and AIFs and other collective investment schemes (CIS). It covers all key fund distribution markets in Europe, Asia, Latin America, Africa and the Middle East.
EY GFD offers four complementary services designed to cover all aspects of cross-border fund distribution:
EY GFD services are tailored to the specific needs of each client.
- Private Banking
The Luxembourg wealth management industry is currently at a turning point, facing the challenge of adjusting its business model as a result of the end of banking secrecy for EU residents as from 1 January 2015, the evolutions of the customer profiles, needs and behaviors and the increased regulatory pressures.
Visit our Wealth Managament dedicated page to discover how EY Luxembourg can help you
Wealth management solutions continue to play an increasingly important role in the success of bank trust organizations, private banks, fees-based brokerage entities and RIAs.
- Luxembourg: the gateway for Islamic finance and the Middle East
Islamic finance is one of the fastest growing areas of the global financial services industry. The spread of Islamic finance into western markets demonstrates that it is now being viewed by investors, financial institutions and regulators as a viable alternative to conventional products.
- Digital transformation
The world is characterized by a rapid pace of technological change, increasing connectivity and ubiquity, exponential growth of data and continuous innovation. Digital technologies such as mobile, social, analytics and the cloud are rapidly converging on the wealth management industry and will fundamentally shape client value propositions and operating models of wealth managers in the years to come.
- MiFID II
Since its implementation in November 2007, MiFID has been the cornerstone of capital markets regulation and investor protection in Europe. Since its inception, however, not all benefits have been fed down to the end investor as envisaged. MiFID II is aiming to address the shortcomings of the original MiFID release and respond to lessons learned during the financial crisis. MiFID II was voted in April 2014 with propositions of technical advices issued in December 2014. Implementation is due by 3 January 2017.
MiFID II is far from being a marginal change. The new text will radically change the market, with profound implications for all actors: banks, investment firms, asset managers in the funds industry, and market infrastructures. Impacts may be far reaching and go well beyond the traditional regulatory areas. We expect no business or operating model to remain untouched. In Luxembourg, the entire value chain in private or retail banking will be revisited as well as the distribution strategy in asset management.
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