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Standards, Contracts and Codes
Edited by Marta Cantero Gamito and Hans -W. Micklitz
Dirk A. Zetzsche
The chapter begins by considering governance aspects of mutual funds in Ireland, a disproportionately important international jurisdiction for wealth management. It examines the variety of attributes that make Ireland an attractive domicile for funds and asset managers, including the country’s infrastructure, technology, and investment expertise, as well as its well-developed common law and legal system that provides parties with legal certainty. Ireland also offers a 12.5 percent corporate tax rate and no taxes on funds or investors. The chapter closes by considering the possible effects of Brexit arising from the large financial market across the Irish Sea.
Wulf A. Kaal
The growth of the hedge fund industry and the proliferation of retail alternative funds in combination with the fundamental reshaping of the regulatory landscape for the hedge fund industry suggest that mutual funds are becoming more like hedge funds as a matter of investment strategy while hedge funds are becoming more like mutual funds as a matter of regulatory framework. The chapter conceptualizes confluence as an emerging process and shows that confluence of mutual and hedge funds has implications for the evolution of the hedge fund industry, the governance of the mutual fund industry, the growth of the retail alternative fund market, and the structure of federal securities regulation.
Eric D. Roiter
The chapter conducts a comprehensive analysis of exchange-traded funds. Specifically, it explores the design of ETFs, traces their growth, and reviews their trading and investment strategies. It then considers the newest development in the world of ETFs, the advent of “actively managed” ETFs. Finally, it considers ETFs more broadly, to determine whether they pose a risk to the financial system that warrants greater regulation by the SEC and the Federal Reserve Board.
Deborah A. DeMott
The chapter considers the effect of the highly prescriptive regulatory structure of the Investment Company Act of 1940, focusing attention upon the contours of fiduciary duties in mutual funds. It advances the thesis that assessment of the role and significance of fiduciary obligations regarding investment funds, both mutual and private, turns on their distinctive characteristics, including those prescribed by regulation. It notes that the population of investment advisers now registered with the SEC includes many who advise at least one private fund, and their actions during the financial crisis suggest that advisers’ practices call into question whether they are acting consistently with their fiduciary duties.
Arthur B. Laby
The chapter examines the fiduciary structure of investment management regulation. Specifically, it addresses the relationship between investment managers’ fiduciary obligations and regulators’ efforts to control the investment management industry through rules and enforcement actions that constitute the bulk of fund law. Laby argues that much of that body of law is a response by regulators to the uncertainties inherent in the fiduciary obligation. On a broad series of issues, it is contended, regulators attempt to specify the precise fiduciary obligations of managers as they exercise their duties to clients.
William A. Birdthistle
The chapter explores the possibility of a new public or eleemosynary infrastructure to support private investment in funds. Specifically, it proposes and explores the concept of an investment fund provided to citizens as a service with zero investment advisory fees. The viability and advisability of free funds turn on three large questions: first, whether mutual funds with no fee are financially viable; second, whether they ought to exist; and third, who or what entities should serve as their sponsor. The chapter argues that free funds are theoretically plausible, inasmuch as funds with very low expense ratios could offset remaining net expenses with revenues from operations such as securities lending. In light of the central role of private investing today, it argues for experimentation with pilot fund, under the aegis of a nonprofit or governmental sponsor.
Blanaid Clarke and Mark White
In discussing the market for collective investment retail funds, the chapter argues that their regulatory framework has been shaped largely by European market integration and the need to brand pan-European collective investment products. It reflects on the need for a coherent regulatory framework for non-Undertakings for Collective Investment in Transferable Securities and unconventional retail investment schemes, particularly in the wake of the great uncertainties unleashed by the United Kingdom’s vote to leave the European Union.
William A. Birdthistle and John Morley
The chapter focuses on the burgeoning field of regulatory compliance, as it relates to mutual funds. Specifically, it examines three major developments: (1) the continuing confusion over potential supervisory liability for compliance officers; (2) the increasing use of technology by these officers; and (3) the possible integration of the compliance function into risk management, rather than compliance remaining as a standalone control function. The chapter argues that, rather than passively watching and accepting these developments as they unfold, compliance officers and others with a stake in effective compliance should examine the developments critically to preserve the effectiveness of regulatory compliance.