Europe’s complex and evolving regulatory environment challenges private markets firms, especially regarding SPVs. Compliance, outsourcing, and managing diverse regulations across jurisdictions are key concerns, driving demand for integrated service providers.
Europe, including the U.K., presents a hugely complex, fast-developing, and fragmented regulatory environment for private markets investment firms. The impact on the firms and the SPVs they use to facilitate and optimize transactions in Europe is significant. Compliance with diverse, varying rules in multiple jurisdictions is a necessity for many firms, which need to stay on top of new developments.
As well as dealing with a wide range of existing regulation, private fund managers in the U.K. and Europe face a multitude of new rules and regulations, including AIFMD 2.0, ELTIF 2.0, SFDR, and DORA. While some, such as ELTIF 2.0, can be seen as catalysts for market growth, all represent material compliance and risk management challenges. AMLD6 and UBO registration could impact not just a fund but also all its SPVs.
Regulation: the top of the agenda for fund managers
In early 2024, CSC canvassed the views of 400 senior private markets professionals in the U.K., Europe, North America, and Asia-Pacific on a range of industry subjects, including regulatory challenges and the use of SPVs in optimizing transactions. We used the research to inform our report: SPV Global Outlook 2024: Charting the Course for Growth in Private Markets.
Our research found that Europe’s regulatory complexity is a primary focus for private fund managers. For instance:
- For private markets professionals based in the U.K. and Europe, 75% of those surveyed said responding to regulatory changes was the biggest challenge they faced when setting up and running an SPV. This was the highest proportion across all three regions surveyed (Europe, North America, and Asia Pacific).
- Other key regulatory challenges were:
- 72% said access to suitably qualified staff
- 69% said complying with economic substance regulations
- 64% said dealing with multiple stakeholders in different jurisdictions
- On specific rules, many in Europe showed greater awareness of regulations compared to other markets: almost half (47%) said they were “very familiar” with Base Erosion and Profit Shifting (BEPS) regulations, for instance, versus an average of 40% globally.
A challenge for fund managers operating in the U.K. and Europe is not just the volume of existing and forthcoming regulation, but the fact that most EU directives must be implemented locally. It means that each jurisdiction may have nuances and deviations in place that need to be understood, constantly monitored, and rigorously addressed.
Greater complexity leads to higher volumes of outsourcing
Many managers find they have a large web of SPVs with several or even dozens of service providers engaged and are having to commit significant resources to overseeing these relationships. This means inconsistent levels of service, little clarity on overall fees, and fragmented reporting.
Across all regions, 53% of respondents said they use two outsourcing partners to set up and administer SPVs, while 20% use three. Looking ahead over the next five years, these numbers are likely to grow, with 41% predicting they will use three and 38% that they will use four. The proportion of respondents predicting they will use five partners rises to 15%, compared to just 1.5% today.
Despite the findings, increased reporting requirements are driving many managers to consolidate operations across their portfolio of SPVs. This enables them to look at SPVs holistically, and address outcomes such as better cash management and reconciliations, plus ease of set-up and use.
How CSC can help
The European and U.K. provider space remains highly fragmented, with many smaller service providers lacking the depth of experience and jurisdictional coverage needed to manage the increasing complexity of SPVs across Europe.
However, CSC stands apart as one of the few global providers with decades of pan-European coverage and the expertise to navigate the evolving regulatory landscape. Unlike smaller competitors, CSC offers comprehensive support across multiple jurisdictions, ensuring consistent service and effective management of European SPV portfolios.
Today, fund managers can outsource the set-up and management of SPVs to a single provider like CSC. The globalization of the SPV market, coupled with the growing complexity of underlying vehicles and regulatory requirements, highlights the need for experienced partners. CSC’s robust platform offers a single dashboard for portfolios and advanced technological capabilities, and enables seamless SPV management across diverse regions.
CSC is a truly global provider that provides an unparalleled suite of solutions to manage SPVs, supported with best-in-class technology.
Interested in finding out more? Download and read SPV Global Outlook 2024: Charting the Course for Growth in Private Markets.
