This article was first published in EFAMA's Fact Book 2026.
In December 2025, the European Commission published the Market Integration and Supervision Package (MISP). Part of the broader Savings & Investments Union Strategy, the package aims to address market fragmentation across a wide range of financial services. While removing barriers to cross-border fund distribution is certainly a welcome endeavour, conditions for growth in cross-border distribution are already in place. The MISP will not be a game changer in that respect.
Compared with other financial products and services, investment funds already greatly benefit from the Single Market. Over the last decade, funds sold in another Member State outside their domicile (‘cross-border funds’) have gradually gained market share against locally domiciled funds (‘domestic funds’), with a market share rising from 49% in 2015 to 55% in 2025 (see section 3.2.1 of the 2026 Fact Book). We expect this trend to continue, even in the absence of regulatory reforms, as ETFs and passive funds, which are most often cross-border, continue their strong growth (see sections 2.3.2 and 2.3.8 of the 2026 Fact Book).
That said, with 69.000 funds in circulation, the Single Market remains nonetheless fragmented. Cross-border funds are rarely marketed in more than three or four countries. Yet, as outlined by the European Commission, scale is critical for funds because many costs (legal, IT, reporting, and compliance) have fixed components. It also enables access to larger investment tickets, such as infrastructure or private markets, expanding diversification for investors and providing investees with deeper capital pools.
Looking more closely at the drivers behind this fragmentation, one can distinguish between structural and purely regulatory barriers. Starting with the first ones, asset managers, rather than relying on a cross-border passport, often create similar yet legally separate investment structures tailored to the commercial and fiscal needs of distinct local markets. For example, it is common for local investors to have greater trust in asset managers with a local presence. As a result, this requires asset managers to have native distribution experts in the country so that, over time, the firm can be seen as a trustworthy counterpart. Asset managers are also greatly dependent on existing distribution networks in a country. Should distributors prefer local funds (e.g., their own in-house products), asset managers must adapt and co-brand a fund to access that clientele. These commercial and fiscal drivers are the primary obstacle to establishing a true Single Market. Unfortunately, these market structures evolve over time and cannot be easily reshaped by a regulatory intervention such as MISP.
Looking at purely regulatory barriers, the notification process itself can often amount to a “re-authorisation”. Asset managers must indeed submit a separate passporting notification to their home supervisor for each jurisdiction in which the fund will be marketed. They usually have to wait the customary 10 days before they can start marketing their products in other Member States. Asset managers also must comply with specific requirements to access certain markets (e.g., complying with local rules for fund disclosures, and in particular marketing communications, making local notices for specific changes, paying supervisory fees in the host Member State, submitting marketing communications to the host supervisor for pre-approval, maintaining a local presence through either a paying or tax agent, or reporting specific information to the local authorities). Moreover, when stopping active marketing in a specific jurisdiction, asset managers would also have to make a blanket offer to redeem to local investors who remain in the fund. An Alternative Investment Fund Manager would also be barred for 36 months from using the pre-marketing route to test investor appetite for another fund. This results in a situation where funds remain registered for marketing even though no additional marketing takes place, incurring costs associated with this registration (e.g., supervisory fees charged by host supervisors and other compliance costs necessary to maintain the registration).
MISP will remove these regulatory barriers. The Commission proposes to integrate the passporting notification within the authorisation process and allow funds to be distributed across Europe upon authorisation. The proposal would also remove the current impediments preventing asset managers from de-notifying a fund. Regarding marketing communications, the proposal will harmonise these communications and prevent the host Member States from introducing additional requirements, including an ex ante review requirement. Moreover, the proposal would also forbid Member States from mandating a local presence for the funds distributed within their borders. While other national market barriers are not explicitly addressed in MISP, transferring passporting rules from the UCITS/AIFMD framework to the Cross-Border Fund Distribution Regulation will reduce Member States' ability to goldplate. In either case, ESMA could use its new mandate to identify and address cross-border issues to crack down on any barriers the level 1 rules would have failed to address.
Removing these barriers would certainly result in savings for asset managers. The Commission estimates that MISP would reduce annual compliance costs by EUR 400,000 for a fund with EUR 500 million in assets under management. Looking at the entire sector, this could realistically result in hundreds of millions in savings. Although this would certainly be a welcome relief, it would not be a game-changer.
Author: Marin Capelle
