The UK has moved to catch up as a fund administration hub with European market leaders Luxembourg and Dublin, but the country still needs to sharpen incentives for this sector, a senior industry figure says.

Habit and “conservatism” hinder moves to draw fund administrators to the UK from foreign locations. However, political leaders in the UK also need to provide further incentives to promote centres such as London, Richard Saunders, director general of the Investment Management Association, said in a note.

The IMA represents much of the UK investment industry. Its members oversee around £3.9 trillion (around $6.02 trillion) of assets.

“Our friends in Luxembourg and Ireland have done well. But why is it that UK investment managers have chosen to join their continental European colleagues by putting their funds there rather than in the UK?” Saunders says.

One of the historic reasons for the UK’s slowness in the fund administration area, contrasting with other centres, was “a number of bone-headed rules in the UK tax system which raised no revenue but brought uncertainty and expensive administration costs which made it deeply unattractive to locate funds in the UK,” he says.

The fund administration business may not grab the same kind of business limelight as, say, investment banking or trading, but the industry is large by volume of assets. The pan-European market for UCITS and non-UCITS funds is worth a combined €7.885 trillion of assets, as of end-June this year (source: Efama).

There are a number of UK reforms made in recent years that have helped the country narrow its gap with other European fund locales, says Steve Lynam, head of tax at the IMA. For example, budget reforms in 2009 created more certainty for funds, saying they would be treated as investing and not trading, ensuring they kept a meaningful capital gains tax exemption. Qualified Investor Schemes can be set up without being stymied by complex tax rules. Meanwhile, since 2002, investors not domiciled in the UK are not subject to inheritance tax – the same approach as in Ireland and Luxembourg.

“There has been a 'sea change' in the attitude of UK tax officials to the needs of the industry. They view themselves as allies of the industry and do their best to deal with questions and concerns with competence and efficiency,” Lynam added.