Brussels, 16 July 2007
The European Commission has proposed an important revision of the EU framework for investment funds, which provides consumers with access to professionally managed investments on affordable terms. These funds, known as 'UCITS' (Undertakings for Collective Investment in Transferable Securities) at the end of last year accounted for over €6.4 trillion of assets in total which is equivalent to half of the Union's GDP and represents 11.5% of European household financial assets. The new provisions will increase the efficiency of the current legislative framework in a number of key areas. First, it will allow UCITS managers to develop their cross-border activities and generate savings consolidation and economies of scale. Currently EU funds are on average 5 times smaller than US funds and the cost of managing them are twice as high as in the US. Second, investors will benefit from a greater choice of investment funds operating at lower costs. Third, the proposal also seeks to improve investor protection by making sure that retail investors receive clear, easily understandable and relevant information when investing in UCITS. These improvements will help reinforcing the competitiveness of UCITS on global markets. Currently 40 % of UCITS originating in the EU are sold in third countries, mainly Asia, the Gulf region and Latin America. As part of the Commission's Better Regulation Strategy and its firm commitment to simplify the regulatory environment, the new Directive will replace 10 existing directives with a single text. The proposal now passes to the European Parliament and Council for consideration.
Internal Market and Services Commissioner Charlie McCreevy said: "The UCITS proposal represents a real breakthrough for investment funds in Europe. The enhanced regulatory environment will reduce unnecessary costs and bureaucracy in cross-border operations and improve investor protection. The expected benefits of this package to the EU industry are estimated to more than €6 billion. We expect these benefits to lead to lower costs for investors. During the last years, we have carefully identified the areas where improvement in existing provisions needed to be introduced. This was done on the basis of an extended consultation process and in-depth cost-benefit analysis. This legislative package should ensure that the UCITS rulebook continues to be a success story in Europe and also in other parts of the world, like Asia or Latin America, where the UCITS brand is widely sold and highly valued."
The proposed changes to the UCITS Directive will:
Investment funds are investment products created with the sole purpose of gathering assets from investors, and investing those assets in a portfolio of financial instruments such as stocks, bonds and other securities. In this way, small investors have access to a professionally managed and diversified basket of financial instruments at affordable costs. Investment funds are a long-term savings product widely used by European households. They account for 11.5% of European household financial assets.
UCITS (Undertakings for Collective Investment in Transferable Securities) are investment funds established and authorised in conformity with the requirements of Directive 85/611/EEC. Once authorised, a UCITS fund can be distributed to investors across the EU upon notification to the corresponding national authorities. The Directive has been key to the successful development of the European market for investment funds. Today, UCITS funds manage assets amounting to € 6400 billion (i.e. about half of the EU GDP).
The UCITS Directive lays down common requirements for the organisation, management and oversight of UCITS funds. The Directive defines a list of eligible assets in which a UCITS fund can invest. It also imposes rules relating to the diversification and liquidity of the fund's portfolio. Thanks to these strict requirements, UCITS funds enjoy world-wide the reputation of a well supervised financial product. They have also protected UCITS funds against the severe effects of the recent financial turmoil.
More information is available at:
UCITS proposed Amendments: Citizen's Summary
UCITS (Undertakings for Collective Investment in Transferable Securities) are investment funds that have been established under EU law since 1985. Once registered in one EU country, a UCITS fund can be freely marketed across the EU. Managing over €6 trillion in assets in 2007, UCITS have proven to be successful and are widely used by European households. UCITS are also regularly sold to investors outside the EU where they are highly valued due to the high level of investor protection they embody.
2. What is the issue?
3. Why is an EU level action necessary?
UCITS were originally set up under EU law. With some of the parts of the law not working properly, amending it would be the best solution.
4. Content of the proposal
The amendments to the UCITS Directive will:
5. Expected benefits from the proposal
The expected economic savings will benefit both industry and investors. Direct ongoing efficiency gains could amount to several billion euros annually. Greater flexibility to organise and manage funds will create new business opportunities and increase the competitiveness of the European fund industry. Preserving the high level of investor protection will reinforce the attractiveness of UCITS within and beyond EU borders. These positive effects will contribute to the Lisbon strategy of creating growth and jobs in Europe.
Investors may share benefits in form of lower investment fees and charges, increased competition and improved product information. Lower costs for managing funds will have positive effects on fund performance. Removing barriers for cross-border marketing of funds will increase the choice of funds for investors or their financial advisors. Faced with increased competition, fund promoters will need to make their offer more attractive to investors. Improved product information will help investors to compare funds and make informed investment decisions.
6. When will the proposal come into effect?
If the proposal is adopted by the EU Council of Ministers and the European Parliament in the second quarter of 2009, its provisions will come into force mid 2011.