Brussels, 16 July 2007
Financial services: Commission proposes
improved EU framework for investment funds
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:
- Remove administrative barriers to the cross-border distribution of UCITS
funds: Current burdensome notification procedures can take several months before
completed. They entail unnecessary red-tape and administrative costs estimated
to around €45 million. The new notification procedure will be reduced to a
simple, electronic, regulator-to-regulator communication. The distribution of
units of funds will start immediately after such communication.
- Create a framework for mergers between UCITS funds and allow the use of
master-feeder structures: Fund mergers will be allowed, on both a domestic and a
cross-border basis, and their authorisation procedure will be harmonised, as
will the required level of information to be provided to investors. Subject to
approval and the appropriate information of investors, a UCITS fund (feeder)
will be allowed to fully invest its assets into another fund (master). It is
estimated that these new management opportunities will allow UCITS to make up to
€6 billion in savings and economies of scale. These could in turn be
shared with investors in the form of lower investment costs.
- Replace the Simplified Prospectus by a new concept of Key Investor
Information (KII): KII will be contained in a short document conveying key facts
to retail investors in a clear and understandable manner so as to assist them in
taking an informed investment decision.
- Improve cooperation mechanisms between national supervisors. As regards the
"management company passport" (i.e. the possibility for funds authorised in one
Member State to be managed remotely by a management company established in
another Member State), the most recent consultation process has revealed that
there are a series of potential supervisory and investor protection concerns.
These need to be tackled if the MCP is not to lessen the protection of retail
investors or endanger the UCITS brand - traditionally considered to be a
European "gold standard" for investor protection. The Commission has therefore
decided to consult the Committee of European Securities Regulators (CESR) on
these issues. A mandate to CESR will be sent out today. CESR will be invited to
provide advice that will help the Commission to develop provisions permitting
the introduction of a management company passport under conditions that are
consistent with high level of investor protection. In that regard CESR will be
invited to advise the Commission by 1 November 2008 on the structure and
principles which could guide potential future amendments to the UCITS directive
which may be needed to give effect to the UCITS management company passport.
Following that advice the Commission will come forward with an appropriate
proposal in time to allow for its adoption during the current
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?
- The procedure for marketing UCITS between Member States is too long and
bureaucratic. This reduces the cross border flow of funds.
- UCITS disclosure documentation (simplified prospectus) does not currently
help investors to make informed assessment on proposed investments.
- Compared to the US, the average size of a European fund is small. Without a
consolidation mechanism or the possibility of co-managing funds, the costs of
managing UCITS remain high. These costs are passed on to investors.
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:
- Remove administrative barriers to the cross-border marketing of UCITS:
Marketing can start without delay once the regulator of the fund has notified
the financial regulator in the EU country where he wants to sell its
- The simplified prospectus will be replaced by the Key Investor Information
(KII) concept: This will be a simple document giving key facts to investors in a
clear and understandable manner. It will assist them in making an informed
- Mergers between UCITS funds will become easier: There will be single rules
across the EU on the requirements for authorisation of a fund merger and on the
information that will have to be made available to investors;
- Provide for 'master-feeder' structures, where a UCITS fund (feeder) will be
allowed to fully invest its assets into another fund (master);
- Improve cooperation mechanisms between national
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
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
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