EU backs down on free movement of investment funds[fr][de] 

The passport would allow European asset managers to trade and run so-called UCITS funds (Undertakings for Collective Investment in Trasferable Securities) throughout the Union regardless of their country of domiciliation. 

According to a Commission internal document obtained by EurActiv, this would result in "a source of potential efficiency gains for the European fund industry". The instrument would only have been applied to UCITS funds (equity funds, bond funds, balanced funds and money market funds) regulated by the UCITS Directive and amounting to €64 trillion of assets at the end of 2007.

But the working document underlines that the introduction of the passport has been hindered by the "potential confusion over the allocation of responsibilities between supervisors". Rather than introducing such a passport, the Commission has therefore asked the Committee of European Securities Regulators (CESR) to present, by November, a report clarifying how national supervision will work efficiently at cross-border level with the passport in place.

Conversely, the proposal to be presented by the Commission includes a set of amended rules aimed at streamlining fund managers' operations at EU level. The most important measure will be the elimination of administrative barriers to cross-border marketing of UCITS. The current UCITS Directive already allows fund managers to market their products in other countries but a cumbersome notification procedure slows it down significantly, with extra costs for the industry of around €45 million a year, according to the EU executive's figures.

EU Internal Market Commissioner Charlie McCreevy will propose replacing the current two-month deadline between notification and access to another market with a simplified regulator-to-regulator electronic procedure "that would allow the UCITS to have immediate access to the targeted markets," according to an internal Commission document.

Brussels will also call for the introduction of provisions for fund mergers to address the current relatively limited size of EU funds. According to EU data, in 2007 an average UCITS had €199 million under management compared to €1,100 million for a US fund.

The proposal also aims to improve the quality of product disclosure to retail investors by simplifying the current prospectus through the introduction of the 'key investor information' concept.

The move to leave out the passport represents an apparent attempt by Irish Commissioner McCreevy to avoid dealing a blow to his country before the end of his mandate in mid-2009. Indeed, the provision had been strongly opposed by Ireland and Luxembourg, the two European paradises for the domiciliation of funds (EurActiv 11/07/08). 

But the commissioner's move is likely to encounter criticism from the EU's French Presidency and the majority of EU member states. 

The industry itself gave a multi-faceted response. EFAMA, the association representing European asset managers, welcomed the announced measures, although it pointed out that it is expecting the Commission to come up with an "appropriate proposal" on the financial passport "before the end of this Parliament's term", according to a statement. 

Meanwhile, the European Banking Federation (EBF) also welcomed the approved measures but underlined that it "continues to attach great value to the asset management company passport, which was under the mandate of the current Commission and Parliament," reads a statement.

According to the EU legislative timetable, the Commission may come up with new proposals for directives no later than by the end of October 2008 in order to allow the current Parliament to vote on them before its renewal in June 2009. Therefore, unless MEPs introduce amendments to the Commission plans calling specifically for the adoption of the passport, it is very likely that this provision will be buried until the establishment of the new EU executive in autumn 2009 (EurActiv 15/04/08).