MEPs give green light to EU investment fund overhaul 

MEPs overwhelmingly backed the reform presented by the European Commission (589 votes in favour, 28 against and 38 abstantions), but added a provision for a so-called 'financial passport' for fund managers to the text, which is expected to facilitate the creation of a truly European market of investment funds. Internal Market Commissioner Charlie McCreevy did not include the passport provision in the Commission's initial proposal, raising bitter concerns from industry and member states (EurActiv 06/11/08).

Industry argues that reform of the sector is urgently required, with the financial crisis making changes even more necessary. According to the latest figures published by EFAMA, the European Asset Management Association, in the third quarter of 2008, the total value of assets under UCITS management shrank by 6.4% to €5.2 trillion. A few months earlier, the industry had boosted assets to over €6 trillion. The European Central Bank yesterday confirmed the negative trend, signalling a drop of European investment fund assets to €4.7 trillion in September.

The review of the current rules also includes the elimination of administrative barriers to cross-border marketing of UCITS (Undertakings for Collective Investment in Transferable Securities). The current directive already allows fund managers to market their products in other countries, but a cumbersome notification procedure slows down cross-border transactions significantly, with extra costs for the industry of around €45 million a year, according to Commission figures.

The current two-month deadline between notification and access to other markets will be replaced by a simplified regulator-to-regulator electronic procedure "that would allow the UCITS to have immediate access to the targeted markets," according to the EU executive.

Another important change is the introduction of provisions for fund mergers to address the 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 new rules also aim to improve the quality of product disclosure to retail investors, simplifying the current set-up by introducing the concept of 'key investor information'.

ALDE MEP Wolf Klinz, the European Parliament's rapporteur on UCITS, commented : "Parliament has voted for the introduction of a management company passport, promising huge cost savings and a true common market for the fund industry. Cooperation of supervisors has been strengthened and facilitated, raising efficiency by introduction of the management company passport while at the same time keeping the high level of investor protection."

Conservative MEP John Purvis, vice president of the Parliament's economic and monetary affairs committee, added: "UCITS are a vital part of the single market in financial services. The updated regulation will bring the investment fund market closer together and enable it to operate more efficiently as it grows and changes. Ultimately the new legislation will reduce costs and improve choice for consumers."

Welcoming the vote, Mathias Bauer, president of EFAMA, the European Asset Management Association, said : "Efficiency and confidence are crucial if the investment fund industry is to remain competitive, in particular under the current difficult market circumstances. UCITS IV will enable asset managers to deliver these efficiency gains, increase confidence in the existing UCITS framework and help promote the UCITS brand even more. We particularly welcome the shorter notification procedure, which will reduce time to market for cross-border fund distribution. The key investor information will give investors a much needed overview of the essential elements of a fund in a language that is both clear and easy to understand."