Undertakings for Collective Investment in Transferable Securities Directives

The Undertakings for Collective Investment in Transferable Securities Directives 2001/107/EC and 2001/108/EC (or "UCITS") are a set of European Union Directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. In practice many EU member nations have imposed additional regulatory requirements that have impeded free operation with the effect of protecting local asset managers.

Background

The objective of the original UCITS Directive 85/611/EEC, adopted in 1985, was to allow for open-ended funds investing in transferable securities to be subject to the same regulation in every Member State. It was hoped that once such legislative uniformity was established throughout Europe, funds authorised in one Member State could be sold to the public in each Member State without further authorisation, thereby furthering the EU’s goal of a single market for financial services in Europe.^[1]

The reality differed somewhat from the expectation due primarily to individual marketing rules in each Member State that created obstacles to cross-border marketing of UCITS. In addition, the limited definition of permitted investments for UCITS weakened the marketing possibilities of a UCITS. Accordingly, in the early 1990s proposals were developed to amend the 1985 Directive and more successfully harmonise laws throughout Europe. These discussions, although leading to a draft UCITS II directive, were subsequently abandoned as being too ambitious when the Council of Ministers could not reach a common position.

In July 1998 the EU Commission published a new proposal which was drafted in two parts (a product proposal and a service provider proposal), which sought to amend the 1985 Directive. These proposals were finally adopted in December 2001, and are known as "UCITS III", which are now in force. Interestingly, LuxAlpha - the major European part of Madoff scandal - was a UCITS regulated fund.^{[citation needed]}

Management Directive

The Management Directive 2001/107/EC, seeks to give management companies a “European passport” to operate throughout the EU, and widens the activities which they are allowed to undertake. It also introduces the concept of a simplified prospectus, which is intended to provide more accessible and comprehensive information in a simplified format to assist the cross-border marketing of UCITS throughout Europe.

Product Directive

The primary aim of the Product Directive 2001/108/EC is to remove barriers to the cross-border marketing of units of collective investment funds by allowing funds to invest in a wider range of financial instruments (including derivatives), which subject the same regulation in every Member state. All UCITS funds comply the same investment limits.

A collective investment fund may apply for UCITS status in order to allow EU-wide marketing. The concept is to create a single funds market across the EU. The aim is that with a larger market the economies of scale will reduce costs for investment managers which can be passed on to consumers.

Throughout Europe approximately €6.8 trillion are invested in collective investments. Of these funds about 76% are UCITS.^[2]

Developments

The proposal of UCITS IV Directive [1] was approved by the European Parliament on 13 January 2009 and also by the Council of the European Union as the Directive 2009/65/EC [2], to be implemented in 2011. This will update the UCITS III Directives by introducing the following changes,

• Notification Procedure
• Key Investor Information (KII)
• Adapted Framework for Mergers
• Master-feeder Structures
• Cooperation between Member State Supervisory Authorities
• Management Company Passport

See also

• Alternative Investment Fund Managers Directive 2009/0064/COM
• Markets in Financial Instruments Directive 2004/39/EC
• European company law
• UK company law and German company law
• Institutional investor
• Money market funds
• Fund of funds
• Investment Company Act of 1940

Notes

1. ^ nb at the time the EU was still the European Economic Community. The term European Union did not come about until 1992
2. ^ See EFAMA - Q3 2008

References

• "EUROPEAN COMMUNITIES (UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES) REGULATIONS 2003 (SI 211 OF 2003)(AS AMENDED)"
• "CESR’s guidelines concerning eligible assets for investment," July 2007
• "UCITS IV good news for the industry but lack of passport a serious concern," April 2008^{[dead link]}
• "UCITS IV directive", February 2009