Download Financial services Commission proposes to improve

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Brussels, 17 July 1998
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"Collective investment vehicles such as unit trusts are an efficient means to channel
savings into productive investment, and so contribute to the overall competitiveness
of the EU’s financial markets", commented Financial Services Commissioner Mario
Monti. "With the trend towards lower interest rates, such collective investment
vehicles are an increasingly popular alternative for average households to bank
deposits and investments in public sector bonds. These proposals will tackle
remaining obstacles which are preventing the collective investment market being
developed fully at the pan-EU level. We must put these measures into effect as
quickly as possible because the single currency will bring these obstacles into sharp
relief by encouraging cross-frontier investment and increasing competition."
Directive 85/611/EEC on Undertakings for Collective Investment in Transferable
Securities (UCITS) established a ’single licence’ regime for collective investment
undertakings (i.e. an authorisation for products to be sold throughout the Single
Market on the basis of approval in one Member State). Collective investment
undertakings are now established in all Member States whereas before the adoption
of theDirective in 1985 they were not widespread.
However, the Directive’s impact has been limited by the fact that its single licence
regime applies only to investments in transferable securities (essentially shares and
bonds) listed in a stock exchange or similar regulated market. The Commission is
therefore proposing to maintain the basic principles of the UCITS Directive but to
extend its scope and bring it into line with new practices so as to create a truly Single
Market for collective investment vehicles.
The proposed legislative framework would ensure a high level of protection for
individual investors by setting standards for both the investment products and the
managers undertaking the investment. As regards the products, the proposed rules
would ensure that funds raised from the public were invested in suitably qualified
assets and that basic risk-spreading requirements were respected. As for the
portfolio managers, the rules would impose strict market access and operating
conditions and controls. This dual approach would encourage a climate of investor
confidence in which the markets can develop on an EU-wide basis.
One proposal focuses essentially on the “product” (the investment fund). It would
extend the range of financial assets in which collective investment undertakings
benefiting from the single licence may invest. In future, UCITS would be permitted to
invest not only in listed shares and bonds, but also in bank deposits (cash funds),
money market instruments (money market funds), standardised option and futures
contracts dealt on regulated exchanges and in units of other collective investment
undertakings (so-called 'funds of funds'). The proposal's rules on risk-spreading
would also recognise the validity of new investment management techniques already
widely and successfully employed (such as those based on investing in shares of
different issuers according to the same weighting as is used in the basket on which a
particular stock-index is based).
The other proposal focuses on the financial intermediary which may manage UCITS
(the management company). It would introduce co-ordinated rules on market
access, operating conditions and prudential safeguards to be respected by
management companies. This coordination would not only allow a 'single licence'
regime equivalent to that already enjoyed by all other financial operators (banks,
investment firms, insurance companies) whereby financial intermediaries authorised
to offer services in one Member State may offer their services throughout the Single
Market, but also increase investor protection by ensuring that such intermediaries
were sound, reliable and professional institutions.
The second proposal also overcomes the existing segmentation between individual
and collective portfolio management. In future, management companies could be
authorised to carry out simultaneously both the management of collective investment
undertakings and portfolios on behalf of private and institutional investors, including
pension funds.
The UCITS proposals, which were foreseen in the Action Plan for the Single Market
(see IP/97/478), are part of the Commission's efforts to improve the functioning of
the Single Market in financial services, in accordance with the request of the 15-16
June European Council in Cardiff.
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A financial services ’framework for action’, examining the effectiveness of
implementation and identifying weaknesses in the legislative approach, is currently
being prepared by the Commission for discussion at the Vienna European Council in
December. The UCITS proposals will also serve as the basis for Commission
proposals on a specific instrument to allow EU-wide marketing of units of venture
capital funds, as announced in the Communication on risk-capital markets (see
IP/98/305).
Both proposals for Directives will be submitted to the Council of Ministers and the
European Parliament for adoption under the co-decision procedure.
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