The European Commission has taken action in two specific areas to improve the efficiency of the EU single market for retail investment funds. These funds, known as 'UCITS'[1], provide consumers with access to professionally managed investments on affordable terms and now account for over €5500 billion of assets. First, the Commission has adopted legally binding guidance on whether new financial instruments can be included in investment funds. Second, it has issued guidance on how host country authorities should exercise limited scrutiny powers when UCITS are notified for sale in their country. These clarifications will ensure consistency in the authorisation and marketing of investment funds across the EU. The Commission will propose a more fundamental redesign of the EU 'passport' for investment funds later in 2007.
Internal Market and Services Commissioner Charlie McCreevy said: "This is another important step towards delivering an efficient single market for investment funds. We want investors to be able to benefit from new and innovative financial products. And we want to put a stop to the administrative barriers that prevent investors from taking advantage of funds in other Member States. We have worked closely with regulators and market participants to develop a common-sense approach to these issues, and we will work with Member States to ensure that these principles are upheld."
Financial instruments eligible for inclusion in EU investment funds
The Commission has specified, in the form of an implementing Directive, criteria for assessing whether different types of financial instrument are eligible for inclusion in UCITS funds. This measure will help to remove uncertainty as to whether UCITS can properly invest in the following financial instruments: asset backed securities; listed closed end funds; Euro Commercial Paper; index based derivatives; and credit derivatives.
The Commission proposed the implementing Directive taking into account advice from the Committee of European Securities Regulators (CESR). The proposal has received the approval of the European Parliament and of Member States. Member States now have 12 months to implement the Directive in national law. The Commission will carefully monitor this process to ensure even application throughout the EU.
The implementing Directive is complemented by additional work within CESR to codify the day-to-day application of these criteria by national enforcement authorities. This will further ensure their consistent implementation. This CESR guidance is available at: http://www.cesr.eu/index.php?page=groups&mac=0&id=28
Marketing of investment funds in another Member State
Under the EU UCITS Directive, a fund authorised in one Member State can be marketed in any other provided that it is notified to the authorities of that Member State (the 'host' authority). Under this procedure, the host authority has up to two months to review the notification and can specify how the fund should be advertised and promoted on its territory. However, national authorities are sometimes uncertain of how to apply the procedure correctly and of the borderline between the responsibilities of the Member States concerned. This has led to escalating administrative and compliance costs and significant delays in bringing authorised funds to market in other Member States.
The Commission has now clarified the relevant rules, in the form of an Interpretative Communication. In particular, the Commission has reaffirmed that an investment fund's home supervisory authority has sole responsibility for monitoring compliance with EU rules, and that the notification procedure cannot be used by Member States to challenge authorisation of UCITS granted in another Member State.
More information on both measures is available at:
http://ec.europa.eu/internal_market/securities/ucits/index_en.htm
[1] Undertakings for Collective Investment in Transferable Securities
