Background to the Management Company Passport
The Management Company Passport (MCP) was first
introduced in Directive 2001/107/EC (the Man Co
Directive). However, the MCP has failed to work to date.
This failure is largely due to a lack of clarity in the wording of
certain sections of the Man Co Directive. In particular, it appears
to prevent remote management (i.e. management from an EU member
state other than the one in which the UCITS is domiciled) of UCITS
constituted as contractual funds such as common contractual funds
or unit trusts (contractual funds).
Furthermore, the extent to which the passport applies to Man Cos
of UCITS investment companies has not been free from doubt. In
January 20051, the Committee of European Securities
Regulators (CESR) issued Level 2
guidelines2 which provided clarification on the MCP
procedures contained in the Man Co Directive. These guidelines
indicated that the Man Co Directive does not provide for a Man Co
to manage a UCITS from another EU member state (Member
State). Accordingly, despite the provision for an MCP in
the Man Co Directive it has not yet worked in practice.
Later in 2005, the EU Commission (the
Commission) issued a consultation paper on
enhancing the framework for UCITS3. This was followed in
2006 with a more detailed consultation paper which announced a set
of target modifications to the UCITS Directive4. The
areas which the Commission recommended be considered for
modification were, (i) a new simplified fund passport procedure
(ii) mergers of UCITS funds on a crossborder basis (iii) UCITS
master/feeder structures, (iv) key investor information (to replace
the simplified prospectus) (v) measures to enhance cooperation
between competent authorities and (vi) the MCP.
Following a lengthy consultation period, the Commission issued
its proposals for amending the UCITS Directive on 16 July 2008. The
proposals provide for the modification referred to at (i)
– (v) above, but do not contain provision for a new,
effective MCP. These proposals are commonly referred to as
The MCP was not included in the current UCITS IV proposals
because, during the consultation process, concerns were raised by a
number of Member States and industry participants as to how clear
allocation of responsibilities for supervision between the
competent authority of the Man Co and the competent authority of
the UCITS could be ensured. If this could not be ensured, it could
be detrimental to investor protection and the international
reputation of the UCITS brand.
In an effort to address this supervisory concern, the Commission
had proposed a "partial passport" pursuant to which
certain core administrative functions namely, (i) verification of
valuation and pricing and (ii) maintenance of
unit-holder/shareholder registers, would have to be carried out in
the UCITS' home Member State. However, the Commission
recognised that its partial passport procedure had not provided a
fully satisfactory solution to this issue. Consequently, it did not
include provision for an updated MCP in its UCITS IV proposal.
Instead, it requested CESR to provide advice which would help the
Commission "to develop provisions permitting the introduction
of a management company passport under conditions which are
consistent with a high level of investor protection".
Following the referral to CESR by the Commission, CESR issued a
call for evidence on 17 July, 2008 (responses were received from a
variety of sources including asset managers, fund administrators,
law firms and industry bodies). A consultation paper containing
draft advice was issued in September, 20085 and an open
hearing was held on 13 October, 2008. On 31 October 2008, CESR
issued its advice to the Commission on the introduction of an
effective MCP (CESR Advice).
Key elements of CESR Advice
Definition of domicile
The Man Co's home Member State should be the Member State
in which the Man Co's registered office or head office is
Authorisation of the business of Man Cos should be granted by
the Man Co's competent authority. The CESR Advice sets out
those conditions which must be satisfied in order for such
authorisation to be granted. One of the pre-conditions for
authorisation is that the Man Co must manage at least one UCITS in
its home member state.
The authorisation of the Man Co should allow the Man Co to
provide services throughout the EU, either through the
establishment of a branch or under the free provision of
The UCITS' home Member State for contractual funds should
be the Member State in which the...