Has An Effective UCITS Management Company Finally Arrived?

Author:Mr Brian Higgins
Profession:Dillon Eustace

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

Man Co

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...

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