Is The UCITS Management Company Passport Going Places?

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


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 UCITS


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

1.1 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...

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