Is The UCITS Management Company Passport Going Places?

Author:Mr Brian Higgins
Profession:Dillon Eustace
 
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Background to the Management Company PassportThe Management Company Passport (MCP) was first introduced inDirective 2001/107/EC (the Man Co Directive). However, the MCP hasfailed to work to date. This failure is largely due to a lack ofclarity 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 theUCITS is domiciled) of UCITS constituted as contractual funds suchas common contractual funds or unit trusts (contractual funds).Furthermore, the extent to which the passport applies to Man Cosof UCITS investment companies has not been free from doubt. InJanuary 20051, the Committee of European SecuritiesRegulators (CESR) issued Level 2 guidelines2 whichprovided clarification on the MCP procedures contained in the ManCo Directive. These guidelines indicated that the Man Co Directivedoes not provide for a Man Co to manage a UCITS from another EUmember state (Member State). Accordingly, despite the provision foran MCP in the Man Co Directive it has not yet worked inpractice.Later in 2005, the EU Commission (the Commission) issued aconsultation paper on enhancing the framework forUCITS3. This was followed in 2006 with a more detailedconsultation paper which announced a set of target modifications tothe UCITS Directive4. The areas which the Commissionrecommended be considered for modification were, (i) a newsimplified fund passport procedure (ii) mergers of UCITS funds on acrossborder basis (iii) UCITS master/feeder structures, (iv) keyinvestor 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 issuedits proposals for amending the UCITS Directive on 16 July 2008. Theproposals 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 UCITSIV.The MCP was not included in the current UCITS IV proposalsbecause, during the consultation process, concerns were raised by anumber of Member States and industry participants as to how clearallocation of responsibilities for supervision between thecompetent authority of the Man Co and the competent authority ofthe UCITS could be ensured. If this could not be ensured, it couldbe detrimental to investor protection and the internationalreputation of the UCITS brand.In an effort to address this supervisory concern, the Commissionhad proposed a "partial passport" pursuant to whichcertain core administrative functions namely, (i) verification ofvaluation and pricing and (ii) maintenance ofunit-holder/shareholder registers, would have to be carried out inthe UCITS' home Member State. However, the Commissionrecognised that its partial passport procedure had not provided afully satisfactory solution to this issue. Consequently, it did notinclude provision for an updated MCP in its UCITS IV proposal.Instead, it requested CESR to provide advice which would help theCommission "to develop provisions permitting the introductionof a management company passport under conditions which areconsistent with a high level of investor protection".Following the referral to CESR by the Commission, CESR issued acall for evidence on 17 July, 2008 (responses were received from avariety of sources including asset managers, fund administrators,law firms and industry bodies). A consultation paper containingdraft advice was issued in September, 20085 and an openhearing was held on 13 October, 2008. On 31 October 2008, CESRissued its advice to the Commission on the...

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