UCITS IV: The Next Phase In The Evolution Of UCITS

Author:Ms Paula Kelleher
Profession:Dillon Eustace


UCITS IV is the latest step in the European Commission's

UCITS (Undertakings for Collective Investment in Transferable

Securities) project to create a genuine pan-European single market

for investment funds. The UCITS project has certainly been

successful: UCITS represent about 75% of the EU investment fund

market with assets under management amounting to around €6

trillion. One of the primary aims of the draft UCITS IV Directive

is that fund management firms would be able to pool and market

funds more freely and easily through the twenty seven Member States

of the European Union ultimately leading to significant cost

reductions for the industry and the investor.

To date, however, the road towards a new UCITS IV Directive has

not been smooth. The draft UCITS IV Directive had originally been

scheduled for publication no later than 30 April, 2008 but was not

actually published until the 16th of July of this year. The most

radical proposal, the "Management Company Passport", was

left out of the initial draft due to objections from a number of

Member States most notably Ireland and Luxembourg.

The Management Company Passport

It is proposed that a UCITS management company could operate

from a single jurisdiction within the EU and passport their

services to funds operating in other Member States thereby

achieving both economies of scale and better internal controls and

risk management. However, there were differing opinions as to how

this would work in practice since some Regulators felt that they

could not ensure adequate compliance with their requirements where

management companies were operating outside their jurisdictions.

Other concerns were expressed that such arrangements could make it

difficult for a UCITS fund itself to ensure that it operated in

accordance with the rules under which it is constituted.

Accordingly, the Management Company Passport proposal has been

omitted from the current draft of the Directive and the Committee

of European Securities Regulators ("CESR") has been given

a deadline of 1 November, 2008 to advise the commission on the

"the structure and principles which could guide potential

future amendments" to the UCITS IV Directive in relation to

the Management Company Passport. CESR recently announced that it

will conduct an open hearing at its headquarters in Paris on the 13

October, 2008 to consider the following aspects of the Management

Company Passport: 2

Definition of domicile;

Applicable law and allocation of supervisory


Authorisation procedure for UCITS funds whose management

company is established in another Member State;

On-going supervision of the management of the fund; and

Dealing with breaches of rules governing the management of the


We await the outcome of this hearing to see whether these issues

can be resolved to the satisfaction of all stakeholders. It should

be noted that there is widespread determination to incorporate the

Management Company Passport within the final UCITS IV Directive as

it enjoys support from most Member States, many investment

management trade associations in Europe and from the European Fund

and Asset Management Association ("EFAMA").

Key Features of the Current Draft UCITS IV Directive

The draft UCITS IV Directive as it now...

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