Luxembourg Parliament Adopts UCITS III Directives
According to a press release from ALFI, the Luxembourg Investment Funds Association,
Luxembourg’s parliament has voted in favour of transposing the new UCITS
(Undertakings for Collective Investment in Transferable Securities) directives
adopted by the European Parliament in January (UCITS III). ALFI said the move
was evidence of Luxembourg’s “determination to always offer one of
the most modern regulatory and tax environments to this important sector of
the national economy.” “Considering that one of the aims of this regulation is to further promote
the pan-European distribution of undertakings for collective investment, it
is expected that the new law will allow Luxembourg to strengthen its position
as a leading centre for the international distribution of investment funds,”
said the statement. The directives, which were published on 13 February this year, the aim to amend
85/611/EEC on the coordination of laws, regulations, and administrative provisions
relating to UCITS. The Management Directive (2001/107/EEC) introduces new legislation
covering fund management companies and the simplification of prospectuses, whilst
the Products Directive (2001/108/EEC) extends the scope of the existing UCITS
legislation with respect to other assets previously outside the remit of existing
legislation, including bank deposits, money market instruments, and units from
other funds. The Products Directive also clarifies the extent to which UCITS funds are
entitled to make investments in derivative financial instruments, as well as
making it easier for regulated funds to track stock-marked indexes. It will
make it easier, in principle, to market index-trackers and funds of funds across
the EU. The new rules will assist Luxembourg in maintaining its leading position as
a home for investment funds within the EU. There has been a significant volume
of investment fund management activity in Luxembourg for twenty years: in the
year 2000 assets in funds domiciled in the principality increased by US$70 billion
to US$817.3 billion; and despite the events of 9/11, assets had increased to
Euros 930 billion by the end of 2001. Responding to the upsurge of interest in hedge funds, Luxembourg had announced
in June, 2002 that it was preparing legislation to ease its regulatory regime
for hedge funds and venture capital funds. Domestic European hedge funds targeting European investors are usually based
in offshore centres such as the Cayman Islands, British Virgin Islands or Bermuda,
but are listed in Dublin rather than Luxembourg, because the Irish offshore
centre has less stringent authorisation. However Luxembourg has increasingly been the choice of US mutual funds looking
for a European base. The new legislation may equip Luxembourg to carve out a
substantial slice of the rapidly growing European market for retail hedge funds. .
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