EU Agrees Common Position On Extension Of UCITS Directive

by Ulrika Lomas, Tax-News.com, Brussels

11 June 2001

The EU's ECOFIN Council (meeting of Finance Ministers) that took place on 5th June agreed a common position on an extension of the UCITS Directive (Undertakings for Collective Investment in Transferable Securities) which currently permits mutual funds investing only in listed securities to be marketed across all members of the EU.

The UCITS Directive led to an explosion of mutual fund listings in the two EU member states with low-tax investment regimes, being Ireland and Luxembourg. An extension of the regime, which now seems probable, can only help to underpin the fund managment industry in these two countries.

The new rules, which have yet to complete their passage through the EU's Byzantine decision-making procedures, would allow investment in a somewhat wider range of securities, and, perhaps more importantly, would install a 'common passport' regime for the promoters of funds.

ECOFIN's announcement went as follows:

'The Council formally adopted two Common positions on undertakings for collective investment and securities amending Directive 85/611/EEE on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS),

- one dealing with investment of UCITS (UCITS I),

- the other dealing with management companies and simplified prospects (UCITS II).

'It is recalled that the Council reached political agreement on UCITS I on 17 October 2000 and took note of a political agreement reached in Coreper on UCITS II on 1 March 2001

'UCITS I aims in particular to extend the limits on assets in which UCITS may invest beyond those transferable assets referred to in the original Directive, and to define the details involved.

'Assets in which investments would be authorised include the following financial instruments: units of authorised UCITS and/or other collective investment undertakings within the meaning of the Directive, deposits with credit institutions, financial derivative instruments dealt in a regulated market or over-the-counter, and money market instruments.

'UCITS I contains specific rules on risk management and risk spreading for the above listed investment instruments. Thus, as a general rule, a UCITS may invest no more than 5% of its assets in transferable securities or money market instruments issued by the same body, and no more than 20% of its assets in deposits made with the same body. Moreover, in principle, investments in UCITS units or other collective investment bodies may not exceed 10%, but Member States may raise this limit to 20%. However, investments made in units of collective investment undertakings other than UCITS may not exceed, in aggregate, 30% of the assets of the UCITS.

'UCITS II aims to boost levels of consumer protection and confidence in financial products by introducing, in particular, rules for service providers, management companies and UCITS simplified prospectuses. UCITS II contains specific provisions on capital adequacy requirements and guarantees.'

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