Commission acts to improve investor protection and efficiency in the EU investment fund market

News - Funds

Written by Ray Clancy

Monday, 05 July 2010 10:00

Improvements to the European framework for investment funds means better protection for investors, less red tape and enhanced transparency, according to The European Commission.

It has announced new rules for UCITS (Undertakings for Collective Investment in Transferable Securities) which accounted for over €5 trillion of assets in 2009, equivalent to half of EU GDP.

The new rules better empower investors by requiring a new standardised fund document, while also setting out in detail the high standards of conduct of business that UCITS fund managers must comply with.

They also improve the efficiency of the UCITS market in the EU by introducing and facilitating new possibilities for the pooling of assets from different funds, by simplifying the cross border distribution of UCITS and by better coordinating the work of national supervisors, it said.

‘The new rules will improve investor protection, cut red tape and further strengthen the global competitiveness of Europe’s investment funds. Furthermore, the steps we have taken to enhance transparency and the effectiveness of our rules show that Europe has learned its lessons from the crisis. I hope the hard won trust we have earned from investors will deepen in the future. With the framework now in place, the hard work of implementation for both supervisors and market participants begins,’ said Internal Market and Services Commissioner Michel Barnier.

The Commission has adopted detailed requirements in the form of four acts; two Directives and two Regulations. Member States now have 12 months to implement the directives, while the regulations will apply from 1 July 2011.

These acts include a new standardised and harmonised disclosure document designed to empower investors to take effective investment decisions. An implementing Regulation covers the content and form of the document, including the use of plain language and a much more investor friendly presentation of information about risk.

These rules also cover the prevention, management and disclosure of conflicts of interest. The Directive further obliges UCITS managers to employ sufficiently robust and effective procedures and techniques so that they are able to adequately manage the different types of risk the UCITS might face.

An implementing Directive details certain investor protection measures in relation to UCITS mergers and master feeder structures and establishes a common approach to the sharing of information between master pooling technique and feeder UCITS. It also covers detailed rules on the liquidation, merger or division of a master UCITS.

A regulation sets out the details of standard documents and procedures to be used for electronic transmission in the notification procedure used by a UCITS when it wishes to gain access to the market in another Member State. It also contains common procedures for enhancing supervisory cooperation in their oversight of fund managers’ cross border activity of fund managers.

It is now up to Member State competent authorities and market participants to implement the changes and deliver the vital improvements to transparency, efficiency and effectiveness.