Select Committee on European Scrutiny Seventh Report


UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES (UCITS)


(21330)
9175/00
COM(00) 331

Draft Directive amending Directive 85/611/EEC on the
co-ordination of laws, regulations and administrative
provisions relating to undertakings for collective
investment in transferable securities (UCITS) with a view
to regulating management companies and simplified
prospectuses.


Legal base: Article 47(2) EC; co-decision; qualified majority voting
Department: HM Treasury
Basis of consideration: Minister's letter of 26 February 2001
Previous Committee Report: HC 23-xxiv (1999-2000), paragraph 6 (12 July 2000)
To be discussed in Council: 1 March 2001
Committee's assessment: Politically important
Committee's decision: Cleared

Background

  15.1  The Directive (85/611/EEC) on undertakings for collective investment in transferable securities (UCITS) sets out harmonised EU rules for collective investment schemes (unit trusts and open-ended investment companies). In our Report of 12 July 2000, we reported on two proposals to amend the UCITS Directive. The first proposal, which we cleared, concerns mainly the further removal of barriers to cross-border marketing of UCITS and extends harmonisation to undertakings investing in a wider range of financial instruments (the units of other collective investment undertakings, deposits, futures and options contracts and money market instruments not dealt in on a regulated market).[48]

  15.2  However, the second proposal, which focussed on the regulation of a management company of a UCITS, was more problematic and was left uncleared. We asked to consider a further draft of the proposal in due course. The Swedish Presidency has now tabled a revised text of the second proposal. On 12 February ECOFIN remitted this text to COREPER for further discussion, with a view to reaching an agreement by 1 March.

The Government's view

  15.3  According to the Economic Secretary to the Treasury (Miss Melanie Johnson) the two proposals taken together would advance the single market for collective investment schemes by:

    —  increasing the range of assets harmonised funds could invest in;

    —  introducing a passport to permit the companies that manage UCITS to operate on a cross-border basis; and

    —  introducing a harmonised EU-wide marketing document — the simplified prospectus.

  15.4  As regards the document on the second proposal, the Minister told us in July that the Government remained concerned about the proposal, especially the restriction on management companies delegating asset management to persons having a qualifying holding in the management company's capital. The Minister also reported that the Government was not convinced that the higher capital requirements proposed by the Commission were justified. The Regulatory Impact Assessments (RIAs) estimated that the proposal, especially the prohibition of the delegation of asset management to a parent company, would involve significant restructuring costs for the UK industry, possibly in excess of £100 million. Consequently we left the document uncleared and asked to consider a further draft in due course.

  15.5  The Minister's letter of 26 February informs us that the Swedish Presidency text has removed the restriction on management companies that previously caused concern. The Minister also comments given the relatively high costs to the UK industry of this restriction, the Minister sees the removal of this restriction as an important gain for the UK. The Minister also reports that the UK has achieved significant improvements to the proposals on regulatory capital. In particular:

    —  resisting pressure to impose a 0.05 per cent charge related to funds under management and securing a lower 0.02 charge; and

    —  the inclusion of a review clause requiring the capital proposals to be reviewed after three years in the light of international developments such as the Basel review of capital requirements in the banking sector.

  15.6  The Minister also tells us that the proposal contains provisions for a fully harmonised EU-wide marketing document, the 'simplified prospectus' that, as a welcome single market measure, would make it easier for UK-based UCITS firms to sell their products in other Member States.

  15.7  Finally, the Minister informs us that, given the improvements to the proposal, the Government intends to support the text at COREPER on 1 March.

Conclusion

  15.8  The Swedish Presidency has produced a text that removes the elements that provoked most concern. The Minister has also made it clear that the amended proposal has United Kingdom support. On this basis we are content to clear the document.



48  (21338) 9124/00; see headnote to this paragraph. Back


 
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Prepared 15 March 2001