25 October 2005

Commission summary report on UCITS hearing

The Commission issued a summary report on the UCITS hearing of 13 October. The open hearing revealed that industry and other stakeholders are anxious to bring about clear operational improvements to the European single market framework. In this regard, concerns were repeatedly voiced concerning the simplified prospectus. This is not delivering comparable, investor-friendly disclosures and in some Member States is grossly inflated in terms of information required. Hearing participants also focused on the need to eliminate unnecessary delays, uncertainty and costs arising from the way in which UCITS notification procedures are currently implemented.

Industry was vocal in its demands for improvements in the area of fund mergers and asset pooling, and for provision of a management company passport. Participants from the regulatory community were more reserved on these points: they emphasised the need for confidence that effective supervision and investor protection would not be hampered. The challenge now will be to deliver cost-effective solutions in time-frames that are relevant to industry – and which satisfy the concerns of regulators. Consumer representatives stressed that innovation in product design had made many financial products increasingly hard to evaluate. The introduction of UCITS III has added to this complexity and highlighted the need for more effective levels of disclosure and transparency.

There was intense focus on distribution as a cost-centre for the European fund industry. Representatives of fund managers repeatedly pointed to the heavy price that had to be paid to purchase ‘shelf-space’ in the leading retail bank outlets. This was a major drag on competition and efficiency in the retail fund business. Discussions also identified back-office considerations as contributing to higher costs which arise as the industry progresses towards more ‘open architectures’. The industry, itself, needs to drive change in these areas.

There were some calls for extensive modernisation of UCITS law – to update core regulatory principles and to transform it into a Lamfalussy Directive. This was tempered by realisation that this would be a long and painstaking task. The majority view was that attention should focus on gathering ‘low hanging fruit’.

Concern was expressed about encroachment from substitute investment products (life-insurance and listed certificates). Consideration needs to be given to bringing disclosure and transparency requirements for these products onto a par with those for UCITS.

Full report

© European Commission