30 May 2000

Amended Commission Proposal on UCITS Directive

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In this first amended proposal the Commission has made two types of amendments:
Firstly, in response to the first reading by the European Parliament, a number of new provisions have been accepted, some with adapted wording. The majority of these serve either to reduce ambiguities or to elaborate further on the original proposal. Some new ideas expand on the original text but do not change the fundamental principles.
Secondly, the Commission has made some changes to ensure consistency between this text and other applicable Community legislation and to ensure internal consistency within the text itself. The key changes are:

Over-the-counter (OTC) derivatives: these instruments were excluded on prudential grounds. Parliament, the Council Working Group and the Economic and Social Committee strongly insist on the inclusion of OTC derivatives. These are now included and prudential concerns are covered, through provisions which include a ceiling for OTC derivatives as proposed by Parliament.

index tracking funds: the Commission accepts Parliament's proposal to lower the single issuer limit of 35% and to extend the provision to debt securities indices.

investments in bank deposits: since Parliament expressed its concerns in regard to liquidity and counter-party risk of these deposits, the amended proposal includes the requirements proposed by Parliament.

Investments in units of non-harmonised funds: under the Commission's original proposal, a harmonised fund (UCITS) would have been able to invest all of its assets in a number of non-harmonised funds. The Parliament called for a more cautious 30% limit for investments of harmonised funds (UCITS) into the units of non-harmonised funds. The amended proposal integrates the 30% threshold.

In the second amended proposal the Commission has made two types of amendments:

the inclusion of OTC derivatives as eligible instruments requires reviewing the issue of ongoing capital requirements which were not included in the initial proposal.

the amended proposal raises the initial capital requirement to EUR 125 000. This is consistent with the provisions on capital adequacy for investment firms in Directive 93/06/EEC.

by the same reasoning, the amended proposal introduces further ongoing capital requirements.

on the delegation of management functions, Parliament's amendment intended to limit the application of the provision on delegation solely to the delegation of the core function of investment management. The Commission's amended proposal does not follow this limited approach. The proposed provision still applies to the possible delegation of one or several functions included in the broad activity of collective portfolio management, but the change makes the provision more operational by requiring prior information to the competent authorities only, instead of prior approval.

© European Commission