Commission requests Portugal to ensure proper application of EU rules for investment funds

01 September 2010

The Commission's request to Portugal takes the form of a reasoned opinion, the second stage of an infringement procedure. If the national authorities do not reply satisfactorily within two months, the Commission may refer the matter to the Court of Justice of the EU.

 The European Commission has decided to request Portugal to comply with its obligations to apply all provisions of the Undertakings for Collective Investment in Transferable Securities Directive (UCITS Directive). In particular, the Commission will request Portugal to ensure that UCITS fund managers comply with the restrictions laid down by the Directive on assets in which they may invest. The aim of this Directive is to provide a common framework for the functioning of UCITS funds in the Member States. The lack of proper implementation of this Directive risks distorting competition in the retail investment fund market. 

Investment funds are investment products created with the sole purpose of gathering investors' capital, and investing that capital collectively through a portfolio of financial instruments such as stocks, bonds and other securities. The UCITS Directive (85/611/EC) provides for common rules for setting up and operating investment funds in the EU. In 2009, UCITS funds accounted for over € 5 trillion of assets, the equivalent of half EU GDP.As a result, UCITS may be sold to investors across the EU following a simple notification procedure. In order to ensure an effective and uniform protection for investors, the UCITS Directive lays down minimum rules concerning, among other issues, investment limits, portfolio composition, the use of certain instruments and techniques for managing UCITS and borrowing conditions in respect of investments made by UCITS. Member States cannot, except when expressly permitted by the UCITS Directive, allow UCITS to invest in assets other than those permissible under this Directive or to invest in these assets to a greater extent than permitted. 

In 2008, Portugal adopted a law that amends the rules on UCITS in Portugal. Under these changes, the Portuguese Securities Commission is authorised to grant general derogations to UCITS fund managers. These derogations include the possibility for Portuguese UCITS to invest in assets other than those permissible under this Directive or to invest in these assets to a greater extent than permitted. 

The Commission considers these derogations to contradict the overarching principles of the UCITS Directive and therefore finds Portugal to be in breach of its obligations under the Directive. 

UCITS funds that receive a derogation from the Portuguese Securities Commission would be in a different, more advantageous position than other UCITS funds in other Member States, as these would be obliged to respect the relevant national laws that transpose the requirements of the UCITS Directive. Such differences, even if applied only for a limited period, would risk distorting competition in the European retail investment fund market.

Press release

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