The Commission’s UCITS IV Proposal: Is It Sufficient to Create a True Single Market Platform?Briefing paper delivered to the European Parliament, Economic and Monetary Affairs Committee (2008)
AbstractThe UCITS IV proposal recasting the 1985 UCITS Directive (85/611/EC) does represent a significant and necessary regulatory improvement of the existing harmonized UCITS regime to foster the construction of a truly pan-European competitive market for European UCITS. The proposal tackles at least some of the regulatory obstacles to a deeper market integration and it should prove effective especially in its new provisions on (national and cross border) mergers and asset pooling. I also welcome the proposals of reform concerning, on one hand, the simplification of the notification procedure to be followed in order to market UCITS units in one or more host Member States and, on the other hand, the shift in the disclosure philosophy, as regards the information to be given to retail investors, from prospectus to “key investor information” (KII). In the legislative debate attention must be paid, however, to the adequacy of the safeguards provided for by the proposal in the interest of unit holders and potential investors at large. Nonetheless, despite the remarkable efforts of the UCITS IV proposal, it seems quite dubious that these major amendments to the UCITS Directive shall suffice to create a truly single market platform. On one hand, the current (provisional) decision of the Commission not to implement a well functioning management companies’ passport due to concerns on their proper cross-border supervision, clearly restrains competition on a pan-European scale and limits the efficiency and flexibility gains expected by the industry from UCITS IV. It remains to be seen, therefore, the position which CESR shall take on the Commission request for assistance. On the other hand, it seems that the persisting lack of harmonization of advertisement and marketing rules, albeit partially cured by KII innovation, still makes it difficult for a fund to follow a one single pan-European marketing strategy. The same can be said of the “multitude of ways national tax laws discriminate against foreign funds” (as it has been said in the literature), so as to raise additional barriers to the sale of foreign UCITS funds in their territory. But in my view a major (and perhaps still the major) obstacle to the establishment of a truly pan-European competitive market for UCITS funds remains outside the scope of the Directive and is represented by existing distribution channels. Based on market forces alone, an open architecture for their distribution is still lagging behind. Retail investors’ preferences are moreover biased, in many circumstances, by the fact that banks and other distributors often advise their customers towards fund products of the own group rather than towards the best performing funds. Rules should correct such market failure and restore a truly competitive European market where product selection is based merely on the criterion of fund performance in the best interest of retail investors.
Publication DateSeptember 4, 2008
Citation InformationMarco Lamandini. "The Commission’s UCITS IV Proposal: Is It Sufficient to Create a True Single Market Platform?" Briefing paper delivered to the European Parliament, Economic and Monetary Affairs Committee (2008)
Available at: http://works.bepress.com/marco_lamandini/14/