Single EU market created for investment funds

IRELAND'S €2 trillion funds industry is set to benefit from the introduction of a new European framework for investment funds.

Internal Market and Services Commissioner Charlie McCreevy yesterday published the draft UCITS IV Directive, which aims to create a genuine pan-European single market for investment funds.

The proposals will allow UCITS (Undertakings for Collective Investment in Transferable Securities) managers to develop their cross-border activities and generate savings through consolidation and economies of scale, savings which should then be passed on to investors.

Describing the new proposals as a "real breakthrough for investment funds in Europe", Mr McCreevy said that the initiative would lead to lower costs for investors.

"The enhanced regulatory environment will reduce unnecessary costs and bureaucracy in cross-border operations and improve investor protection.

"The expected benefits of this package to the EU industry are estimated at more than €6 billion," he said.

Ireland, as the third largest European country for UCITS with an 11.4 per cent market share, is set to benefit from the proposals.

Gary Palmer, chief executive of the Irish Funds Industry Association (IFIA), said he was "very pleased with what's been proposed".

"UCITS are an extremely important product for the Irish funds industry, representing 81 per cent of all funds domiciled here.

"The proposals will introduce efficiencies and increase the attractiveness of UCITS as a brand," he added.

Ambrose Loughlin, a partner with law firm McCann Fitzgerald, said the passport rights introduced under previous UCITS directives were a main factor behind Ireland's success as a funds jurisdiction, and that "anything which enhances the use of these passporting rights will enhance the industry".

However, he did express concern over the timeframe of implementation.

If the proposal is adopted by the EU Council of Ministers and the European Parliament in the second quarter of 2009, its provisions are not due to come into force until mid-2011, which, he said, "is a long time in financial services".

While UCITS started off as a European product, they have now become a global brand, and UCITS sold into markets outside Europe such as in Asia and Latin America are now a growing part of Ireland's industry.

The proposals also revealed that the Committee of European Securities Regulators (CESR) has been invited to provide advice on the introduction of the controversial management company passport (MCP).

In June, Mr McCreevy decided to put the MCP on hold following a lack of agreement.

Support for the passport was split down the middle, with fund managers in favour of a full passport, while specialist funds servicing centres such as Dublin and Luxembourg expressed a preference for a partial passport.

Mr Palmer said he was very supportive of the MCP's goal of improving economies and efficiencies but that it still required consideration with respect to regulatory supervision and brand reputation.

CESR is due to report to the commission on the issue by November 1st, after which the commission will produce "an appropriate proposal in time to allow for its adoption during the current legislature".