Regulation  

The changing face of Ucits

Since implementation of the original Ucits I directive in 1985 there have been a number of amendments designed to build on the high level of investor protection and prudential supervision ensured by the original European Directive.

Designed as a vehicle to invest in a diversified pool of assets, Ucits amounted to almost €6trn (£4.8trn) in total assets in April 2012, according to the European Commission.

Roughly 85 per cent of the European investment fund sector’s assets are managed within funds governed by the Ucits framework.

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Ucits III

In spite of its title, this was actually the second version of the Ucits Directive introduced in 2001. It expanded the range of investment instruments that can be used, including derivatives – albeit with some limits on counterparty concentration – which made it possible for hedge fund managers to launch Ucits versions of their strategies – sometimes called alternative Ucits or Newcits.

Ucits IV

Initially approved by the European Parliament and EU Council on July 13 2009, the current version of the legislation had to be implemented into national law by all EU member states by July 1 2011. The reforms to the rules include the introduction of the management company passport and improved investor disclosure through the Kiid.

Ucits V

On July 3 2012 the European Commission released proposals to amend the currents rules to reflect “the lessons learned from a number of failures in the Ucits market that have led to losses of assets by Ucits investors, notably in connection with the [Bernard] Madoff incident”.

The proposals focus on three areas: clarification of the depositary’s functions and improvements to provisions governing their liability; the introduction of rules on remuneration policies that must be applied to key members of the Ucits managerial staff; and harmonisation of the minimum administrative sanctions available to supervisors in case of key violations of the Ucits rules.

In theory, the new rules could apply by the end of 2014.

Ucits VI

Just three weeks after adopting proposals on Ucits V, the Commission launched a new consultation. This focused on eight topics: eligible assets and use of derivatives; efficient portfolio management techniques; over-the-counter derivatives; extraordinary liquidity management rules; depositary passport; money market funds; long-term investments; and assessment of Ucits IV rules.

Nyree Stewart is deputy features editor at Investment Adviser