The transposition of the UCITS IV Directive

HM Treasury and the Financial Services Authority (FSA) have today published a joint consultation paper setting out proposals for the transposition of the revised Undertakings for Collective Investment in Transferable Securities Directive, known as UCITS IV.

UCITS IV repeals the current UCITS Directive and must be implemented into national law by all European Union member States by 1 July 2011. This Directive represents an important modernisation of the regulatory framework and procedures for selling retail investment funds cross-border in Europe.

UCITS IV introduces the following changes:

• Introduction of a management company passport: Allows a UCITS management company to operate a UCITS fund authorised in a different EU member State, without the need to be established in the member State of the fund;
• Improved investor disclosure: Replaces the simplified prospectus with a key investor information document (KID). This will be a simple pre-sale document giving key facts to investors in a clear and understandable manner. It will assist them in making an informed investment decision;
• Removal of administrative barriers to the cross-border marketing of UCITS: A quicker, more streamlined process will allow UCITS funds to access the market of another member State without delay, once the regulator of the fund has notified the regulator in the member State where the management company wants to sell its product;
• A framework for mergers between UCITS funds: There will be a single set of requirements in all member States for authorisation of a cross-border fund merger and the information that will have to be made available to investors about it;
• Provision for ‘master-feeder’ structures: Where a UCITS fund (feeder) will be allowed to invest the majority of its assets into another UCITS fund (master).  This creates opportunities to set up more flexible, cost-effective fund structures;
• Improved supervisory co-operation: Measures to improve co-operation between national regulators, particularly in relation to sharing responsibilities where a UCITS manager and the fund it manages are established in different member States.