EN

Brussels, 16.7.2008

COM(2008) 458 final

2008/0153 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)

(presented by the Commission)

{SEC(2008) 2263}

{SEC(2008) 2264}

EXPLANATORY MEMORANDUM

1. General comments

The UCITS Directive [1] adopted in 1985 aimed to offer greater business and investment opportunities for both industry and investors by integrating the EU market for investments funds. The Directive has been key to the development of European investment funds. In June 2007, UCITS assets under management amounted to € 6tr. UCITS represent about 75% of the EU investment fund market. Strong in-built investor protection safeguards have also achieved UCITS broad recognition beyond EU borders.

Despite this positive evolution, it became evident over the years that the Directive was excessively constraining and prevented fund managers from fully exploiting their development possibilities. Amendments in 2001 enlarged the investment powers available to UCITS but did not tackle bottlenecks to industry efficiency. Important missed opportunities have been identified. Estimated potential annual savings amount to several billion euros.

In 2005, the Commission Green Paper on investment funds [2] launched a public debate on the need for EU level action (and its scope). One year later, the White Paper on investment funds [3] announced, among other measures, a set of targeted modifications to the UCITS Directive.

This proposal has two objectives. One is to codify the successive changes introduced to the UCITS Directive since 1985. The other is to translate the measures announced in the White Paper into concrete legislative provisions.

2. Consultation of the stakeholders and interested parties

2.1. Consultation of the stakeholders and interested parties

Throughout the whole process of revision of the UCITS framework Commission Services have maintained a regular dialogue with stakeholders. The objective was to gather the views from different sides of the fund market (investors, industry and public authorities) in order to design solutions that would effectively address the concerns and expectations of all interested parties.

That dialogue took place through a variety of channels including two expert groups, three open hearings, two workshops on the simplified prospectus and four public consultations (described in the table below).

Year | Consultation on | Content | Time limits | Responses feedback |

2004 | Asset Management expert group report | Recommended list of actions in the area of investment funds | 06/05 – 10/09 | Published in Nov. 2004 |

2005 | Green Paper | Analysis of the UCITS framework and questionnaire on possible solutions | 12/07 – 15/11 | Published on 13/02/06 |

2006 | Market Efficiency expert group report | Recommendations on the main features of five proposed efficiency measures | 04/07 – 20/09 | Published on 16/11/06 |

2007 | Exposure draft | Possible drafting of the UCITS Directive new legal provisions | 22/03 – 15/06 | Published on 07/09/07 |

2.2. Impact assessment

In 2004, the Expert Group on Asset Management identified a clear need to improve the efficiency of the European market for investment funds. Subsequent work has therefore concentrated on singling out the areas in which EU level action was required and on determining the scope of that action. Extensive consultation with all stakeholders has substantially contributed to the prioritisation and design of the possible solutions.

These solutions have been analysed at two stages. A first impact assessment was carried out in 2006 ahead of the White Paper on investment funds. That first impact assessment identified the areas requiring changes to the UCITS Directive. A second impact assessment has been developed in preparation of the draft legislative proposal.

The impact assessment analyses two types of legislative changes: those aiming to enhance the working of existing provisions (namely in relation to the notification procedure, the management company passport and the simplified prospectus); and those aiming to introduce new single market freedoms (by creating a facilitating framework for fund mergers and asset pooling). The guiding principles of this analysis have been market efficiency and investor protection. Particular attention has been given to the need to reduce administrative burdens.

2.2.1. The Management Company Passport

The Commission recognises the value a Management Company Passport could provide in terms of efficiency and greater flexibility to conduct its business for the European industry. However, the impact assessment work has highlighted certain difficulties in giving effect to the Management Company Passport (possibility for a fund manager to manage/administer a fund domiciled in another Member State). Intensive preparatory work by Commission services on this point has revealed so far that:

– Risks: It is necessary to distinguish the business functions and related rules which should belong in the Member State of the manager and that of the fund. Failure to do so risks creating regulatory conflict, overlap or supervisory gaps which could threaten the interests of funds investors;

– Enforcement: Problems in allocating responsibilities between different supervisors could hamper the effective enforcement of rules, in particular in the case of cross-border management of contractual funds – which account for the majority of funds and the only fund type in many Member States;

– Cost: Multiple reporting lines and accountability to different supervisors/actors risk generating high compliance costs which could outweigh the expected capital savings from the passport.

It is therefore necessary to seek advice from CESR on how best to address the supervisory and risk management issues. CESR will be invited to provide advice that will help the Commission to develop provisions permitting the introduction of a management company passport under conditions that are consistent with high level of investor protection. In that regard CESR will be invited to advise the Commission by 1 November 2008 on the structure and principles which could guide potential future amendments to the UCITS directive which may be needed to give effect to the UCITS management company passport. Following that advice the Commission will come forward with an appropriate proposal in time to allow for its adoption during the current legislature.

2.2.2. Expected benefits

The economic savings to be expected from the proposed measures take the form of both static costs savings for industry and investors and dynamic benefits linked to increased competition and productivity gains. Direct annual benefits amount to several euro billion. Greater flexibility to organise and conduct the fund business and simplified procedures should create new business opportunities and, increase the fund industry's competitiveness. A more integrated investment fund market will also offer the European investor an enlarged choice of better performing funds. Over the long run, these positive effects will contribute to the enhanced economic efficiency and competitiveness and thus give effect to the Lisbon strategy goals in this important sector.

3. Additional information

3.1. Simplification

The proposal forms part of the Commission's simplification rolling programme. It delivers on the commitment made by the Commission to codify the acquis in the area of financial services [4]. Concretely, the proposed amendments have two objectives: a) the introduction of new freedoms in order to improve the efficiency and integration of the UCITS Internal Market and b) to streamline the working of current provisions regarding the cross-border marketing of UCITS and disclosure obligations.

The harmonisation of the merger procedure sought by the new provisions will considerably reduce the administrative burden actually borne by fund promoters wishing to merger funds across borders. It will remove the need to comply with different sets of national requirements and thus lead to a considerable reduction of the delays and costs associated with the merger process. Both fund industry (directly) and investors (indirectly) should benefit from this harmonised procedure. In addition, recommendations in relation to both fund mergers and asset pooling aim at rationalising to a maximum the proposed framework by clearly identifying the respective responsibilities of industry and competent authorities.

As regards, to amendments to existing provisions the table below provides a summarised overview of the main simplification effects.

Issue | Existing obligations | Simplification measures | Anticipated benefits and beneficiaries |

Notification procedure | UCITS wishing to be marketed in another MS need to notify this intention to that MS' competent authorities. This includes the submission of a number of documents. The competent authorities of the host MS have 2 months to approve the marketing into its territory of the foreign UCITS. | Notification file: content harmonised Host MS: no power to ask for additional documents or request changes Reduction of delays (marketing immediately after notification)Simpler translation requirementsElectronic transmission | Industry: more business opportunities; less costsInvestors: more choice, less costsSingle Market: more integration and competition |

Simplified prospectus | Obligation to provide a simplified prospectus explaining the investment characteristics to the investor prior to his/her subscription into the fund. | Content harmonised (only change admitted: translation)Short and simple documentLiability clarifiedPossibility of using electronic delivery | Industry: less costsInvestors: more protection, less costsSingle Market: more integration and competition |

3.2. Recast and repeal of existing legislation

The proposal takes the form of a recast version of the 1985 Directive and of its subsequent amendments [5]. It follows the ‘re-casting technique’ (Inter-institutional Agreement 2002/C 77/01) which enables substantive amendments to existing legislation while codifying other provisions which remain untouched in their substance. Articles or parts of articles which have become obsolete have been deleted. All changes are clearly marked in the text. New and substantial amendments to the UCITS legislative framework are clearly identified as such.

The numerous amendments to 1985 UCITS Directive have considerably increased the complexity of the UCITS legislative framework. The current 'acquis' is made of 9 directives amounting to around 100 pages in the Official Journal.

While facilitating the exercise of their Internal Market freedoms by the UCITS, this acquis imposes several important obligations on them in particular regarding investor disclosure and the type of investments in which the UCITS can engage. The UCITS acquis also imposes significant obligations on the Member States competent authorities, in particular in terms of authorization procedures and on-going supervision of the UCITS. It is therefore crucial that the legislative framework remains up-to-date and easily accessible and understandable by the stakeholders. A recast UCITS Directive will constitute an essential progress in this respect.

4. legal basis

The proposal is based on Article 47(2) of the Treaty, which is the legal basis to adopt Community measures aimed at achieving an Internal Market in financial services. The chosen instrument is a Directive as this is the most appropriate legal instrument to achieve the objectives while keeping a certain margin of manoeuvre for Member States. The proposed new provisions do not go beyond what it is necessary and proportionate to achieve the objectives pursued.

The Directive confers extended implementing powers on the Commission in line with the Lamfalussy approach which has been extended to the UCITS Directive by Directive 2005/1 [6]. The scope of these implementing powers is defined in each relevant article. They will be used to further define the principles set out in this Directive as to enhance harmonisation and supervisory convergence.

In exercising these implementing powers, the Commission will be assisted by the European Securities Committee. The measures to be adopted by the Commission will be subject to the regulatory procedure and to the regulatory procedure with scrutiny laid down in Articles 5, 5(a)(1) to (4), and 7 of Decision 1999/468/EC. They will be developed on the basis of mandates given by the Commission to the Committee of European Securities Regulators (CESR) [7].

5. Comments on the articles

The following comments detail the substantial changes introduced by the recast of the UCITS Directive. The following Articles remain substantially unchanged: 1(1),1(2), 1(3)(a), 1(4) to 1(7), 2(1)(a) to (d), 2(1)(g) to (m), 2(1)(o), 2(1)(p), 2(2) to (7), 3, 5(1), 5(3) to (5), 6 to 15, 16(1) to (4), 16(6), 16(7), 17, 18, 19(2), 19(3)(b), 19(3)(c), 20 to 33, 45(1)(a) to (h), 45(2), 46 to 48, 49(1), 49(2), 50, 51(2) first subparagraph points (a) to (c), 51(2) second subparagraph, 52, 63(2), 65(1), 65(4), 68, 71, 78(1) except 78(1)(b), 78(2)(a) except second indent, 79, 80, 82, 83(1) except 83(1)(b), 83(2), 84 except 84(b), 97 to 99, 100, 101, 102(1), 102(2), 103(2), 104, 106, 107, 108, 109 and Annexes II, III and IV. In order to correct a material error in the English version of the Directive, and taking into account Article 1(3), it is necessary to change all subsequent mentions of 'unit trusts' by mentions of 'common funds'. It is also necessary to correct material errors in the Latvian, Bulgarian, French, Spanish and Italian version of the Directive.

5.1. New rules on mergers

The proposal offers the possibility for UCITS to achieve greater economies of scale by introducing into the UCITS Directive a legal framework for both national and cross-border mergers. Different types of mergers will be possible based on existing national rules and practices including those known in common law Member States (scheme of amalgamation/arrangement).

5.1.1. Principle, authorisation and approval (Chapter VI section 1)

Article 35 provides for the basic principle that all UCITS (and investment compartments thereof), irrespective of their legal form, are entitled to merge. This new merger regime, including its safeguards for investors, will cover both cross-border mergers and domestic mergers (the latter may impact on investors based in other Member States).

Article 36 sets up the principle of prior authorisation of the merger (to be issued within 30 days), by the competent authorities of the merging UCITS (i.e. the entity which ceases to exist), before its presentation to unit-holders. During that process, they will have to assess the potential impact of the merger on the unit-holders of both the merging UCITS and the receiving UCITS. The competent authorities of the receiving UCITS have to be informed of the decision reached in this respect. This should allow them to check whether the required disclosure to investors of the receiving UCITS is made in conformity with the Directive.

If the merger involves more than one merging UCITS and such UCITS are domiciled in different Member States, the competent authorities of each merging UCITS will need to approve the merger, in close cooperation with each other.

Article 37 provides for the obligation to draw up draft terms of merger (including a minimum set of compulsory provisions), in the same terms, for each of the UCITS involved in the merger.

5.1.2. Third party control, information of unit-holders and other unit-holders' rights (Chapter VI section 2)

Article 38 provides that the depositaries of the merging UCITS and the receiving UCITS should review the common draft terms of merger on their conformity with the relevant provisions of the Directive and their respective constitutional documents. The role of the depositaries is however not to verify whether the proposed merger is in the interest of the investors.

Article 39 provides that an independent auditor should validate the criteria used for valuating the assets and liabilities of the funds involved in the merger and for calculating the exchange ratio.

Article 40 foresees that the merging UCITS should provide appropriate and accurate information on the proposed merger to its/their unit-holders so as to enable them to make an informed decision on the impact of the proposed merger on their investment. Should the competent authorities of the merging UCITS decide that the proposed merger may impact on the unit-holders of the receiving UCITS, the latter will also be requested to provide similar information to its unit-holders. This Article also defines basic principles of investor disclosure to the unit-holders of the merging UCITS and the receiving UCITS; details of which will be developed through implementing measures. For investor protection reasons, a provision specifies the language in which the information is provided to investors situated in the Member States where a UCITS has been notified to market its units.

Article 41 confirms that approval by unit-holders is only required if provided for by national law. If so, a maximum threshold/ceiling of 75% of the votes cast by unit-holders is foreseen.

Article 42 foresees the right of unit-holders (of both the merging UCITS and the receiving UCITS) to redeem units or shares without costs prior to the merger, as from the moment the UCITS have informed them of the proposed merger.

5.1.3. Costs and entry into effect (Chapter VI Section 3)

Article 43 ensures investor protection by clarifying that the responsibility for the costs of the merger should not lie with the unit-holders of the merging and/or receiving UCITS. Such costs should be borne by the manager/fund promoter.

Article 44 provides that a merger takes effect once the transfer of assets and/or liabilities (depending on the merger technique used) and the exchange of units have taken place. It confirms the role and responsibility of the depositaries of both the merging UCITS and the receiving UCITS to carry out the actual transfer of assets/liabilities. Investors and other third parties should then be informed that the merger has taken effect. Completion of the merger is to be publicized.

5.2. New rules on a master/feeder structure (Chapter VIII of the Directive)

The introduction into the UCITS Directive of the possibility to set up master-feeder structures will open new business opportunities for UCITS managers. It will allow them to rationalise and increase the efficiency of their investment policy.

A master-feeder-structure is characterised by the feeder UCITS' investment of all or almost all of its assets in one other UCITS, the master UCITS. Article 53(1) sets a minimum of 85% of the assets to be invested in a master UCITS. It also prevents feeders UCITS from investing in more than one (master) UCITS. The remaining 15% should allow the feeder UCITS to hold ancillary liquid assets. The feeder UCITS may hold no other assets than those mentioned in Article 53(1) and (2).

A master UCITS is a UCITS which pursuant to Article 53(3) has at least one feeder UCITS as investor. To avoid opaque cascade structures, the master UCITS may neither itself be a feeder UCITS nor invest into a feeder UCITS.

Article 54(1) provides that the specific investment policy of a feeder UCITS needs to be approved by the competent authorities of the feeder UCITS' home Member State. The approval is subject to the conditions set out in Chapter VIII. No additional condition or document may be required.

Article 55 requires the feeder UCITS and the master UCITS to enter into a legally binding agreement. Such agreement shall enable the feeder UCITS to accomplish its duties.

If the feeder UCITS and the master UCITS have different depositaries [8] or auditors, Articles 56 and 57 require the latter to enter into an information-sharing agreement.

Article 58 ensures that both the prospectus and the key investor information of the feeder UCITS disclose the fact that the UCITS is a feeder of a given master and explain the specificities of this two-layer investment.

Article 59 sets up the requirements for a conversion of an existing UCITS into a feeder UCITS. To protect unit-holders, converting UCITS have to inform all unit-holders in advance. All unit-holders are entitled to re-purchase or to redeem the units of the feeder UCITS free of charge within 30 days.

Pursuant to Article 60(2) the feeder UCITS must act in the best interests of its investors and therefore has to monitor effectively the master UCITS.

Article 60(3) deals with retrocession arrangements and requires, where applicable, that all kinds of commissions obtained from the master UCITS or its management company is paid into the feeder UCITS' assets.

Article 61(2) prevents the master UCITS from charging the feeder UCITS subscription and redemption fees.

5.3. New rules on Key Investor Information

These new provisions aim at simplifying the content and conditions under which information is given to potential investors in UCITS. The objective is to enable retail investors to take a well-informed investment decision. For that purpose, the Directive replaces the previous obligation to offer a simplified prospectus, free of charge to subscribers before the conclusion of the contract, by the concept of 'key investor information'. To reduce costs, the new provisions also seek to ensure that the key investor information can be used without modifications all across the Internal Market.

5.3.1. Some general improvement on disclosure rules and marketing communications

Articles 64 to 70 set out the rules applicable to the information to be provided at any time, on request, to investors (prospectus, annual and half-yearly reports).

Article 72 sets the principle that the information contained in marketing communications should be fair, clear and not misleading. It should also be consistent with the information contained in the obligatory disclosures (eg. key investor information) provided for by the UCITS Directive.

5.3.2. Key investor information (Section 3)

Article 73 requires the investment company or the management company (where applicable) to draw up a short document containing key investor information that will be valid in all Member States. Rules regarding the delivery of the key investor information are set by Article 75 (which distinguishes between direct and indirect sales).

Key investor information should provide information about the essential characteristics of the proposed investment and specify how/where investors can obtain additional information on the proposed investment and certain practical elements. More specific rules (ex. format and content of key investor information) will be adopted through implementing measures.

To effectively assist retail investors in their decision, key investor information should be short and concise, use clear and comprehensible wording, and be presented in an understandable format. It should be fair, clear and not misleading (article 74) and, therefore, consistent with the relevant parts of the prospectus.

Article 74 also clarifies that the key investor information constitutes pre-contractual information only. No civil liability should be attached to any person solely on its basis, unless such information is misleading, inaccurate or inconsistent with the prospectus.

5.4. Simplification and improvement of the rules on notification

5.4.1. Improved market access for UCITS

The current UCITS Directive sets out common rules which allow a UCITS authorised and supervised in one Member State to market its units in any other Member State. Before a UCITS starts marketing its units, it must complete a notification procedure. The current procedure has become burdensome and time consuming for fund promoters. Current delays between the moment of the notification and the actual marketing of the UCITS are a serious disadvantage when compared with other financial products for retail investors, which are often subject to less strict information or investor protection requirements.

To tackle that problem, Article 88 proposes a new streamlined procedure based on a regulator-to-regulator communication. Under the new rules, a UCITS wishing to market its units in another Member State will file a notification letter with its home competent authorities. This letter will have a harmonised content and will mainly describe the arrangements made for marketing the UCITS in the Member State concerned. Several documents will be attached to that letter (fund rules, key investor information). After verification of the completeness of the file, the competent authorities of the home Member State will automatically transmit it to the host Member State authority together with an attestation confirming that the UCITS fulfils its obligations under the Directive. The competent authorities of the host Member State will not be entitled to review, challenge or discuss the merits of the UCITS authorisation granted in the home Member State.

5.4.2. Clarification of responsibilities between the competent authorities

The amendments underline the fundamental principle according to which it is not possible for the host Member State to challenge the exclusive responsibility of the home Member State over the fields governed by the Directive.

In order to facilitate direct and immediate access to the market of another Member State, the control of compliance of the marketing arrangements with the rules applicable in a host Member State will take place on an on-going basis, but only after the UCITS has placed its units on the market of a host Member State. The Directive also seeks to enhance transparency regarding local marketing rules (obligation on Member States to publish on their websites all applicable marketing rules).

5.4.3. Improved communication and co-operation between competent authorities

The new notification procedure requires improved communication between competent authorities in order to be successful. Therefore, electronic transmission of information about UCITS and their marketing arrangements is foreseen. This should allow host authorities to better prepare for on-going monitoring of compliance with marketing rules. UCITS will however be obliged to directly inform the host authorities of any amendments to their marketing arrangements. In this field, several detailed rules will be adopted through implementing measures.

5.4.4. Methods of distribution of obligatory disclosures in the host Member States

Article 89 introduces a new language regime, whereby UCITS must translate only the key investor information in the local language. It is up to the UCITS to decide whether other obligatory disclosures are to be translated into the language of the host Member State or in a language customary in the sphere of international finance. Investors will be aware in which language the prospectus and the annual or half-yearly reports are available because this will be specified in the key investor information. The translation (under the sole responsibility of the UCITS) of documents other than the key investor information into the language of a host Member State will therefore be a market driven decision (in line with the language regime of the Prospectus Directive).

5.5. Rules aimed at strengthening supervisory cooperation

Successful implementation of the provisions introduced by this proposal cannot compromise on the high level of investor protection offered by the UCITS Directive. Therefore, the proposed adjustments are complemented by measures which enhance the existing mechanisms for supervisory cooperation and provide additional tools for supervisors to allow them to discharge their duties efficiently. These measures are largely inspired by provisions already in force in other financial services directives.

85/611/EEC (adapted)

2008/0153 (COD)

Proposal for a

DIRECTIVE ../…/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of […]

on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 57(2) 47(2) thereof,

Having regard to the proposal from the Commission,

Acting in accordance with the procedure laid down in Article 251 of the Treaty [9],

Whereas:

new

(1) Council Directive of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) [10] has been substantially amended several times [11]. Since further amendments are to be made, it should be recast in the interests of clarity.

(2) Directive 85/611/EEC has largely contributed to the development and success of the European investment funds industry. However, despite the improvements introduced since its adoption and in particular in 2001, it has steadily become clear that changes need to be introduced into the UCITS legal framework in order to adapt it to the 21st century financial markets. The 2005 Commission Green Paper on Investments Funds [12] launched a public debate on the way the Directive should be adapted in order to meet these new challenges. This intense consultation process led to the largely shared conclusion that substantial amendments are needed.

85/611 Recital 1 (adapted)

The laws of the Member States relating to collective investment undertakings differ appreciably from one state to another, particularly as regards the obligations and controls which are imposed on those undertakings. Those differences distort the conditions of competition between those undertakings and do not ensure equivalent protection for unit-holders.

85/611/EEC Recital 2 and 3 (adapted)

(3) National laws governing collective investment undertakings should be coordinated with a view to approximating the conditions of competition between those undertakings at Community level, while at the same time ensuring more effective and more uniform protection for unit-holders. Such coordination will make it easier for a collective investment undertaking situated in one Member State to market its units in other Member States. The attainment of these objectives will facilitates the removal of the restrictions on the free circulation movement of the units of UCITS collective investment undertakings in the Community, and such coordination will helps to bring about a European capital market.

85/611/EEC Recital 4 (adapted)

(4) Having regard to these objectives, it is desirable to provide for that common basic rules be established for the authorisation, supervision, structure and activities of UCITS collective investment undertakings established situated in the Member States and the information they must publish.

85/611/EEC Recital 5 (adapted)

The application of these common rules is a sufficient guarantee to permit collective investment undertakings situated in Member States, subject to the applicable provisions relating to capital movements, to market their units in other Member States without those Member States' being able to subject those undertakings or their units to any provision whatsoever other than provisions which, in those states, do not fall within the field covered by this Directive. Nevertheless, if a collective investment undertaking situated in one Member State markets its units in a different Member State it must take all necessary steps to ensure that unit-holders in that other Member State can exercise their financial rights there with ease and are provided with the necessary information.

85/611/EEC Recital 6 (adapted) and 2001/108/EC Recital 2 (adapted)

(5) The coordination of the laws of the Member States should be confined initially to UCITS collective investment undertakings other than of the closed-ended type which promote the sale of their units to the public in the Community. and the sole object of which is investment in transferable securities (which are essentially transferable securities officially listed on stock exchanges or similar regulated markets). Regulation of the collective investment undertakings not covered by the Directive poses a variety of problems which must be dealt with by means of other provisions, and such undertakings will accordingly be the subject of coordination at a later stage. Pending such coordination any Member State may, inter alia, prescribe those categories of undertakings for collective investment in transferable securities (UCITS) excluded from this Directive's scope on account of their investment and borrowing policies and lay down those specific rules to which such UCITS are subject in carrying on their business within its territory. Taking into account market developments, iIt is desirable that the investment objective of UCITS should be permitted as part of their investment objective be widened in order to permit them to invest in financial instruments, other than transferable securities, which are sufficiently liquid. The financial instruments which are eligible to be investment assets of the portfolio of the UCITS should be are listed in this Directive. The selection of investments for a portfolio by means of an index is a management technique.

2001/107/EC Recital 3 (adapted)

(6) Authorisation granted to in the management company's in its home Member State should ensure investor protection and the solvency of management companies, with a view to contributing to the stability of the financial system. The approach adopted is to ensure the essential harmonisation necessary and sufficient to secure the mutual recognition of authorisation and of prudential supervision systems, making possible the grant of a single authorisation valid throughout the Community European Union and the application of the home Member State supervision.

2001/107/EC Recital 4

(7) It is necessary, for the protection of investors, to guarantee the internal overview of every management company in particular by means of a two-man management and by adequate internal control mechanisms.

2001/107/EC Recital 5 (adapted)

(8) In order to ensure that the management company will be able to fulfil the obligations arising from its activities and thus to ensure its stability, initial capital and an additional amount of own funds are required. To take account of developments, particularly those pertaining to capital charges on operational risk within the Community European Union and other international fora, these requirements, including the use of guarantees, should will have to be reviewed within three years.

2001/107/EC Recital 6 (adapted)

(9) By virtue of the principle of home Member State supervision mutual recognition, management companies authorised in their home Member States should be permitted to carry on the services for which they have received authorisation throughout the Community European Union by establishing branches or under the freedom to provide services. The approval of the fund rules of common funds/unit trusts falls within the competence of the management company's home Member State.

2001/107/EC Recital 7

(10) With regard to collective portfolio management (management of unit trusts/common funds and investment companies), the authorisation granted to a management company authorised in its home Member State should permit the company to carry on in host Member States the following activities: to distribute the units of the harmonised unit trusts/common funds managed by the company in its home Member State; to distribute the shares of the harmonised investment companies, managed by such a company; to perform all the other functions and tasks included in the activity of collective portfolio management; to manage the assets of investment companies incorporated in Member States other than its home Member State; to perform, on the basis of mandates, on behalf of management companies incorporated in Member States other than its home Member State, the functions included in the activity of collective portfolio management.

2001/107/EC Recital 8 (adapted)

(11) The principles of mutual recognition and of home Member State supervision require requires that the Member States' competent authorities should not grant or should withdraw authorisation where factors, such as the content of programmes of operations, the geographical distribution or the activities actually carried on indicate clearly that a management company has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within the territory of which it intends to carry on or does carry on the greater part of its activities. For the purpose of this Directive, a management company should be authorised in the Member State in which it has its registered office. In accordance with the principle of the home country control, only the Member State in which the management company has its registered office can be considered competent to approve the fund rules of unit trusts/common funds set up by such a company and the choice of the depositary. In order to prevent supervisory arbitrage and to promote confidence in the effectiveness of supervision by the home Member State authorities, a requirement for authorisation of a UCITS should be that it should not be prevented in any legal way from being marketed in its home Member State. This does not affect the free decision, once the UCITS has been authorised, to choose the Member State(s) where the units of the UCITS are to be marketed in accordance with this Directive.

2001/107/EC Recital 9 (adapted)

(12) Directive 85/611/EEC limits With regard to the scope of activity of management companies to the sole activity of management of unit trusts/common funds and of investment companies (collective portfolio management). In and in order to take into account recent developments in national legislation of Member States and to permit such companies to achieve important economies of scale, it is desirable to revise this restriction. It is therefore desirable to permit such companies to carry out also the activity of management of portfolios of investments on a client-by-client basis (individual portfolio management) including the management of pension funds as well as some specific non-core activities linked to the main business. Such an extension of the scope of the activity of the management company would not prejudge prejudice the stability of such companies. However, specific rules should be introduced laid down preventing conflicts of interest when management companies are authorised to carry on both the business of collective and individual portfolio management.

2001/107/EC Recital 10 (adapted)

(13) The activity of management of individual portfolios of investments is an investment service already covered by Council Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [13] 93/22/EEC of 10 May 1993 on investment services in the securities field [14]. In order to ensure a homogeneous regulatory framework in this area, it is desirable to subject management companies, the authorisation of which also covers that service, to the operating conditions laid down in that Directive.

2001/107/EC Recital 11

(14) A home Member State may, as a general rule, establish rules stricter than those laid down in this Directive, in particular as regards authorisation conditions, prudential requirements and the rules on reporting and the full prospectus.

2001/107/EC Recital 12 (adapted)

(15) It is desirable to lay down rules defining the preconditions under which a management company may delegate, on the basis of mandates, specific tasks and functions to third parties so as to increase the efficiency of the conduct of its business. In order to ensure the correct functioning of the principle of mutual recognition of the authorisation and of the home Member State supervision country control, Member States permitting such delegations should ensure that the management company to which they granted an authorisation does not delegate globally its functions to one or more third parties, so as to become a letter box entity, and that the existence of mandates does not hinder an effective supervision over the management company. However, the fact that the management company has delegated its own functions should in no case affect the liabilities of that company and of the depositary vis-à-vis the unit holders and the competent authorities.

2001/107/EC Recital 13

(16) To safeguard shareholders' interests and to secure a level playing field in the market for harmonised collective investment undertakings, an initial capital is required for investment companies. However, investment companies which have designated a management company will be covered through the management company's additional amount of own funds.

2001/107/EC Recital 14 (adapted)

(17) Articles 13 5g and 14 5h should always be complied with by authorised investment companies, either by the company directly according to Article 27 13b or indirectly, due to the fact that if an authorised investment company chooses to designate a management company, that management company should be authorised in accordance with the this Directive and thus obliged to comply with Articles 13 5g and 14 5h.

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(18) Despite the need for consolidation between UCITS, mergers of UCITS encounter many legislative and administrative difficulties in the Community. It is therefore necessary, in order to improve the functioning of the Internal Market, to lay down Community provisions facilitating mergers between UCITS (and investment compartments thereof). Although some Member States have authorised only contractual funds, mergers between all types of funds (contractual, corporate and unit trusts) should be allowed and recognised by the laws of each Member State. This Directive covers those merger techniques which are most commonly used in the Member States. It does not prevent UCITS from using other techniques on a domestic or cross-border basis. These will however remain subject to the relevant provisions of national law.

(19) In order to safeguard investors' interests, Member States should require proposed mergers between UCITS either within their jurisdiction or on a cross-border basis to be subject to authorisation by their competent authorities. For cross-border mergers, the competent authorities of the home Member State of the UCITS that will cease to exist (the merging UCITS) should approve the merger so as to ensure that the interests of the unit-holders who effectively change funds are duly protected. If the merger involves more than one merging UCITS and such UCITS are domiciled in different Member States, the competent authorities of each merging UCITS will need to approve the merger, in close cooperation with each other. Since the interests of the unit-holders of the UCITS which continues to exist after the merger (the receiving UCITS) also need to be adequately safeguarded, they should be taken into account by the competent authorities of the merging UCITS' home Member State when approving a cross-border merger.

(20) It is necessary to ensure additional third-party control of mergers. The depositaries of each of the UCITS involved in the merger should verify the conformity of the common draft terms of the merger with the relevant provisions of this Directive and of the UCITS fund rules. An independent auditor should draw-up a report on behalf of all the UCITS involved in the merger validating the valuation methods of the assets and liabilities of such UCITS and the calculation method of the exchange ratio as set forth by the management and/or administrative body of such UCITS in the common draft terms of merger. In order to limit costs connected with cross-border mergers, it should be possible to draw up a single report for all UCITS involved and the statutory auditor of the merging UCITS and/or the receiving UCITS should be enabled to do so. For investor protection reasons, unit-holders should be offered the possibility to obtain a copy of such report free of charge.

(21) It is particularly important that the unit-holders are adequately informed about the proposed merger and that their rights are sufficiently protected. Although unit-holders of the merging UCITS are most concerned, the interests of the unit-holders of the receiving UCITS should also be safeguarded in such situations where the proposed merger could have a substantial impact on their investment.

(22) The provisions on mergers laid down in this Directive are without prejudice to the application of the legislation on control of concentrations between undertakings, in particular Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) [15].

85/611/EEC Recital 7 (adapted)

(23) The free marketing of the units issued by UCITS authorised to invest up to 100 % of their assets in transferable securities issued by the same body (State, local authority, etc.) may not have the direct or indirect effect of disturbing the functioning of the capital market or the financing of the Member States. or of creating economic situations similar to those which Article 68(3) of the Treaty seeks to prevent.

85/611/EEC Recital 8 (adapted)

Whereas account should be taken of the special situations of the Hellenic Republic's and Portuguese Republic's financial markets by allowing those countries and additional period in which to implement this Directive,

2001/108/EC Recital 3

(24) The definition of transferable securities included in this Directive is valid only for this Directive and in no way affects the various definitions used in national legislation for other purposes such as taxation. Consequently, shares and other securities equivalent to shares issued by bodies such as building societies and industrial and provident societies, the ownership of which cannot in practice be transferred except by the issuing body buying them back, are not covered by this definition.

2001/108/EC Recital 4

(25) Money market instruments cover those transferable instruments which are normally not traded on regulated markets but dealt in on the money market, for example treasury and local authority bills, certificates of deposit, commercial papers, medium-term notes and bankers' acceptances.

2001/108/EC Recital 5

(26) It is useful to ensure that the concept of regulated market in this Directive corresponds to that in Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field [16] Directive 2004/39/EC.

2001/108/EC Recital 6

(27) It is desirable to permit a UCITS to invest its assets in units of UCITS and/or other collective investment undertakings of the open-ended type which also invest in liquid financial assets mentioned in this Directive and which operate on the principle of risk spreading. It is necessary that UCITS or other collective investment undertakings in which a UCITS invests be subject to effective supervision.

2001/108/EC Recital 7

(28) The development of opportunities for a UCITS to invest in UCITS and in other collective investments undertakings should be facilitated. It is therefore essential to ensure that such investment activity does not diminish investor protection. Owing to the enhanced possibilities for UCITS to invest in the units of other UCITS and/or collective investment undertakings, it is necessary to lay down certain rules on quantitative limits, the disclosure of information and prevention of the cascade phenomenon.

2001/108/EC Recital 8 (adapted)

(29) To take market developments into account and in consideration of the completion of economic and monetary union it is desirable to permit UCITS to invest in bank deposits. To ensure adequate liquidity of investments in deposits, these deposits are to be repayable on demand or have the right to be withdrawn. If the deposits are made with a credit institution the registered office of which is located in a third country non-Member State, the credit institution should be subject to prudential rules equivalent to those laid down in Community legislation.

2001/108/EC Recital 9

(30) In addition to the case in which a UCITS invests in bank deposits according to its fund rules or instruments of incorporation, it may be necessary to allow all UCITS to hold ancillary liquid assets, such as bank deposits at sight. The holding of such ancillary liquid assets may be justified, for example, in the following cases: in order to cover current or exceptional payments; in the case of sales, for the time necessary to reinvest in transferable securities, money market instruments and/or in other financial assets provided for in this Directive; for a period of time strictly necessary when, because of unfavourable market conditions, the investment in transferable securities, money market instruments and in other financial assets must be suspended.

2001/108/EC Recital 10 (adapted)

(31) For prudential reasons it is necessary to avoid excessive concentration by a UCITS in investments which expose them it to counterparty risk to the same entity or to entities belonging to the same group.

2001/108/EC Recital 11

(32) UCITS should be explicitly permitted, as part of their general investment policy and/or for hedging purposes in order to reach a set financial target or the risk profile indicated in the prospectus, to invest in financial derivative instruments. In order to ensure investor protection, it is necessary to limit the maximum potential exposure relating to derivative instruments so that it does not exceed the total net value of the UCITS's portfolio. In order to ensure constant awareness of the risks and commitments arising from derivative transactions and to check compliance with investment limits, these risks and commitments will have to be measured and monitored on an ongoing basis. Finally, in order to ensure investor protection through disclosure, UCITS should describe their strategies, techniques and investment limits governing their derivative operations.

2001/108/EC Recital 12 (adapted)

(33) With regard to over-the-counter (OTC) derivatives, additional requirements should be set in terms of the eligibility of counterparties and instruments, liquidity and ongoing assessment of the position. The purpose of such additional requirements is to ensure an adequate level of investor protection, close to that which they obtain when they acquire derivatives dealt in on regulated markets.

2001/108/EC Recital 13

(34) Operations in derivatives may never be used to circumvent the principles and rules set out in this Directive. With regard to OTC derivatives, additional risk-spreading rules should apply to exposures to a single counterparty or group of counterparties.

2001/108/EC Recital 14

(35) Some portfolio management techniques for collective investment undertakings investing primarily in shares and/or debt securities are based on the replication of stock indices and/or debt-security indices. It is desirable to permit UCITS to replicate well-known and recognised stock indices and/or debt-security indices. It may therefore be necessary to introduce more flexible risk-spreading rules for UCITS investing in shares and/or debt securities to this end.

2001/108/EC Recital 15 (adapted)

(36) Collective investment undertakings falling within the scope of this Directive should not be used for purposes other than the collective investment of the money raised from the public according to the rules laid down in this Directive. In the cases identified by this Directive a UCITS may have subsidiaries only when necessary to carry out effectively on behalf of that UCITS certain activities, also defined in this Directive. It is necessary to ensure an effective supervision of UCITS. Therefore the establishment of a subsidiary of a UCITS in a third country should be permitted only in the cases and under the conditions identified in the this Directive. The general obligation to act solely in the interests of unit-holders and, in particular, the objective of increasing cost efficiencies, never justify a UCITS undertaking measures which may hinder the competent authorities from exercising effectively their supervisory functions.

88/220/EEC Recitals 4 and 5 (adapted)

(37) Article 22(3) of Directive 85/611/EEC derogates from paragraphs 1 and 2 of that Article The original version of Directive 85/611/EEC contained a derogation from the restriction on the percentage of its assets that a UCITS can invest in transferable securities issued by the same body, which applied in the case of bonds issued or guaranteed by a Member State. This derogation and authorises allowed UCITS to invest in particular up to 35 % of their assets in such bonds. A similar derogation, but of a more limited extent is justified with regard to private sector bonds which, even in the absence of a State guarantee, nevertheless offer special guarantees to the investor under the specific rules applicable thereto. It is necessary therefore to extend such a derogation to the totality of such bonds which fulfil jointly fixed criteria, while leaving it to the Member States to draw up the list of bonds to which they intend, where appropriate, to grant a derogation., and providing for a procedure for informing the other Member States identical to that provided for in Article 20 of Directive 85/611/EEC,

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(38) Several Member States have enacted provisions that enable non-coordinated collective investment undertakings to pool their assets in one so-called master fund. In order to allow UCITS to make use of these structures, it is necessary to exempt "feeder UCITS" wishing to pool their assets in a "master UCITS", from the prohibition to invest more than 10% or, as the case may be 20% in one investment fund. This exemption is justified as the feeder UCITS invests all or almost all of its assets into the diversified portfolio of the master UCITS which itself is subject to UCITS diversification rules.

(39) In order to facilitate the effective operation of the Internal Market and to ensure the same level of investor protection throughout the Community, both master-feeder-structures where the master and the feeder are established in the same Member State and where they are established in different Member States should be allowed. In order to allow investors to better understand master-feeder-structures and regulators to supervise them more easily, notably in a cross-border context, no feeder UCITS should be able to invest into more than one master. In order to ensure the same level of investor protection throughout the Community the master should be itself an authorised UCITS.

(40) In order to protect the feeder UCITS' investors, the feeder UCITS' investment into the master UCITS should be subject to prior approval of the competent authorities of the feeder UCITS' home Member State.

(41) In order to allow the feeder UCITS to act in the best interests of its unit-holders and notably place it in a position to obtain from the master UCITS all information and documents necessary to perform its obligations, the feeder UCITS and the master UCITS should enter into a binding and enforceable agreement. In a similar way the information-sharing agreement between the depositaries or, respectively, the auditors of the feeder UCITS and the master UCITS should ensure the flow of information and documents that is needed for the feeder UCITS' depositary or auditor to fulfil its duties.

(42) In order to ensure a high level of protection of the interests of the feeder UCITS' investors, the prospectus, the key investor information as referred to in Article 73, as well as all marketing communications should be adapted to the specificities of master-feeder-structures.

(43) The prohibition that master UCITS may not charge feeder UCITS subscription and redemption fees should protect unit-holders from unjustified additional costs.

(44) The conversion rules should enable an existing UCITS to convert into a feeder UCITS. At the same time they should sufficiently protect unit-holders. As such a conversion is a fundamental change of the investment policy, the converting feeder UCITS should be required to provide its unit-holders with sufficient information as to enable them to decide whether to maintain their investment or not.

(45) Member States should make a clear distinction between marketing communications and obligatory investor disclosures provided for under this Directive. Obligatory investor disclosures include key investor information, prospectus and annual and half-yearly reports.

(46) Key investor information should be provided to investors, at a pre-contractual stage, in order to help them to reach informed investment decisions. It should contain only the essential elements for making such decisions. The nature of the information to be found in the key investor information should be harmonised to the highest extent so as to ensure adequate investor protection and comparability. Key investor information should be presented in a short format. A single document of limited length presenting the information in a specified order is the most appropriate way to achieve the clarity and simplicity of presentation that is required by retail investors, and should allow for useful comparisons.

(47) Key investor information should be produced for all UCITS. Management companies or, where applicable, investment companies should deliver the key investor information to the relevant entities, depending on the distribution method used (direct sales or intermediated sales). Regulation on how the key investor information is used by intermediaries at the point of sale is to be left to the relevant legislation covering such intermediaries, such as Directive 2004/39/EC.

(48) The right for UCITS to sell their units in other Member States should be subject to a notification procedure based on improved communication between the competent authorities of the Member States. Following transmission of a complete notification file by the competent authorities of the UCITS home Member State, the UCITS host Member State should not be in the position to oppose access to its market by a UCITS established in another Member State or challenge the authorisation given by that other Member State.

(49) In order to facilitate cross-border marketing of units of UCITS, control of compliance of arrangements made for marketing of units of UCITS with laws regulations and administrative procedures applicable in the UCITS host Member State, should be performed on a on-going basis after the UCITS has started marketing its units in that Member State. This control can cover, in particular, the obligation for marketing communications to be presented in a fair, clear and not-misleading way.

(50) For the purpose of legal certainty there is a need to ensure that a UCITS which markets its units on a cross-border basis has an easy access, in the form of an electronic publication, to complete information on the laws, regulations and administrative provisions applicable in the UCITS host Member State and related to the marketing of UCITS.

(51) To facilitate cross-border marketing of units of UCITS, a UCITS should be required to translate only the key investor information into the official language or one of the official languages of a UCITS host Member State or a language approved by its competent authority. Key investor information should specify the language(s) in which other obligatory disclosure documents and additional information are available.

(52) It is necessary to enhance convergence of powers at the disposal of competent authorities so as to bring about an equal enforcement of the Directive throughout the Member States. A common minimum set of powers, consistent with those conferred upon competent authorities by other Community financial services legislation should guarantee supervisory effectiveness.

(53) It is necessary to reinforce provisions on exchange of information between national competent authorities and to strengthen the duties of assistance and cooperation between them.

95/26/EC Recital 6 (adapted)

1 95/26/EC Art. 1 fourth indent

(54) The reference to the supervisory authorities' effective exercise of their supervisory functions covers supervision on a consolidated basis which must be exercised over a 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity where the provisions of Community law so provide. In such cases, the authorities applied to for authorisation must be able to identify the authorities competent to exercise supervision on a consolidated basis over that 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity .

95/26/EC Recital 7 (adapted)

1 95/26/EC Art. 1 fourth indent

(55) The principles of mutual recognition and of home Member State supervision requires that the Member States' competent authorities should not grant or should withdraw authorisation where factors such as the content of programmes of operations, the geographical distribution of or the activities actually carried on indicate clearly that a 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within whose territory it carries on or intends to carry on the greater part of its activities. A 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity which is a legal person must be authorised in the Member State in which it has its registered office. A 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity which is not a legal person must have its head office in the Member State in which it has been authorised. In addition, Member States must require that a 1 UCITS' undertaking for collective investment in transferable securities (Ucits)’s head office or a head office of an undertaking contributing towards its business activity always be established situated in its home Member State and that it actually operates there.

95/26/EC Recital 8

(56) It is appropriate to provide for the possibility of exchanges of information between the competent authorities and authorities or bodies which, by virtue of their function, help to strengthen the stability of the financial system. In order to preserve the confidential nature of the information forwarded, the list of addressees must remain within strict limits.

95/26/EC Recital 9 (adapted)

(57) Certain behaviour, such as fraud and insider offenses, is liable to affect the stability, including integrity, of the financial system, even when involving undertakings other than UCITS or undertakings contributing towards their business activity financial ones.

95/26/EC Recital 10

(58) It is necessary to specify the conditions under which such exchanges of information are authorised.

95/26/EC Recital 11

(59) Where it is stipulated that information may be disclosed only with the express agreement of the competent authorities, these may, where appropriate, make their agreement subject to compliance with strict conditions.

95/26/EC Recital 12

(60) Exchanges of information between, on the one hand, the competent authorities and, on the other, central banks and other bodies with a similar function in their capacity as monetary authorities and, where appropriate, other public authorities responsible for supervising payment systems should also be authorised.

95/26/EC Recital 13 (adapted)

(61) The same obligation of professional secrecy on the authorities responsible for authorising and supervising UCITS Ucits and the undertakings that take part in those activities and the same possibilities for exchanging information as those granted to the authorities responsible for authorising and supervising credit institutions, investment firms and insurance undertakings, should be included in this Directive 85/611/EEC.

95/26/EC Recital 15 (adapted)

1 95/26/EC Art. 1 fourth indent

(62) For the purpose of strengthening the prudential supervision of 1 UCITS undertakings for collective investment in transferable securities (Ucits) or of undertakings contributing towards their business activity and protection of clients of 1 UCITS undertakings for collective investment in transferable securities (Ucits) or of undertakings contributing towards their business activity , it should be stipulated that an auditor must have a duty to report promptly to the competent authorities, wherever, as provided for by this Directive, he becomes aware, while carrying out his tasks, of certain facts which are liable to have a serious effect on the financial situation or the administrative and accounting organisation of a 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity .

95/26/EC Recital 16 (adapted)

1 95/26/EC Art. 1 fourth indent

(63) Having regard to the aim in view, it is desirable for Member States to provide that such a duty should apply in all circumstances where such facts are discovered by an auditor during the performance of his tasks in an undertaking which has close links with a 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity.

95/26/EC Recital 17 (adapted)

1 95/26/EC Art. 1 fourth indent

(64) The duty of auditors to communicate, where appropriate, to the competent authorities certain facts and decisions concerning a 1 UCITS undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its business activity which they discover during the performance of their tasks in an entity which is neither a non- 1 UCITS undertaking for collective investment in transferable securities (Ucits) nor an undertaking contributing towards its the business activity of a UCITS does not in itself change the nature of their tasks in that undertaking nor the manner in which they must perform those tasks in that undertaking.

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(65) The Commission should be empowered to adopt the measures necessary for the implementation of this Directive. Concerning mergers, those measures are designed to specify detailed content and way to provide information to unit-holders. Concerning master-feeder structures, those measures are designed to specify the particulars to be included in the agreement between master and feeder, their depositories and their auditors, the definition of measures appropriate to prevent late trading risks, the impact of the merger of the master on the authorisation of the feeder, the type of irregularities originating from the master to be reported to the feeder, the way and format of the information to be provided to unit-holders in case of conversion from a UCITS to a feeder UCITS, the procedure for valuating and auditing the transfer of assets from a feeder to a master and the role of the depository of the feeder in this process. Concerning the provisions on disclosure, those measures are designed to specify the specific conditions to be met when the prospectus is provided in a durable medium other than paper and by means of a website which does not constitute a durable medium, the detailed content, form and presentation of the key investor information taking into account the different nature or components of the UCITS concerned, and the specific conditions for delivering key investor information in a durable medium other than paper and by means of a website which does not constitute a durable medium. Concerning notification, those measures are designed to specify the format and scope of the information on the applicable local rules to be published by host authorities, the application of the notification procedure to the marketing of compartments of UCITS and new share classes, and the technical details on access by host authorities to updated fund documents stored by home authorities. Those measures are also designed to clarify definitions and to align terminology and framing definitions in accordance with subsequent acts on UCITS and related matters. Since those measures are of general scope and are designed to amend non-essential elements of this Directive, by supplementing it with new non-essential elements, they must be adopted in accordance with the regulatory procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC [17]. Powers not falling under the above category should be subject to the regulatory procedure provided in Article 5 of the same Decision. Those measures are designed to specify the form and content of the standardised notification letter, the standard model of attestation and the procedure for the exchange of information and the use of electronic communication during the notification process. They are also designed to detail the procedures for on-the-spot verifications and investigations exchange of information between competent authorities.

95/26/EC Recital 18 (adapted)

(66) Since the objectives of the action to be taken cannot be sufficiently achieved by the Member States in so far they involve the adoption of rules with common features applicable at transnational level and can therefore, by reason of the scale and effects of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary to achieve those objectives. Adopting this Directive is the most appropriate means of achieving the objectives in view, and in particular of reinforcing the powers of the competent authorities. This Directive restricts itself to the minimum required to achieve those objectives and does not go beyond what is necessary for that purpose.

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(67) The obligation to transpose this Directive into national law should be confined to those provisions which represent a substantive change as compared with the earlier Directive. The obligation to transpose the provisions which are unchanged arises under the earlier Directives.

(68) This Directive should be without prejudice to the obligations of the Member States relating to the time-limits for transposition into national law and application of the Directives set out in Annex III, Part B,

85/611/EEC

HAVE ADOPTED THIS DIRECTIVE:

CONTENT

CHAPTER I | GENERAL PROVISIONS AND SCOPE | Articles 1 to 4 |

CHAPTER II | AUTHORISATION OF UCITS | Article 5 |

CHAPTER III | OBLIGATIONS REGARDING MANAGEMENT COMPANIES | |

| SECTION 1 | Conditions for taking up business | Articles 6 to 8 |

| SECTION 2 | Relations with third countries | Article 9 |

| SECTION 3 | Operating conditions | Articles 10 to 14 |

| SECTION 4 | Right of establishment and freedom to provide services | Articles 15 to 18 |

CHAPTER IV | OBLIGATIONS REGARDING THE DEPOSITARY | Articles 19 to 23 |

CHAPTER V | OBLIGATIONS REGARDING INVESTMENT COMPANIES | |

| SECTION 1 | Conditions for taking up business | Articles 24 to 26 |

| SECTION 2 | Operating conditions | Articles 27 and 28 |

| SECTION 3 | Obligations regarding the depositary | Articles 29 to 33 |

CHAPTER VI | MERGERS OF UCITS | |

| SECTION 1 | Principle, authorisation and approval | Articles 34 to 37 |

| SECTION 2 | Third party control, information of unit-holders and other rights of unit-holders | Articles 38 to 42 |

| SECTION 3 | Costs and entry into effect | Articles 39 to 44 |

CHAPTER VII | OBLIGATIONS CONCERNING THE INVESTMENT POLICIES OF UCITS | Articles 45 to 52 |

CHAPTER VIII | MASTER-FEEDER STRUCTURES | |

| SECTION 1 | Scope and approval | Articles 53 and 54 |

| SECTION 2 | Common provisions for feeder UCITS and master UCITS | Article 55 |

| SECTION 3 | Depositaries and auditors | Articles 56 and 57 |

| SECTION 4 | Compulsory information and marketing communications by the feeder UCITS | Article 58 |

| SECTION 5 | Conversion of existing UCITS into feeder UCITS | Article 59 |

| SECTION 6 | Obligations and competent authorities | Articles 60 to 62 |

CHAPTER IX | OBLIGATIONS CONCERNING INFORMATION TO BE PROVIDED TO INVESTORS | |

| SECTION 1 | Publication of a prospectus and periodical reports | Articles 63 to 70 |

| SECTION 2 | Publication of other information | Articles 71 and 72 |

| SECTION 3 | Key investor information | Articles 73 to 77 |

CHAPTER X | GENERAL OBLIGATIONS OF UCITS | Articles 78 to 85 |

CHAPTER XI | SPECIAL PROVISIONS APPLICABLE TO UCITS WHICH MARKET THEIR UNITS IN MEMBER STATES OTHER THAN THOSE IN WHICH THEY ARE ESTABLISHED | Articles 86 to 91 |

CHAPTER XII | PROVISIONS CONCERNING THE AUTHORITIES RESPONSIBLE FOR AUTHORISATION AND SUPERVISION | Articles 92 to 105 |

CHAPTER XIII | EUROPEAN SECURITIES COMMITTEE | Articles 106 and 107 |

CHAPTER XIV | DEROGATIONS, TRANSITIONAL AND FINAL PROVISIONS | |

| SECTION 1 | Derogations | Articles 108 and 109 |

| SECTION 2 | Transitional and final provisions | Articles 110 to 113 |

ANNEX I | Schedules A and B | |

ANNEX II | Functions included in the activity of collective portfolio management | |

ANNEX III | | |

| Part A | Repealed Directive with list of its successive amendments | |

| Part B | List of time-limits for transposition into national law and application | |

ANNEX IV | Correlation table | |

85/611/EEC (adapted)

CHAPTERSection I

General provisions and scope

Article 1

1. The Member States shall apply this Directive to undertakings for collective investment in transferable securities (hereinafter referred to as UCITS) established situated within their territories.

2. For the purposes of this Directive, and subject to Article 3, 2 UCITS shall be undertakings:

2001/108/EC Art. 1 pt. 1 (adapted)

(a) the sole object of which is the collective investment in transferable securities and/or in other liquid financial assets referred to in Article 45(1) 19(1) of capital raised from the public and which operates on the principle of risk-spreading, and

85/611/EEC (adapted)

(b) the units of which are, at the request of holders, re-purchased or redeemed, directly or indirectly, out of those undertakings' assets. Action taken by a UCITS to ensure that the stock exchange value of its units does not significantly vary from their net asset value shall be regarded as equivalent to such re-purchase or redemption.

3. The Such undertakings referred to in paragraph 2 may be constituted according to law, either under the law of contract (as common funds managed by management companies) or trust law (as unit trusts) or under statute (as investment companies).

For the purposes of this Directive:

(a) «"common funds"» shall also include unit trusts;

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(b) "units" of UCITS shall also include shares of UCITS.

85/611/EEC (adapted)

4. Investment companies the assets of which are invested through the intermediary of subsidiary companies mainly otherwise than in transferable securities shall not, however, be subject to this Directive.

85/611/EEC

5. The Member States shall prohibit UCITS which are subject to this Directive from transforming themselves into collective investment undertakings which are not covered by this Directive.

85/611/EEC (adapted)

6. Subject to the provisions governing capital movements and to Articles 86, 87 and 103(1), subparagraph 2, 44, 45 and 52(2) no Member State may apply any other provisions whatsoever in the field covered by this Directive to UCITS established situated in another Member State or to the units issued by such UCITS, where they market their units within its territory.

7. With exception of Articles 1 to 4 and Wwithout prejudice to paragraph 6, a Member State may apply to UCITS established situated within its territory requirements which are stricter than or additional to those laid down in Article 4 et seq of this Directive, provided that they are of general application and do not conflict with the provisions of this Directive.

2001/107/EC Art. 1 pt. 1 (adapted)

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Article 2 1a

1. For the purposes of this Directive the following definitions shall apply :

(1) (a) «"depositary"» shall mean means any institution entrusted with the duties mentioned in Articles 19 and 29 7 and 14 and subject to the other provisions laid down in Chapter IV and Section 3 of Chapter V Sections IIIa and IVa;

(2) (b) «"management company"» shall mean means any company, the regular business of which is the management of UCITS in the form of unit trusts/common funds and/or of investment companies (collective portfolio management of UCITS);this includes the functions mentioned in Annex II;

(3) (c) a «"management company's home Member State"» shall mean means the Member State, in which the management company's has its registered office is situated;

(4) (d) a «"management company's host Member State"» shall mean means the Member State, other than the home Member State, within the territory of which a management company has a branch or provides services;

(5) (e) a «"UCITS home Member State"» shall means:

(a) with regard to a UCITS constituted as unit trust/common fund, the Member State in which the management company's registered office is situated,

(b) with regard to a UCITS constituted as an investment company, the Member State in which the investment company's registered office is situated the Member State in which the UCITS is authorised pursuant to Article 5;

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(f) "investment company's home Member State" means the Member State in which the investment company has its registered office;

2001/107/EC Art. 1 pt. 1 (adapted)

(6) (g) a «"UCITS host Member State"» shall mean means the Member State, other than the UCITS home Member State, in which the units of the common fund/unit trust or of the investment company are marketed;

(7) (h) «"branch"» shall mean means a place of business which is a part of the management company, which has no legal personality and which provides the services for which the management company has been authorised; all the places of business set up in the same Member State by a management company with headquarters in another Member State shall be regarded as a single branch;

(8) (i) «"competent authorities"» shall mean means the authorities which each Member State designates under Article 92 49 of this Directive;

(9) (j) «"close links"» shall mean means a situation as defined in Article 2(1) of Directive 95/26/EC [18];in which two or more natural or legal persons are linked by either of the following:

(i) "participation", which means the ownership, direct or by way of control, of 20% or more of the voting rights or capital of an undertaking;

(ii) "control", which means the relationship between a “parent undertaking” and a “subsidiary” as defined in Articles 1 and 2 of Council Directive 83/349/EEC [19] and in all the cases referred to in Article 1 (1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking;

(10) (k) «"qualifying holdings"» shall mean means any direct or indirect holding in a management company which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the management company in which that holding subsists.;

For the purpose of this definition, the voting rights referred to in Article 7 of Directive 88/627/EEC [20] shall be taken into account;

11 «ISD» shall means Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field [21];

12 «parent undertaking» shall means a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC [22];

13 «subsidiary» shall means a subsidiary undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC; any subsidiary of a subsidiary undertaking shall also be regarded as a subsidiary of the parent undertaking which is the ultimate parent of those undertakings;

14 (l) «"initial capital"» shall mean means capital as defined in Article 57(a) and (b) of Directive 2006/48/EC of the European Parliament and of the Council items 1 and 2 of Article 34(2) of Directive 2000/12/EC [23];

15 (m) «"own funds"» shall mean means own funds as defined in Title V, Chapter 2, Section 1 of Directive 2006/48/EC 2000/12/EC; this definition may, however, be amended in the circumstances described in Annex V of Directive 93/6/EEC [24].

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(n) "durable medium" means any instrument which enables an investor to store information addressed personally to it in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored.

2001/108/EC Art. 1 pt. 2 (adapted)

(o) 8. For the purposes of this Directive«"transferable securities"» shall means:

(i) - shares in companies and other securities equivalent to shares in companies ('"shares"'),;

(ii) - bonds and other forms of securitised debt ('"debt securities"'),;

(iii) - any other negotiable securities which carry the right to acquire any such transferable securities by subscription or exchange,.

excluding the techniques and instruments referred to in Article 21.

(p) 9. For the purposes of this Directive «"money market instruments"» shall means instruments normally dealt in on the money market which are liquid, and have a value which can be accurately determined at any time.

2001/107/EC Art. 1 pt. 1 (adapted)

2. For the purposes of paragraph 1(b), the regular business of a management company shall include the functions mentioned in Annex II.

3. For the purposes of paragraph 1(h), all the places of business set up in the same Member State by a management company with its head office in another Member State shall be regarded as a single branch.

4. For the purposes of paragraph 1(j)(ii), the following shall apply:

(a) any subsidiary undertaking of a subsidiary undertaking shall also be considered a subsidiary of the parent undertaking which is at the head of those undertakings;

(b) a situation in which two or more natural or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons.

5. For the purposes of paragraph 1(k), the voting rights referred to in Article 92 of Directive 2001/34/EC of the European Parliament and of the Council [25] shall be taken into account.

6. For the purposes of paragraph 1(m), Articles 13 to 16 of Directive 2006/49/EC of the European Parliament and the Council [26] shall apply mutatis mutandis.

7. For the purpose of paragraph 1(o), transferable securities shall exclude the techniques and instruments referred to in Article 46.

85/611/EEC (adapted)

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Article 3 2

1. The following undertakings shall not be UCITS subject to this Directive:

(a) UCITS of the closed-ended type;

(b) UCITS which raise capital without promoting the sale of their units to the public within the Community or any part of it;

(c) UCITS the units of which, under the fund rules or the instruments of incorporation of the investment company's instruments of incorporation, may be sold only to the public in third non-member countries;

(d) categories of UCITS prescribed by the regulations of the Member States in which such UCITS are established situated, for which the rules laid down in Chapter VII Section V and Article 78 36 are inappropriate in view of their investment and borrowing policies.

2. Five years after the implementation of this Directive the Commission shall submit to the Council a report on the implementation of paragraph 1 and, in particular, of its fourth indent. If necessary, it shall propose suitable measures to extend the scope.

Article 4 3

For the purposes of this Directive, a UCITS shall be deemed to be established situated in the Member State in which the investment company or the management company of the unit trust common fund has its registered office;. TheThe Member States shall must require that the head office be situated established in the same Member State as the registered office.

CHAPTERSECTION II

Authorizsation of UCITS

Article 5 4

1. No UCITS shall carry on activities as such unless it has been authorizsed by the competent authorities of the Member State in which it is situated established , hereinafter referred to as 'the competent authorities'.

85/611/EEC

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Such authorisation shall be valid for all Member States.

2. A unit trust common fund shall be authorised only if the competent authorities have approved the management company, the fund rules and the choice of depositary. An investment company shall be authorised only if the competent authorities have approved both its instruments of incorporation and the choice of depositary.

2001/107/EC Art. 1 pt. 2 (adapted)

3. The competent authorities may not authorise a UCITS if the management company or the investment company do does not comply with the preconditions laid down in this Directive, in Chapters Sections III and V IV respectively.

Moreover, the competent authorities may not authorise a UCITS if the directors of the depositary are not of sufficiently good repute or are not sufficiently experienced also in relation to the type of UCITS to be managed. To that end, the names of the directors of the depositary and of every person succeeding them in office must shall be communicated forthwith to the competent authorities.

Directors shall mean those persons who, under the law or the instruments of incorporation, represent the depositary, or who effectively determine the policy of the depositary.

4. 3a. The competent authorities shall not grant authorisation if the UCITS is legally prevented (e.g. for example, through a provision in the fund rules or instruments of incorporation) from marketing its units in its home Member State.

85/611/EEC (adapted)

5. 4. Neither the management company nor the depositary may be replaced, nor may the fund rules or the instruments of incorporation of the investment company's instruments of incorporation be amended, without the approval of the competent authorities.

2001/107/EC Art. 1 pt. 3 (adapted)

CHAPTERSECTION III

Obligations regarding management companies

Section 1Title A

Conditions for taking up business

Article 6 5

1. Access to the business of management companies is shall be subject to prior official authorisation to be granted by the competent authorities of the UCITS home Member State's competent authorities. Authorisation granted under this Directive to a management company shall be valid for all Member States.

2. No management company may engage in activities other than the management of UCITS authorised according to this Directive except the additional management of other collective investment undertakings which are not covered by this Directive and for which the management company is subject to prudential supervision but which cannot be marketed in other Member States under this Directive.

The activity of management of unit trusts/common funds and of investment companies includes shall include , for the purpose of this Directive, the functions mentioned in Annex II, which are not exhaustive.

3. By way of derogation from paragraph 2, Member States may authorise management companies to provide, in addition to the management of unit trusts/common funds and of investment companies, the following services:

(a) management of portfolios of investments, including those owned by pension funds, in accordance with mandates given by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC Section B of the Annex to the ISD,;

(b) as non-core services:

(i) investment advice concerning one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC Section B of the Annex to the ISD,

(ii) safekeeping and administration in relation to units of collective investment undertakings.

Management companies may in no case be authorised under this Directive to provide only the services mentioned in this paragraph or to provide non-core services without being authorised for the service referred to in point (a) of the first subparagraph .

2004/39/EC Art. 66 (adapted)

1 Corrigendum 2004/39/EC (OJ L 45, 16.2.2005, p. 18)

4. Articles 2(2), 12, 13 and 19 of 1 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments [27] , shall apply to the provision of the services referred to in paragraph 3 of this Article by management companies.

2001/107/EC Art. 1 pt. 3 (adapted)

Article 7 5a

1. Without prejudice to other conditions of general application laid down by national law, the competent authorities shall not grant authorisation to a management company unless the following conditions are met :

(a) the management company has an initial capital of at least EUR 125 000 , taking into account the following :

(i) Wwhen the value of the portfolios of the management company, exceeds EUR 250 000 000, the management company shall be required to provide an additional amount of own funds.; tThis additional amount of own funds shall be equal to 0,02 % of the amount by which the value of the portfolios of the management company exceeds EUR 250 000 000.; tThe required total of the initial capital and the additional amount shall not, however, exceed EUR 10 000 000.;

(ii) fFor the purpose of this paragraph, the following portfolios shall be deemed to be the portfolios of the management company:

– (i) unit trusts/common funds managed by the management company including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation;,

– (ii)investment companies for which the management company is the designated management company;,

– (iii)other collective investment undertakings managed by the management company including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation.;

(iii) iIrrespective of the amount of these requirements, the own funds of the management company shall never be less than the amount prescribed in Article 21 of Directive 2006/49/EC Annex IV of Directive 93/6/EEC.;

(iv) Member States may authorise management companies not to provide up to 50 % of the additional amount of own funds referred to in point (i) the first indent if they benefit from a guarantee of the same amount given by a credit institution or an insurance undertaking.; tThe credit institution or insurance undertaking shall have its registered office in a Member State, or in a third country non-Member State provided that it is subject to prudential rules considered by the competent authorities as equivalent to those laid down in Community law.;

(v)No later than 13 February 2005, the Commission shall present a report to the European Parliament and the Council on the application of this capital requirement, accompanied where appropriate by proposals for its revision;

(b) the persons who effectively conduct the business of a management company are of sufficiently good repute and are sufficiently experienced also in relation to the type of UCITS managed by the management company;. tTo that end, the names of these persons and of every person succeeding them in office must be communicated forthwith to the competent authorities.; tThe conduct of the business of a management company's business must be decided by at least two persons meeting such conditions;

(c) the application for authorisation is accompanied by a programme of activity setting out, inter alia at least , the organisational structure of the management company;

(d) both its the head office and its the registered office of the management company are located in the same Member State.

2. Moreover Wwhere close links exist between the management company and other natural or legal persons, the competent authorities shall grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions.

The competent authorities shall also refuse authorisation if the laws, regulations or administrative provisions of a third non-member country governing one or more natural or legal persons with which the management company has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions.

2001/107/EC Art. 1 pt. 3

The competent authorities shall require management companies to provide them with the information they require to monitor compliance with the conditions referred to in this paragraph on a continuous basis.

3. An applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused.

4. A management company may start business as soon as authorisation has been granted.

5. The competent authorities may withdraw the authorisation issued to a management company subject to this Directive only where that company:

(a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity covered by this Directive more than six months previously unless the Member State concerned has provided for authorisation to lapse in such cases;

(b) has obtained the authorisation by making false statements or by any other irregular means;

(c) no longer fulfils the conditions under which authorisation was granted;

2001/107/EC Art. 1 pt. 3 (adapted)

(d) no longer complies with Directive 93/6/EEC 2006/49/EC if its authorisation also covers the discretionary portfolio management service referred to in Article 5 6 (3)(a) of this Directive;

2001/107/EC Art. 1 pt. 3

(e) has seriously and/or systematically infringed the provisions adopted pursuant to this Directive; or

(f) falls within any of the cases where national law provides for withdrawal.

Article 8 5b

1. The competent authorities shall not grant authorisation to take up the business of management companies until they have been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and of the amounts of those holdings.

The competent authorities shall refuse authorisation if, taking into account the need to ensure the sound and prudent management of a management company, they are not satisfied as to the suitability of the aforementioned shareholders or members.

2001/107/EC Art. 1 pt. 3 (adapted)

2. In the case of branches of management companies that have registered offices outside the Community European Union and are starting or carrying on business, the Member States shall not apply provisions that result in treatment more favourable than that accorded to branches of management companies that have registered offices in Member States.

3. The competent authorities of the other Member State involved shall be consulted beforehand on the authorisation of any management company which is one of the following :

(a) a subsidiary of another management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State,;

(b) a subsidiary of the parent undertaking of another management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State,; or

(c) a company controlled by the same natural or legal persons as control another management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State.

Section 2Title B

Relations with third countries

Article 9 5c

1. Relations with third countries shall be regulated in accordance with the relevant rules laid down in Article 15 of Directive 2004/39/EC 7 of the ISD.

For the purpose of this Directive, the expressions «"firm/investment firm"» and «"investment firms"» contained in Article 15 of Directive 2004/39/EC 7 of the ISD shall be construed respectively as «management company» and «management companies»; the expression «providing investment services» in Article 15(1) of Directive 2004/39/EC 7(2) of the ISD shall be construed as «providing services».

2. The Member States shall also inform the Commission of any general difficulties which UCITS encounter in marketing their units in any third country.

Section 3Title C

Operating conditions

Article 10 5d

1. The competent authorities of the management company's home Member State shall require that the management company which they have authorised complies at all times with the conditions laid down in Article 5 6 and Article 5a 7 (1) and (2) of this Directive.

The own funds of a management company may not fall below the level specified in Article 5a 7 (1)(a). If they do, however, the competent authorities may, where the circumstances justify it, allow such firms a limited period in which to rectify their situations or cease their activities.

2. The prudential supervision of a management company shall be the responsibility of the competent authorities of the management company's home Member State, whether the management company establishes a branch or provides services in another Member State or not, without prejudice to those provisions of this Directive which give responsibility to the competent authorities of the management company's host Member State country.

Article 11 5e

2001/107/EC Art. 1 pt. 3 (adapted)

1. Qualifying holdings in management companies shall be subject to the same rules as those laid down in Article 10 of Directive 2004/39/EC 9 of the ISD.

2. For the purpose of this Directive, the expressions «"firm/investment firm"» and «"investment firms"» contained in Article 10 of Directive 2004/39/EC 9 of the ISD shall be construed respectively as «"management company"» and «"management companies"».

2001/107/EC Art. 1 pt. 3 (adapted)

Article 12 5f

1. Each management company's home Member State shall draw up prudential rules which management companies, with regard to the activity of management of UCITS authorised according to this Directive, shall observe at all times.

In particular, the competent authorities of the management company's home Member State having regard also to the nature of the UCITS managed by a management company, shall require that each such company:

(a) has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees