EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 16.7.2008 
SEC(2008) 2264 
  
COMMISSION STAFF WORKING DOCUMENT 
 
accompanying the 
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) 
 
EXECUTIVE SUMMARY TO THE IMPACT ASSESSMENT REPORT  
{COM(2008) 458 final} 
{SEC(2008) 2263} 
 
EN 2   EN COMMISSION STAFF WORKING DOCUMENT 
EXECUTIVE SUMMARY TO THE IMPACT ASSESSMENT REPORT 
1. R EVIEWING THE UCITS  DIRECTIVE  
The UCITS Directive 
The Undertakings for Collective Investment in  Transferable Securities (UCITS) Directive1 
was adopted in 1985. It aimed at creating a sing le market for investment funds that would 
enhance the business and investment opportun ities for both industry and investors. The 
Directive defined a set of requirements which i nvestment funds needed to comply with in 
order to be eligible fo r cross-border marketing. Their main objective was to ensure high levels 
of investor protection. The Directive also intr oduced the first financial services passport.  
The UCITS Directive has been key to the develo pment of the European fund market. In June 
2007, UCITS assets under management amounted to  € 6tr. UCITS represent about 75% of the 
EU investment fund market. Despite this pos itive evolution, it became evident that the 
Directive was excessively constraining and prev ented fund managers and administrators from 
fully exploiting their development possibilities.  Amendments in 2001 enlarged the investment 
powers available to UCITS managers but did no t tackle bottlenecks to industry efficiency.  
The review of the UCITS legislative framewor k has been a three-stage process (please see 
figure 1). In 2005, the Commission Green Paper  on investment funds2 launched a public 
debate on the need for EU level action and it s scope. Both Commission services' research and 
stakeholders' consultation led to the same conclusion: focus should be on modifying the 
Directive to remove remaining barriers to market access and to allow fund industry to 
organise fund management and ad ministration more efficiently.  
These reflections were taken one step further in the White Paper  on investment funds3 and its 
impact assessment (WPIA). This analysed a se ries of possible adjustments both to enhance 
the efficiency of the fund industry's supply side  and to strengthen its demand side. In some 
instances, the WPIA report concl uded that EU level action did not appear to be sufficiently 
justified. Industry-led or national initiatives were  considered sufficient or preferable. In other 
cases, non-legislative measures were considered to  be the most cost-eff ective option. Finally, 
the analysis concluded that legislative changes were required in certain cases. Accordingly, the White Paper announced amendments to the UCIT S Directive in relation to five issues: 1) 
notification procedure, 2) f und mergers, 3) asset pooling, 4) management company passport 
and 5) simplified prospectus. 
                                                
 
1 Directive 85/611/EEC of 20 December 1985 amende d, inter alia, by Directives 2001/107/EC and 
2001/108/EC of 21 January 2002, both also called UCITS III directives. 
2 Green Paper on enhancing the European framework for investment funds, COM(2005) 314 final, 12th 
July 2005. 
3 White Paper on the enhancing the single market framework for investment funds, COM (2006) 686 
final, 15th November 2006. 
 
EN 3   EN On 22nd March 2007, DG Markt published an 'exposure draft'  as a basis for public 
consultation on the form of those legislative ch anges. The purpose of the consultation was to 
gather feedback on the design of the measures  announced by the White Paper. Respondents' 
contributions have been an important and valu able input to the anal ysis developed in the 
legislative proposal IA report.  
Figure 1: The UCITS framework review process 
 
  
2. I DENTIFIED PROBLEMS REQUIRING A CHANGE TO THE UCITS  DIRECTIVE  
2.1. Barriers to marketing funds in other Member States.  The notification procedure 
introduced by the 1985 Directiv e is often long and cumbersome. Host regulator's 
requirements often exceed those in the Directive and the two-month limit is not 
always respected. As a result, the pro cedure has been compared to a second 
authorisation of the fund. Estimated dire ct annual costs for the fund industry for 
maintaining notification amount to €25 m illion (in addition to more than €20 million 
for the initial notification)4. More significant are the oppor tunity costs related to the 
delays in getting products to the market.  
Accordingly, the WPIA recommended that amendments to the Directive should a) 
reduce notification delays, b) replace the current procedure by a regulator-to-
                                                 
4 "A Harmonised, Simplified Approach to UCITS Registration", EFAMA and IMA, April 2005. 
 
EN 4   EN regulator communication exchange and c) cl arify each Member State (MS) authority 
role and responsibilities. 
2.2. Proliferation of funds of a sub-optimal size . The European fund market landscape is 
characterised by a high number of small f unds. At the end of 2006, 54% of European 
funds managed less than € 50 million in asse ts. The average European fund is more 
than five times smaller than its Ameri can counterpart. Managing large ranges of 
small funds is costly. It impedes the exploi tation of economies of scale and increases 
costs. Estimated annual savings amount to up to € 6bn5.  
The WPIA concluded that two measures would allow the fund industry to fully 
exploit potential economies of scale: 1) a legislative framework for (cross-border) 
fund mergers and 2) the possibility fo r UCITS to engage in entity pooling. 
2.3. Lack of flexibility in organising the industry value-chain . Although 2001 
amendments introduced a passport for th e management company for corporate 
UCITS, it is currently not possible for management companies to manage a UCITS in another MS. Ambiguities in the Directive text and split superv ision concerns have 
deprived the relevant 2001 provisions of th eir effect. As a result, fund groups are 
obliged to establish a fully-fledged management company in each MS where they 
wish to base a fund range.  
The WPIA identified a prima facie case for introducing an operational passport. The 
introduction of the management company passport was conditional on finding cost-effective and operational solu tions to provide effective supervision and enforcement 
of remotely managed funds. 
2.4. An ineffective simplified prospectus
. Despite the clarification provided by the 
Commission Recommendation in 20046, the simplified prospectus has failed in its 
mission to provide investors with a useful tool on which to base their investment 
decisions. The simplified prospectus is t oo long and complex and, thus of limited 
value to the investors. At the same time th e production of the simplified prospectus is 
relatively costly and time-consuming for the industry.  
The WPIA put forward pursuing a new approa ch for the simplified prospectus, i.e. 
changes to the Directive focusing on the core  principles for investor disclosures and 
possibility to define the details (e.g. format and content) through implementing measures. 
3. D
ESIGNING THE WHITE PAPER LEGISLATIVE CHANGES  
In designing the new provisions, a number of  possibilities have been considered. These 
options have been assessed against the criteria of efficiency, market integration and investor 
protection. These impacts are summa rised in the table in annex.  
                                                 
5 "Building an Integrated European Fund Management Industry: cross-border mergers of funds, a quick 
win?", Invesco, January 2005 
6 Commission Recommendation 2004/384/EC of 27 April 2004 on some contents of the simplified 
prospectus as provided for in Schedule C of Annex I to Council Directive 85/611/EEC. 
 
EN 5   EN 3.1. Addressing barriers to mark eting funds in other MS  
The notification procedure  
The exposure draft presented an overhaul of the notification procedure. It envisaged a direct 
transmission from the home regulator to the host regulator. The auth orities of a host MS 
would not be able to oppose the marketing of duly authorised UCITS in the host Member 
State.  
Responses to the exposure draft consultation were generally supportive of the proposals but 
expressed some concerns regarding the possi bility for host authorities to enforce non 
harmonised rules on advertising. In finalising pr oposals Commission services have compared 
two possible options:  
1) maintain host MS regulator ex-ante7 verification of the UCITS marketing arrangements but 
reducing the period available for that verification;  
2) allow immediate marketing of UCITS in th e host market: host MS re gulator's checks takes 
then place ex-post  on an on-going  basis – focussed heavily on local distribution channels.  
The analysis carried out shows that the fi rst option (ex-ante ve rification) would not 
significantly improve the current situation. Th e costs linked to the notification procedure 
would not diminish perceptibly. Uncertainty about UCITS time-to-market in the host MS 
would also remain. The notificati on procedure would then continue  to act as an entry barrier. 
This will reduce the fund offer available to in vestors and hold back competition forces (as 
well as their posi tive effect on the fund charges paid by investors). Acco rdingly, only a 
decisive simplification of the procedure would produce a significant positive effect. This is 
achieved by the second option. It ha s been argued that eliminating host MS regulator's ex-ante 
controls could undermine investor  protection. The analysis of im pacts however concludes that 
this risk is fairly small.  
3.2. Addressing the proliferation of funds of a small size 
a) Fund mergers  
The exposure draft presented stakeholders with a preliminary design of an EU framework for 
UCITS mergers. The proposed framework would cover a series of commonly used merger 
techniques (please see graphs  below) and would apply to both domestic and cross-border 
mergers. A set of requirements for the regulator y approval of the merger and specific investor 
protection provisions were also put forward. 
                                                 
7 That is, before the UCITS has been placed into the market of the host MS. (Lik ewise, 'ex-post' controls 
take place once the UCITS is marketed in the host MS). 
 
EN 6   EN A B C Receiving  
fund 
Disappearing  
fundDisappearing 
fund Merger by creation of a new fund 
A B 
Disappearing  
fund Receiving  
fund Merger by absorption / 
Scheme of amalgamation  
 
The proposed approach was generally supported by all categories of stakeholder. However, 
some investor protection concerns were voiced in relation to the proposed investor rights. 
Accordingly the IA has analysed two options: 
1) Information on the merger is only provided to the investors of the disappearing fund 
2) Information on the merger is provided to both investors of the disappearing and of the 
receiving funds 
The analysis of impacts concludes that none of  these options are fully satisfactory from both 
efficiency and investor protec tion point of view. The first option minimises the administrative 
costs for the industry but gives rise to so me investor protection concerns; the second 
minimises investor protection risks but is  overly onerous. The analysis considers a 
combination of both options as the most advi sable policy choice. This could imply that 
information is systematically provided to inve stors of the disappeari ng fund but, in certain 
cases, also to investors of the receiving fund. It is for example recommended that the regulator responsible for deciding on the merger propo sal would assess the pot ential impact of the 
merger on the investors of the receiving fund and decide, if appropriate, that these investors 
be also informed.  
b) Asset pooling
 
The WPIA report identified tw o possible pooling tec hniques: entity pooling in a broad sense 
and so-called 'master-feeder' structures. These concepts are described graphically below.  
The exposure draft presented an outline of the changes to the UCITS Di rective necessary to 
provide a framework for entity pooling. On the ba sis of a preliminary assessment of impacts, 
the exposure draft proposals concentrated on master-feeder structures. Respondents found the 
proposed framework rather prescriptive. As rega rds to the entity pooling technique selected, a 
majority of respondents supported this choice. There was however a numb er of contributors 
that invited the Commission to consider the introduction of a fr amework for ent ity pooling in 
a broad sense. The analysis of impacts ha s therefore focused on the following options: 
1) Allowing entity poolin g in a broad sense. 
2) Allowing master-feeder structures. 
 
EN 7   EN  Master A
Feeder α Master C Master D 
Feeder β Feeder γ 20%20%
30% 50 % 
20% 
50% 50%60%Master BEntity pooling in a broad sense 
Master 
Feeder α Feeder β Feeder γ Master-feeder scheme 
(up to) 100 % 
(up to) 100 % (up to) 100 % 
 
The possibility to use entity pooling in a broad sense could bring important advantages to 
industry players. Flexibility to  tailor feeder funds' compositi on would allow fund promoters to 
adapt their fund ranges to changing trends a nd investors' demands. However, the Commission 
considers that introduction of th is possibility would be equiva lent to a relaxation of the 
existing provisions for UCITS funds of funds8. Relaxation of these diversification 
requirements could have significa nt unintended consequences for investors. The IA analysis 
therefore concludes that the simple master-feeder  option is to be pref erred both in terms of 
efficiency and i nvestor protection. 
3.3. Addressing the lack of organisational flexibility 
The Management Company Passport  
The exposure draft tried to strike the ba lance between a comprehensive Management 
Company (MC) passport and supervisory c oncerns. The proposed framework included 
provisions to ensure a minimum of substanc e in the fund domicile and to enhance the 
supervisors' cooperation mechanisms.  
Contrary to the other four topi cs, responses to the exposure dr aft consultation expressed quite 
divergent views regarding the proposal. Industry respondents voiced their disappointment 
regarding the proposed scope of the passport. Others, mainly na tional authorities, considered 
that the proposed approach did not provide a clear definition of regulators' respective 
responsibilities. Given the funda mental questions raised during the consultation, the analysis 
of impacts has concentrated on the following options: 
1) Maintain the status  quo (i.e. do nothing) 
2) Make the MC passport (MCP) work for corpor ate funds and extend it to contractual funds  
3) Make the MCP work  for corporate funds 
Commission's analysis suggests that the abse nce of a MCP does depr ive the industry of 
flexibility in domiciling functions and of cost s savings. Work since the exposure draft has 
concentrated on the design of provisions which a void regulatory gaps, un certainty or overload 
                                                 
8 A fund of funds is a fund whose portfolio is basically made of funds (and liquidity). The UCITS 
Directive includes a set of rules th at UCITS fund of funds need to comply with, notably the obligation 
to invest at least in 5 funds. 
 
EN 8   EN by 1) clarifying the respective responsibilities of fund and MC  supervisor, 2) providing 
mechanisms to allow the fund supervisor and depositary with means to monitor and enforce 
compliance with the rules in force in the fund domicile and 3) ensuri ng that the MC and its 
supervisor provide all necessary suppor t to the fund supervisor and depositary. 
Work on the design of effective prov isions reveals that this would: 
• Entail extensive information exchange and reporting obligations between management 
company, fund supervisor, management comp any supervisor, fund administrator and 
depositary. 
• Leave open many concerns about respective responsibilities – fund supervisor and 
depositary would be largely dependent on th e management company and the management 
company supervisor to discha rge their obligations. Concerns exist that incentives and 
responsibilities would no t be properly aligned 
• Enforcement concern remains, particularly as  regards contractual funds. As these are the 
only existing UCITS form in 13 MS, the eco nomic impact of the management company 
passport for corporate funds appears limited. 
The IA therefore concludes that  the type of provisions needed  to provide a MCP would entail 
extensive bureaucracy and administrative costs. They would not fully dispel supervisory risks 
associated with cross-border fund management. Potential dr awbacks are considered to 
outweigh the expected benefits. The Commi ssion therefore proposes not to change the 
provisions of the Directive in this regard but  maintain the status quo whereby fund managers 
undertake cross-border management through de legation-based soluti ons. The Commission 
intends to ask CESR to provide advice on safe, efficient and cost effective solutions that can 
provide confidence in respect of a range of  supervisory and risk management issues. 
3.4. Addressing the Simplified Prospectus ineffectiveness  
Key investor information  
The WPIA put forward a list of potential changes relating to the length, the content and even 
the name of the Simplified Prospe ctus (considered by some as c onfusing). On that basis, the 
exposure draft presented a new approach to investors' disclosures: the key investor 
information (KII) concept. It put forward the id ea of a fair, clear and not misleading set of 
information. The proposed framework wa s generally welcomed by stakeholders. 
Nevertheless, respondents expresse d different views regarding the fact that the proposal did 
not require the KII to be presen ted in a single document. The an alysis therefore focuses on the 
impacts of two possible options: 
1) KII is provided in the form of building blocks not necessarily embodied in one single 
document. 
2) KII is provided as a single stand-alone document The building block approach would allow for great er flexibility regarding the presentation of 
the information. It would then be possible to adapt disclosures to th e type of investor and/or to 
the distribution channels and methods used. However, a single document would most 
probably be simpler to use by investors. Inve stors will be also able to compare between 
 
EN 9   EN products. This ability to compare among fund s should, in the medium term, encourage 
competition forces and therefore put pressure on prices (fees). Additionally, from a compliance costs point of view, the building bl ock approach should imply higher adjustment 
costs for the industry. Thus, a single stand-alone document a ppears to be the option that 
complies better with the objectives of investor protection and efficiency.  
4. T
HE PROPOSED PACKAGE OF MEASURES  
The IA therefore recommends action to: 
(1) Radically simplify the notification procedure 
(2) Facilitate fund mergers 
(3) Allow master-feeder (pooling) structures 
(4) Extensively overhaul the simplified prospectus 
The economic savings to be expect ed from the proposed measures ta ke the form of both static 
cost savings for industry and investors and dynamic benefits linked to competition and productivity gains. Several euro billion could be saved annually in direct efficiency gains. 
These will flow gradually to in vestors; some in the form of greater performances (due to 
lower fund costs), others, in the form of lo wer fees pushed by a greater competition and 
facilitated by investors' possibility to compare between funds. Greater flexibility to organise 
and conduct the fund business and simplifie d procedures should create new business 
opportunities and, by reducing administrativ e burden, increase the fund industry's 
competitiveness vis-à-vis that of other products and markets. A more integrated investment 
fund market will also offer the European inve stor an enlarged choice of better performing 
funds. Preserving the high levels  of investor protection al ready offered by UCITS will 
reinforce their attractiveness within and beyond EU borders. Over the long run, these positive 
effects will contribute to enhanced economic efficiency and competitiveness and thus give 
effect to the Lisbon strategy goa ls in this important sector. 
 
EN 10   EN  
Annex: Condensed overview of the IA analysis  
(Preferred options are marked in bold) 
 Impact on: In favour of? : 
Available options Investor's 
protection Efficiency Market integration 
Notification     
Ex-ante verification (of marketing 
arrangements) + - no 
On-going ex-post controls +/≈ + yes 
Fund mergers    
Information only to disappearing fund's 
investors - + yes 
Information to all investors¹  + - no 
Entity pooling     
Allow entity pooling in a broad sense - +/- yes 
Allow master-feeder structures  + + yes 
Management Company Passport (MCP)    
Do nothing² +/- - no 
MCP for corporate and contractual funds -- ≈ yes 
Make the MCP for corporate funds work - - yes 
Simplified Prospectus     
KII provided in the form of building blocks +/- - no 
KII provided as a single stand-alone 
document  + + yes 
¹ Only in certain cases   
² Even if this option does not seems clearly superior , the analysis has identif ied important feasibility 
concerns regarding the other two. 
Assessment: '+' = positive; '-' = negative; ≈ = neutral