EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 16.7.2008 
SEC(2008) 2263 
  
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) 
 
IMPACT ASSESSMENT OF THE  
LEGISLATIVE PROPOSAL AMEN DING THE UCITS DIRECTIVE  
{COM(2008) 458 final} 
{SEC(2008) 2264} 
 
EN 2   EN Lead DG: Internal Market and Services.  
Other involved services:  Competition, Economic and Financial Affair s, Enterprise and Industry, Health and 
Consumer Protection, Taxation and Customs Union, Secretariat General 
Reference: 2005/MARKT/005 
TABLE OF CONTENTS 
1. Introduction................................................................................................................ .. 5 
1.1. Content ................................................................................................................... ...... 5 
1.2. Procedural issues and consulta tion of interested parties.............................................. 5 
1.3. Changes following Impact Assessment Board evaluation........................................... 6 2. The European Market for Investment Funds ............................................................... 6 2.1. Background ................................................................................................................ .. 6 
2.2. Reviewing the UCITS framework ............................................................................... 9 3. The White Paper Impact Assessment......................................................................... 14 3.1. Problem description ................................................................................................... 14 3.2. Objectives................................................................................................................ ... 17 
3.3. White Paper recommendations .................................................................................. 18 4. Designing the legislative changes proposed in the White Paper................................ 20 
4.1. Addressing barriers to marketing funds in other MS markets (problem 1) ............... 20 
4.1.1. The notification procedure ......................................................................................... 20 4.2. Addressing the proliferation of f unds of a small size (problem 2) ............................ 23 
4.2.1. Fund mergers............................................................................................................ .. 23 
4.2.2. Asset pooling........................................................................................................... ... 25 
4.3. Addressing the lack of organisa tional flexibility (problem 3) ................................... 28 
4.3.1. Management Company Passport................................................................................ 28 4.4. Addressing the ineffectiveness of the Simplified Prospectus (problem 4) ................ 30 
4.4.1. Key investor information ........................................................................................... 30 
4.5. The overall impact of the proposed measures............................................................ 31 
4.5.1. Overall impacts ......................................................................................................... . 31 
4.5.2. Synergies and trade-offs of  the package of measures ................................................ 33 
4.5.3. Impact on investors .................................................................................................... 3 3 
 
EN 3   EN 4.5.4. Impacts on the industry organisa tion and global competitiveness............................. 34 
4.6. Other general considerations...................................................................................... 35 5. Monitoring and evaluation ......................................................................................... 35 
ANNEX 1: Procedural issues and cons ultation of interested parties ....................................... 37 
ANNEX 2: Condensed overview of the IA analysis................................................................ 43 ANNEX 3: The exposure draft's overview .............................................................................. 44 
1. Guide to consultation process and material ............................................................... 45 
2. Introduction:............................................................................................................... 46 
3. The fund passport (notification procedure):............................................................... 48 4. Fund mergers:............................................................................................................. 50  
5. Asset pooling/master-feeder structures:..................................................................... 53 6. The management company passport:......................................................................... 55 7. Simplified Prospectus/Product disclosures: ............................................................... 57 8. Supervisory cooperation: ........................................................................................... 59 
ANNEX 4: The Lamfalussy process........................................................................................ 60 ANNEX 5: List of acronyms.................................................................................................... 62  
ANNEX 6: References ............................................................................................................ . 63 
ANNEX 7: Detailed Impact Assessment Fiches...................................................................... 65
 
EN 4   EN EXECUTIVE SUMMARY  
This report summarises the steps that has le d to the preparation of  the Commission draft 
legislative proposal on amendments to the UCITS Directive. This legisl ative proposal is the 
result of a long process of an alysis and open consultation th at started in 2004 with the 
publication of the recommendations  of the Expert Group on Asset Management. This Expert 
Group identified a clear need to improve the effi ciency of the European market for investment 
funds and recommended measures in a number of priority areas. Subs equent research and 
consultations have confirmed this need for EU  level action and have helped to design the 
possible solutions. 
These solutions have been tested at two stages . A first impact assessment was carried out in 
2006 in preparation of the White Paper on e nhancing the single market framework for 
investment funds. That first impact assessment singled out the areas re quiring changes to the 
UCITS Directive. This second impact assessm ent report focuses on how those changes could 
be implemented in order to maximise their cost -effectiveness while preser ving high levels of 
investor protection. The analysis in these two impact assessment  reports is based on extensive 
discussion and consultation with al l interested parties, relevant market data, a thorough review 
of the existing related literature and the output s produced by ad hoc workshops and externally 
conducted studies. The choices retained in th e legislative proposal are in line with the 
conclusions of these two impact assessment an alyses. The proposals try to strike a balance 
between stakeholders' efficiency expecta tions and investor protection concerns.  
This report analyses two types of  legislative changes: those ai ming 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 fr amework 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 fo r reducing administrative burdens. The 
recommended decisive simplification of the notification procedure and of the simplified 
prospectus would lead to a significant reduc tion of those burdens. Recommendations in 
relation to the other legislative change areas also pursue simplification by clearly identifying 
the respective respons ibilities of the industry a nd competent authorities. 
The economic savings to be expect ed from the proposed measures ta ke the form of both static 
costs savings for industry and investors and dyn amic benefits linked to increased competition 
and productivity gains. Direct benefits range  from the identified savings of the new 
notification procedure (most of the current € 20  million initial notification costs and probably 
also the € 25 million annual costs of maintaining no tification) to the several euro billion to be 
saved annually if European funds could fully exploit the economies of scale derived from 
consolidated management through fund merger s or asset pooling. The simplification of 
investors' disclosures, the possibility to  use electronic transmission means and the 
recommended language regime will also entail  important savings. Important dynamic effects 
are also to be expected. Greater flexibility  to organise and conduct the fund business and 
simplified procedures should create new busin ess opportunities and increase the fund 
industry's competitiveness vis-à-vis that of ot her products and markets. A more integrated 
investment fund market will also offer the Eur opean investor an enlarged choice of better 
performing funds. Preserving the high levels of  investor protection already offered by UCITS 
funds will reinforce their attractiveness with in and beyond EU borders. Over the long run, 
these positive effects will contribute to the enha nced economic efficiency and competitiveness 
and thus give effect to the Lisbon st rategy goals in this important sector. 
 
EN 5   EN 1. I NTRODUCTION  
This report describes the pro cess and elements that have le d to the preparation of the 
legislative proposal ame nding the UCITS Directive1. An important milestone in this process 
was the White Paper on enhancing the single  market framework for investment funds2 
(November 2006). The White Paper announced, am ong other measures, targeted amendments 
to the UCITS Directive. The White Paper based its conclusions on the impact assessment (IA) 
work carried out ahead of its adoption. That IA3 identified the problems hindering the 
effective working of the European fund mark et and analysed the different options to 
overcome them.  
This report aims to avoid a ny unnecessary duplicat ion of the work already undertaken. For 
example the need for EU action has already be en demonstrated by the White Paper Impact 
Assessment (WPIA) analysis. That IA concluded that an amendment of the Directive was the 
most cost-effective option in relation to the issues analysed in this document. The report will therefore concentrate on the c oncrete legislative changes and, in particular, on the different 
possibilities available for de signing these. It should be also noted that this report is to serve as 
a basis for comment and does not  prejudge the final form of the legislative proposal. This 
initiative is part of the Commission's simplif ication rolling programme under the "Community 
strategy for simplifying the regulato ry environment" (COM (2005) 535). 
The White Paper and the WPIA can be found at: 
http://ec.europa.eu/internal_market/inve stment/legal_texts/index_en.htm#whitepaper
 
1.1. Content 
Section 2 aims to facilitate the reader's understa nding of the issues discussed in this report by 
providing an overview of the European investme nt fund market and of  the review of its 
framework. Section 3 will briefly recall the analysis and conclu sions of the WPIA. Section 4 
focuses on the design of the legislative measures  announced in the WP. Section 5 presents the 
monitoring strategy following th e adoption of the legislative proposal. Fiches developing in 
greater detail the topics analysed in  this report are included in annex 7. 
1.2. Procedural issues and consul tation of interested parties 
The five-year Financial Services Action Plan (FSAP) launched in 1999 concentrated strongly 
on the completion of the single market for whol esale services. Towards the end of the FSAP 
period, it was clear that other ar eas would need close attention after 2004. In preparation of 
the strategy for the post-FSAP, the Commission es tablished four groups of experts of which 
one focused on improvements to be done in the area of asset management  (investment funds). 
The recommendations contained in the experts' report were the starting point of an extensive 
                                                 
1 Undertakings for Collective Investment in Tr ansferable Securities Di rective 85/611/EEC of 20 
December 1985 amended, inter alia, by Directives 2001/107/EC ("Management company Directive") of 
21 January 2002 and 2001/108/EC ("Product Directive”) of 21 January 2002 (UCITS III directives). 
2 COM (2006) 686 final, 15th November 2006. 
3 Impact Assessment accompanying the White Pape r on enhancing the singl e market framework for 
investment funds {COM(2006) 686 final} 
 
EN 6   EN process of reflection on ways  to improve the functioning of the European market for 
investment funds. 
The conclusions presented in this report are the result of intensive analytical work developed 
on the basis of a variety of i nputs. These ranged from bilate ral informal meetings with 
stakeholders to studies, expert groups, ope n hearings, public consultations and workshops. 
Many of these events brought together differe nt stakeholders. The objective was to better 
assess the implications of possible actions on each side of the ma rket. Most of these exercises 
have been open and are largely documented on the Commission's website. The openness and 
transparency of the process has been hi ghlighted and acknowledged frequently by 
stakeholders. The main elements of th is process are described in annex 1. 
1.3. Changes following Impact Assessment Board evaluation 
This report was submitted to the Impact  Assessment Board (IAB) on September 26th. The 
IAB main recommendations related to the struct ure and presentation of the report. It also 
recommended to improve the analysis of econo mic impacts, in particular how those will 
benefit investors, and to better assess th e reduction in administrative burden. A more 
quantitative assessment of impacts (including the administrative burden) has proved difficult 
due to the lack of data. However, additional quantitative examples have been included and the qualitative elements of the analysis stre ngthened. A concluding section has also been 
introduced in order to better describe the global effect of the package of measures, as well as 
the synergies and trade-offs between the m easures proposed. IAB suggestions to clarify 
certain aspects of the analysis have also been followed.  
2. T
HE EUROPEAN MARKET FOR INVESTMENT FUNDS  
2.1. Background 
What are investment funds? 
Investment funds  are specially constituted investment vehicles, created with the sole purpose 
of gathering assets from investors, and invest ing those assets in a di versified portfolio of 
financial instruments. Investors buy units issued by the fund against the portfolio of 
underlying assets, and the value of those units fluctu ates with the value of the portfolio. In this 
way, small investors can buy exposure to a profe ssionally managed and diversified basket of 
financial instruments. Overheads and other co sts are spread over the pool of investors, 
reducing average cost for the investor.  
Investment funds: main actors 
Management Company : Responsible for the day-to-day ma nagement of the fund. This usually 
involves the management of th e assets but also a number of  associated administrative 
functions such as record keepi ng, regulatory compliance monitoring... 
Depositary : Typically carries out two functions: th e safe-keeping of the assets and the 
oversight of the operation of the fund. It has th erefore a crucial role in the protection of 
investors' interests. 
National regulator : National authority responsible for the authoris ation and on-going 
supervision of the fund/management company. 
 
EN 7   EN In the 1980s, the European industry for investment  funds had started to develop. However, the 
existence of a patchwork of national legisl ation had created an increasingly fragmented 
market. The UCITS Directive was adopted in order to overcome this situation. It aimed to 
offer greater business and investment opportun ities for both industry and investors in an 
enlarged market. In contrast with more modern  pieces of EU legislat ion, the UCITS Directive 
regulated the product. It set a se ries of requirements with whic h investment funds needed to 
comply4. Their main objective was to ensure high le vels of investor pr otection. It also 
introduced the first financial services passpor t. Once a UCITS fund had been authorised by 
the competent authorities of its country of domi cile, it could be marketed all over the EU. It 
simply needed to notify this intention to the competent authorities of the host market. 
Importance of investment funds for investors 
Saving in investment funds is one of the many options for households to  allocate their assets. 
Although banking deposits and insurance rese rves dominate household savings in most 
European countries, funds play an important ro le today. Their average share in EU household 
assets amounts to 11.5%, varying from 4.1% in the United Kingdom to 26.1% in Sweden5. 
This share should increase in the future. Europe an societies are ageing and there is a growing 
need for private retirement products. Effec tive private solutions will be important to 
complement state and occupational pensions. Inve stment funds provide an  established vehicle 
for accumulating capital throughout working life.  
The UCITS Directive has been key for the deve lopment of the European  fund market. As of 
today, assets under management (AuM) amount to nearly € 6tr. and represent about 75% of 
the EU investment fund market.  
Figure 1: UCITS assets under management (€ bn)  
1.1901.4171.8182.3493.1953.550 3.619
3.3383.7754.2065.1835.945
01.0002.0003.0004.0005.0006.000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
 
                                                 
4 The Directive for example indicates the list of asse ts in which UCITS funds can invest and in which 
proportion. 
5 EFAMA Fact Book 2007 
 
EN 8   EN Source: European Fund and Asset Management Association (EFAMA)6 
UCITS have grown successfully  both within the EU and beyond its borders. Its strong 
investor protection safeguards have gained the acceptance of financial services regulators in 
third countries in Asia and Latin America. According to recent market research, Asia 
represented 15% of Europ ean funds' net sales in 20067. 
Market integration has grown gr adually. However, as of today, a mere 20% of the European 
funds can be considered as 'true cross-border funds'8. Nevertheless, they are the faster 
growing funds9. The industry is also characterised by a certain concentration of the activity. 
The fund management is typically performed in  financial centres such as London, Paris and 
Frankfurt; fund administration in Luxembourg and Ireland (please see in figure 2 UCITS 
assets per country). Growth of the Luxembour g and Dublin centres is encouraged by the 
success of cross-border funds and by the migrat ion of some management groups to single-hub 
strategies10. Luxembourg and Ireland funds accounted for 89% of the total European fund 
subscription in 200611. 
Figure 2: Geographical distribution (i n terms of assets under management) 
Net Assets UCITS (end 2006)
France
22%
Ge rm any
5%
Ireland
10%
Italy
6%Luxembourg
27%Spain
5%other EU
11%
United Kingdom
10%other non EU
3%new MS
0,6%
 
Source: EFAMA Fact Book 2007 
A certain level of activ ity concentration (measured by assets  under management) is also to be 
found in some national markets. Concentration of asset management companies tends to be 
                                                 
6 Data includes some non-EU countries such as Li echtenstein, Norway, Switzerland and Turkey. Their 
part in the total assets was 3.2% at the end of 2006. 
7 "Windows into Global Asset Management", Strategic Insight, March 2007. 
8 Funds that are notified for sale in at least two countries other than their fund domicile (PWC-Lipper 
data) 
9 In 2006, net sales of Luxembourg and Irish funds accounted for 74% of the total UCITS sales. 
(EFAMA Fact Book 2007).  
10 FERI Data Digest 2007. 
11 Idem. 
 
EN 9   EN lower in the biggest fund markets and higher in smaller markets. In 2004 the market share of 
top five asset managers was below 30% in Ireland and the UK, while in smaller Member 
States, such as Greece, Belgium or Czech Republic, it accounted for more than 80%. 
The assets-weighted average market share of fi ve largest asset managers in the EU amounted 
to about 50%. The number of relatively small na tional markets in Europe  partly explains why 
the average concentration ratio is higher  as compared to the US (ca. 40%).  
Figure 3: Market Share of Top 5 Asset Management Companies (2004) 
97%94%
87% 86%84%
79% 78%
74%
68%67%64%62%
54%52%
46%
28% 28%41%
0%20%40%60%80%100%
Czech Republic
Slovakia
BelgiumDenmark
Greece
HungaryFinland
Sweden
Poland
Austria
Portugal
NetherlandsItaly
Spain
Germany
France UK
IrelandEU (weighted average)
Top 5 AMs in the EU
 
Source: ZEW/OEE database, data from EFAMA, Feri FMI, ZEW calculations 
At the distribution level, the move towards open architecture12 is slow, particularly in closed 
markets dominated by local banks. However, ther e is an unmistakable trend towards more 
openness. In 2004 third-party distribution accounted for only 15% of all distribution channels 
in Europe (compared to 81% share of cap tive distribution). In 2006, major distributors 
evaluated that 55% of their activity was third-party13. 
2.2. Reviewing the UCITS framework 
Despite this positive evolution, at the turn of th e 21st century, it started to become evident that 
the rigidity of the Directive did not allow UC ITS to fully exploit all of the development 
opportunities. Amendments made in 2001 aimed at modernising the Directive14. UCITS 
investment powers were enlarged and a passport for the management company was 
introduced. Provisions offering greater busines s opportunities for the European fund industry 
were coupled with reinforced  investor protection provisions  (e.g. minimum capital for the 
management company and risk management  controls requirements). The Simplified 
                                                 
12 The fact for a distributor of offering third-party funds instead or in addition to its 'in house' fund range. 
13 FERI. 
14 Please see footnote 4. 
 
EN 10   EN Prospectus was created in order to assist i nvestors in taking an informed decision when 
assessing the suitab ility of the fund offered to them.  
However, the 2001 amendments did not respond to the supply side bottlenecks and barriers 
that hampered industry effici ency. Some of the 2001 novelties (notably the management 
company passport and the simplified prospect us) had either failed to produce any positive 
effect or been implemented in such a way that  they had ended up being an additional source 
of unnecessary costs for the fund industry. A seri es of deeply rooted inefficiencies were 
therefore hindering the working of the Europe an investment fund market. These severely 
handicap the fund industry and prevent it from successfully facing its main challenges. The 
box below summarises these challenges. 
UCITS main challenges 
The scope of the UCITS framework.  UCITS was designed as a retail product. However, over 
the years a growing range of non-UCITS funds have developed. These cannot comply with 
the prescriptive investment rule s of the Directive but many are av ailable to retail investors at 
national level. Extending the UCITS framework to cover these funds would broaden cross-
border opportunities for the fund industry and enrich the fund offer to investors.  
Competition from other forms of financial product.  UCITS compete with other similar 
investment products – such as (unit-linked) life in surance or structured no tes and certificates – 
for investors' savings. (In 2006, for example, net sales of UCITS fell 5% while those of 
structured products and unit-linked insu rance products increased by 18.5 % and 50% 
respectively.) It is often ar gued that their more restrict ive regulation handicaps UCITS' 
competitiveness. There exists therefore the risk  that investors will be directed to cheaper 
forms of investment but which often offe r lower levels of investor protection.  
Global competition.  UCITS authorisation has won wide gl obal recognition as a guarantee of 
sound product and effective regulation. However, competition from other fund jurisdictions is 
starting to build. To continue to attract cust om from around the world, it will be necessary to 
eliminate unnecessary cost and to support innovation.  
Financial innovation.  The Directive's strict product desi gn means that UCITS investment 
powers need to be continually revisited in order to keep pace with financial innovation. It has 
often been argued that a risk-based (instead  of a product) approach could overcome that 
problem. 
In 2004, the recommendations of the expert group on asset management (AM)15 were the first 
important contribution to the review of the wo rking of the UCITS framework that has led to 
the legislative proposal. This review process is summarised in figure 2. 
The expert group's report identi fied a list of issues requiring  action. Responses to the open 
consultation that followed showed that there was a widespread consensus that there was 
considerable room for improvement in the area of investment funds. 
One year later, the Commission Green Paper on investment funds16 launched a public debate 
on the need for EU level action (a nd its scope). First of all, a strategic choice needed to be 
                                                 
15 "Financial Services Action Plan: Progress and prospects", Asset Management Expert Group Report, 
May 2004. 
 
EN 11   EN made: could targeted measures respond to stakeh olders' expectations or was a more wholesale 
reform of the investment funds legislative framework needed?  
Both Commission services re search and stakeholders c onsultation led to the same 
conclusion17: focus should be on modifying the Direct ive to remove remaining barriers to 
market access and to allow fund industry to organise fund management and administration 
more efficiently within the single market18.  
Figure 4: The UCITS framework review process 
 
Once the strategy had been chosen, it remained to  determine those areas actually requiring EU 
level action. This was done in the WPIA. The problem areas iden tified then are listed in the 
box below19. To effectively address these problems th e WPIA analysed a series of options and 
assessed them against their impact on a) fund i ndustry's efficiency, b) investor protection and 
c) market integration. 
                                                                                                                                                         
16 Green Paper on enhancing the European framework for investment funds, COM(2005) 314 final, 12th 
July 2005. 
17 Please see the 'Consultations' part in annex 1. 
18 A complete overhaul of the Directive would have required a more extensive rethinking of the design of 
the UCITS framework and, at that stage, the advantages of that option did not seem compelling enough. 
19 Please refer to section 3.1 or the IA fiches of the WPIA for a more detailed description. 

 
EN 12   EN Investment fund market: problems identified 
On the supply side:  
 Proliferation of funds  of a sub-optimal size : This impedes the exploitation of economies of 
scale and increases costs. As a result the Total Expenses Ratio of a typical cross-border 
European fund is much higher than that of an American fund.  
 Lack of flexibility  in organising the industry value-chai n: The UCITS Direct ive restricts the 
ability of the fund manager/f und as to the location of ke y core functions. The UCITS 
Directive requires that the depositary is base d in the same country as the fund. Also the 
possibility for the management company to offer its services across borders is restricted in 
practice. This not only limits the capacity of the industry to achieve ec onomies of scale and 
specialisation, but also leads to a duplicat ion of resources that raises costs.  
 Barriers in getting funds into the market : UCITS Authorisation (by the Home Member 
State) and Notification (to the Host Memb er State) procedures are often long and 
cumbersome. While the direct costs are limited,  uncertainty as regards the duration of the 
procedure can have an important  impact on busine ss opportunities. Both uncertainty and long 
delays seriously handicap the fund industry in co mpeting with other investment products (e.g. 
unit-linked insurance contra cts, certificates…)  
 Strict investment restrictions : The definition of the produc t imposed by the Directive is 
perceived as limiting the investment and business opportunities fo r both investors and 
industry offered by the financial innovation. Th e problem is compounded by the fact that 
UCITS compete with other products with similar characteristics but subject to different forms 
of disclosure and intermediary regulation. There is the risk that  investment propositions would 
be repackaged in more convenient regulatory  forms offering lower levels of investor 
protection.  
 Non-standardised fund order processing : The treatment of a subscription or redemption 
order implies a series of interact ions between different actors a nd varied (often manual) steps. 
The lack of automation and standardisation in creases costs and delays and can exacerbate 
operational risks. 
On the demand side:  
 An ineffective simplified prospectus . This is too l ong and complex and, thus of limited 
value to the investors. It al so entails considerable cost overhead for the fund industry.  
 High costs and low transparency at the distributor's end . Limited competition and openness 
have led to sizeable distribution costs. These can  amount to up to 75% of total costs in some 
Member States. Distribution ne tworks are gradually becoming more complex and the number 
of intermediaries is increasi ng. This may exacerbate concerns about the loss of transparency 
and higher costs.  
 Development of non-harmonised investment funds : National regulatory regimes have been 
introduced over recent years in order to prov ide a framework for the development of non-
harmonised funds. Unfortunately, divergent appro aches and priorities ha ve given rise to a 
patchwork of incoherent legisla tion. For the industry, this translates into an important hurdle 
to the expansion across borde rs of their business.  
 
EN 13   EN In some instances, the WPIA repor t concluded that EU level action  did not appear to be 
sufficiently justified. Industry-led or national-level initiatives were preferred. In other cases, however, a common approach appe ared necessary to overcome the above described hurdles. 
This was clearly the case of problems derived from inconsistencies or deficiencies of the 
UCITS Directive. The analysis therefore reco mmended amendments to the Directive in a 
number of areas. To address other problems, EU level tools already existed or more research 
work was needed; non-legislative monitoring measur es were then considered to be the most 
cost-effective option. Accordingl y the White Paper announced a se ries of measures. These are 
summarised in the table below.  
Table 1: Measures proposed in the White Paper  
Problem Changes to 
the UCITS 
Directive If no, which  
other measure? 
Proliferation of funds of a sub-optimal size YES - 
Lack of flexibility in  organising the industry 
value-chain: the management company YES 
(if cost-effective 
solution can be found)- 
Lack of flexibility in or ganising the industry value-
chain: the depositary  NO - 
Barriers in getting funds into the own market: 
UCITS authorisation  NO (Member States 
encouraged to expedite 
authorisations) 
Barriers in getting funds into other MS 
markets: UCITS notification YES - 
Strict investment restrictions  NO Implementing legislation 
on eligible assets 
Non-standardised fund order processing  NO (industry-led initiatives) 
An ineffective simplified prospectus YES - 
High level of costs at the distributor's end  NO Monitoring of MiFID20 
implementation 
Development of non-harmonised investment funds NO report, expert group, 
private placement regime
On 22nd March 2007, DG Markt published "Initial orie ntations of possible adjustments to the 
UCITS Directive". This document, also called 'e xposure draft' below, served as a basis for 
public consultation on the form of those legisl ative changes. The purpose of the consultation 
was to gather feedback  on how to design the measures an nounced by the White Paper in a 
way that effectively responded to  stakeholders' expectations and concerns. An overview of 
                                                 
20 Markets in Financial Instruments Directive (2004/39/EC). 
 
EN 14   EN this exposure draft is annexed to this report. Details of the responses to the exposure draft 
consultation for each of the legislative measures are provided in the relevant IA fiches (annex 
7). Respondents' contributions have been an im portant and valuable i nput to the analysis 
developed in this report and to the re finement of the proposed provisions.  
3. T HE WHITE PAPER IMPACT ASSESSMENT  
As explained above, the WPIA report analysed the main obstacles hindering the development 
of the European fund market and put forward a lis t of preferred solutions in order to overcome 
them. As shown in table 1, some of those propos ed solutions can be implemented without any 
change to the UCITS legislative framework. Work  in those areas is evolving along the lines 
described in the White Paper21 but will not be discussed in this report. Many of the announced 
outputs will materialise over the next year. Othe r solutions, however, require amendments to 
the UCITS Directive. The objective of this section is to recall th e WPIA analysis in relation to 
these legislative solutions. A more detailed de scription of the problems can be found in annex 
7 (and in the relevant annex of the WPIA). 
3.1. Problem description 
Problem 1:  Barriers to marketing funds in ot her Member States' (MS) markets.  The 
notification procedure (vis-à-v is the host MS authority) in troduced by the 1985 Directive is 
often long and cumbersome. The host regulator' s role often exceeds that defined in the 
Directive (i.e. verification of the UCITS mark eting arrangements in the host market) and the 
two-month limit is not always respected. The procedure has been compared to a second 
authorisation of the fund by th e host regulator instead of a simple communication of the 
UCITS intention to market its units in the hos t market (as provided for in the Directive). 
Estimated direct annual costs for the fund indus try for maintaining notification amount to €25 
million (in addition to more than €20 million for the initial notification)22. While these costs 
are relatively limited23, uncertainty as regard s the duration of the pr ocedure can have an 
important impact on business opportunities. A dditionally, both uncertain ty and long delays 
seriously handicap the fund indus try vis-à-vis other investme nt products (e.g. unit-linked 
insurance contracts, certificat es…) in attracting investors sa vings. Foreign funds' difficulties 
to enter domestic markets restrict competition forces. As a result, investors not only could have access to a broader fund offer but also bear unnecessarily high fees.  
Accordingly, the WPIA recommended that am endments to the Directive should a) reduce 
notification delays, b) replace the curr ent procedure by a regulator-to-regulator 
communication exchange and c) clarify each MS' authority role and responsibilities. 
Problem 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 assets24. The average European fund is more than five times 
smaller than its American counterpart. This si ze difference has persiste d over the years. The 
                                                 
21 Please see the White Paper's annex 1 for a condensed view of the expected outputs and deadlines of 
those 'non-legislative' work-streams. 
22 "A Harmonised, Simplified Approach to UCITS Registration", EFAMA and IMA, April 2005. 
23 They account for less than 0.25 basis points (i.e. 0.0025%) of the total fund costs for the largest fund 
providers. Please see European Commission ( 2006e) for more details on these costs. 
24 And as many as 20% of European funds have a size below €10 million (FERI, Data digest 2007) 
 
EN 15   EN graph below shows the evolution of  European and American fund si zes for the four last years. 
Although some catch up has taken place during that period, this has been quite slow25. 
Figure 5: Average investment fund size in Europe and US 
US
Europe2003200420052006974
178946
166739
139722
125
01002003004005006007008009001.000
 
Source: EFAMA and ICI. (End of the year €/$ ECB rates)  
Managing large ranges of small funds is costly. It impedes th e exploitation of  economies of 
scale and increases costs26. As a result, the Total Expenses Ratio of a typical cross-border 
European equity fund is twi ce that of an American fund27. Annual savings of up to € 6bn have 
been identified28. Current market trends risk exacerba ting the problem. Fund launches remain 
the preferred strategy for asset managers to innovate, raise ne w assets and respond to new 
investors' needs or preferences. In 2006, th e total number of funds increased by 1,542 
(compared to an increase of 887 funds in 2005) . According to FERI, observed fund closures 
were sometimes the consequence of products, such as guaranteed funds, reaching maturity rather than the result of  fund rationalisation efforts. Some consolidation has been taking place 
at national level. However, th e absence of a common EU framew ork for fund mergers leads to 
the coexistence of different national rules, rende ring cross-border me rgers expensive, 
complex and time consuming when at all possi ble. Other amalgamation techniques such us 
entity pooling
29 are explicitly ruled out by the divers ification requirements of the UCITS 
Directive.  
Therefore, the WPIA conclude d that two measures would a llow the fund industry to fully 
exploit potential economies of scale: 1) a le gislative framework for (cross-border) fund 
mergers and 2) the possibility for UCITS to engage in entity pooling.  
                                                 
25 During the period 2003-06, the average size of American funds has increased by 35% and that of 
European funds by 42%.  
26 According to CRA (European Commission (2006e)), the highest potential for economies of scale lays in 
fund administration and asset management. Although additional scale savings fade out once the fund's 
size has reached €200-300 million, the fact that a hi gh percentage of European funds are far from that 
size as indicated by FERI data above, proves th e importance of the economies of scale potential. 
27 "Economies of scale and consolidation in collective funds", Fitz rovia, March 2005. 
28 According to a recent Invesco report, this saving s would stem from two sources. First, the elimination 
of the disappearing funds' fixed costs. Second, through the economies of scale achieved by a larger 
(resulting) fund. Please see Invesco (2005)  
29 For more details on this technique please see the corresponding fiche in annex 7. 
 
EN 16   EN Table 2: Problem matrix   
 Problem Consequences 
1 Barriers to marketing funds in other 
Member States' markets • Missed opportunities for the industry 
• Higher costs and less choice for 
investors 
• Less competition in national fund 
markets 
2 Proliferation of f unds of small size • Unexploited economies of scale  
• Confusing fund ranges 
3 Lack of flexibility in organising the 
industry value-chain • Resources duplication  
• Unexploited economies of scale 
• Untapped specialisation gains 
4 Ineffective investor disclosures 
(simplified prospectus) • High costs for industry 
• Little use for investors 
Problem 3:  Lack of flexibility in orga nising the industry value-chain.  Although a passport for 
the management company was intr oduced funds of a corporate type30 with the Directive 
amendments in 2001, the possibility  for the management company to offer its services across 
borders is restricted in practice. Ambiguities in the Directive text and split supervision 
concerns have rendered it non operational. Th e relevant Directive provisions lack the 
necessary clarity and safeguards to allow the ap propriate supervision by regulators of remote-
managed structures. 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. This not only limits the capacity of the industry to achieve economies of scale and specialisa tion, but also leads to 
a duplication of resources that raises costs.  Between € 381 and € 762 million could be saved 
annually if each European managing group coul d carry out its activities through a single 
management company. The fact that the original  passport was limited to funds of a corporate 
type also reduces the potential benefits of th e passport. Funds of a contractual form are the 
most common type of fund in 18 MS and the on ly existing type of fund in 13 of them.  
The WPIA recommended exploring possible ch anges to the management company passport 
provisions in order a) to eliminate ambiguities, b)  to extend it to funds of a contractual type 
and c) to enhance regulato rs' cooperation mechanisms. 
                                                
 
30 'Corporate UCITS' or investment companies are UC ITS constituted under statute. They generally have a 
Board of directors and investors (shareholders) can be entitled to vote in general assemblies. Corporate 
UCITS have a legal personality. On the other hand, 'contractual UCITS' are constituted under the law of 
contract (common funds) or trust law (unit tr usts). They do not have a legal personality. 
 
EN 17   EN Problem 4:  An ineffective simplified prospectus.  Despite the clarification efforts provided by 
the Commission Recommendation in 200431, 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 too long and comple x and, thus of limited va lue to the investors. 
The information provided is not always easily unde rstood by the average retail investor and it 
does not lend itself to comparison between funds, especially across border s. At the same time 
the production of the simplified prospectus is relatively costly and time-consuming for the industry as national requirements often add to those of the Directive and can differ widely 
across MS.  
The WPIA suggested pursuing a ne w approach for the simplified prospectus, i.e. changes to 
the Directive focusing on the core principles for investor disclosures and possibility of 
defining the details (e.g. format  and content) at level 2. 
A more detailed description of the identified problems is provided in annex 7. 
3.2. Objectives 
The WPIA identified the following objectives. Thes e remain the same for this IA exercise. 
Overall objectives 
The objective is to ensure that  all players, asset managers, in termediaries and investors, can 
exercise their respective single ma rket rights. Market players shoul d be in the position to fully 
benefit from the single market
 freedoms and investor protection safeguards established by the 
UCITS Directive, as well as from the effici ency gains that an up-to-date legislative 
framework should facilitate. These single mark et opportunities not only concern the freedom 
of the industry to do business but also the freedom  and right of investors to participate in the 
market in a fair and transparent way.  
Specific objectives 
The pan-European legal framework for harmonised funds should: 
i) promote an efficient  and innovative fund industry  that is attuned to the needs of its 
traditional retail investor base, reaping all the commercial opportunities in a fully integrated 
European market and that is able to compet e globally. In doing this, particular attention 
should be given to the need to reduce administrative burden . 
ii) provide an appropriate  protection of investors  that takes into account market developments 
and changes in investors' needs and preferences,  interactions with competing products as well 
as country-specific differences.  
Operational objectives 
The operational objectives are the deliverables that the amendment to  the UCITS Directive 
should produce. The legislative changes aim to produce economic benefits, to promote the 
development of the industry and to stre ngthen the protecti on of investors.  
                                                 
31 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 18   EN The concrete specific and ope rational objectives of  each of the individual measures are 
summarised in tables 4, 6, 8, 10, 12 in section 4. Th ey are also described in  detail in annex 7.  
3.3. White Paper recommendations 
On the basis of the WPIA analysis, the White Paper future work to develop possible changes 
to the Directive in relation to fi ve issues: 1) notification proce dure, 2) fund mergers, 3) asset 
pooling, 4) render operationa l the management company passport and 5) simplified 
prospectus. The following table summarises the WPIA option analysis in relation to these 
issues. 
 
EN 19   EN Table 3: Summary of impact assess ment for individual problem areas  
(Preferred options are marked in bold) 
 Assessment of impact on:  
Available options EfficiencyMarket 
integration Investors' 
protection  Feasibility 
1. Notification      
Service Passport replacing notification ++ ++ -- Doubtful 
Amend UCITS Directive: deadlines for procedures; 
regulator-to-regulator notification   ++ ++ ++ Yes 
Monitoring and support of CESR work towards more 
efficient and harmonised procedures + + + Yes 
Do nothing - - -  
2. Fund mergers     
Amend Directive: enable fund mergers  ++ ++ ++ Yes 
Soft law: support convergence of national approaches ? ? + Yes 
Do nothing - - -  
Taxation Directive: ensure that mergers are not 
treated as taxable events ++ ++ + Doubtful 
Interpret. Communication: application of national 
rules to cross-border mergers + + + Yes 
Do nothing - - -  
3. Pooling      
Amend Directive to a llow entity pooling ++ ++ ++ Yes 
Amend Directive to allow master-feeders + ++ ++ Yes 
Do nothing - - +  
4. Management Company Passport     
Amend Directive to make the passport work: fine-
tuning of existing provisions/elimination of potential inconsistencies in the rules ++ ++ ++ Possible 
CESR guidelines to give effect to Art. 6c cooperation 
provisions ? ? + Doubtful 
effectiveness
Two-step approach: analyse situation + act on the basis of results + + ++ Doubtful 
effectiveness
Do nothing - - +  
5. Simplified Prospectus      
CESR guidelines on coherent and uniform 
implementation of the SP +? +? +? Yes 
Modify Recommendation to clarify certain elements 
of the Simplified Prospectus +? +? +? Yes 
Abolish the Simplified Pros pectus ++? ? -- Doubtful 
Amend Directive : specify core principles, 
Lamfalussy approach for future adaptations   ++ ++ ++ Yes 
Level 2 measure: clarification of definitions +? +? +? Yes 
Do nothing - - -  
Assessment: ++ = strongly positive; + = positive; -- = strongly negative, - = negative; ≈ = neutral; ? = uncertain;  
 
EN 20   EN Lamfalussy approach 
The WPIA also encouraged, as a general rule, to undertake changes to the Directive following 
a Lamfalussy logic, i.e. focusing on core pr inciples and leaving the definition of more 
technical details to level 2. This would introduce greater flexibility by allowing tailored adaptations of the legislative framework in lin e with the evolution of financial markets and 
both industry's and investors' needs.  
Supervisory co-operation 
The White Paper recognized that those cha nges to the UCITS framework would encourage 
cross-border operations and/or structures which could be  more complex. Implementation of 
those changes will lead to a situation in which different regulators may be responsible for different actors and value-chain functions. E ffective supervision will then need to be 
underpinned by an appropriate and timely c ooperation between the relevant national 
authorities. The White Paper therefore conclude d that the final design of the new provisions 
should include ways to enhance existing supe rvisors' powers and cooperation mechanisms. 
This recommendation has been fully taken into account in the analysis. However, given its 
close interaction with all of the other five i ssues, 'supervisory cooperation' has been dealt in 
this report as an intrinsic element of each of them rather than as a parallel issue
32. 
4. D ESIGNING THE LEGISLATIVE CHANGES PROPOSED IN THE WHITE PAPER  
Ahead of the design of the new provisions, a number of choices (per issue) have been 
considered. These choices and thei r likely impacts are presented shortly in the sections below. 
Impacts summary tables have been inserted in or der to provide a brief in dication of the extent 
to which the respective choice would have an  impact on efficiency, market integration and 
investor protection. Together with the accompanyi ng text, these tables offer a very condensed 
summary of the impact assessments that have been prepared for each of the five individual issues. More detailed analyses  can be found in annex 7. The table in annex 2 provides an 
overview of the impacts for all the issues analysed.  
4.1. Addressing barriers to marketing funds  in other MS markets (problem 1) 
4.1.1. The notification procedure  The WPIA recommended amending the Directive in order to: 
a) significantly reduce notification delays;  
b) replace the procedure by a regulator-to-regul ator communication exchange (following the 
example of other financial se rvices Directives); and  
c) remove legal uncertainties regarding regulators respective roles and responsibilities. 
On that basis, the exposure draft publishe d in March 2007 presente d an overhaul of the 
notification procedure. It put forward a direct transmission fr om the home regulator to the 
host regulator of a (exhaustiv e) list of documents; allowing marketing 3 days after this 
                                                
 
32 To facilitate the consultation process and the analys is of responses, the exposure draft (annex 4) 
however treated 'supervisory cooperation' as a stand-alone issue. 
 
EN 21   EN transmission. According to the proposal, the authorities of a host MS could not 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 
raised some investor protection considerations. These have been fully taken into account in 
the analysis carried out. Responde nts' expectations are also refl ected on the objectives that 
have guided the assessment of im pacts (please see table below). 
Table 4: Problem-Objectives-Solution  
Problem area Overall objective & detailed 
specific objectives  Detailed operational 
objectives Recommended solution 
Barriers to 
marketing 
funds in other 
MS markets - eliminate barriers to integration 
of the European fund market => 
easier market access; greater 
competition 
- encourage cost and time savings 
=> improved competitiveness of UCITS 
- appropriate investor protection  - wider national fund offer 
- greater business 
opportunities 
- more levelled playing field 
between UCITS and competing products  
- less administrative burden 
- investor protection levels 
maintained Streamline the notification 
procedure  
In order to streamline the no tification procedure along the lines recommended by the WPIA 
(and informed by the exposure draft consultation)  two possibilities have been identified:  
1) maintain host MS regulator ex-ante33 verification of the UCIT S marketing arrangements 
but reducing the period availabl e for that verification;  
2) allow immediate marketing of UCITS in the host market after the notification: host MS 
regulator's checks takes then place ex-post  on an on-going  basis.  
As explained in the more deta iled analysis carried out in a nnex 7, the first option (ex-ante 
verification) would not improve significantly the current situa tion. The costs linked to the 
notification procedure (n otably notification and legal fees) would most probably not diminish 
perceptibly. Uncertainty about UCITS time-to -market in the host MS would also remain34. 
The notification procedure would then continue to act as an entry barrier to national host markets. This will reduce the fund offer availabl e to host investors and hold back competition 
forces (as well as their positive effect on the fund charges paid by the investor). 
Accordingly, only a decisive simplification of the procedure would produce a significant 
positive effect. This is achieved by the second option (on-going ex-post checks). It has been 
argued that eliminating host MS regulator's  ex-ante controls may undermine investor 
protection. The analysis of impact s however concludes that  this risk is fair ly small. Even in 
the absence of those pre-checks, there would stil l exist three levels of protection. First, the 
authorisation provided by the fund home regulat or who checks compliance with the UCITS 
Directive provisions. Second, the fact that an im portant percentage of UCITS distribution in 
                                                
 
33 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 alr eady marketed in the host MS). 
34 Requests for clarifications or additional information on the side of the host regulator could actually have 
the effect of prolonging the fixed period given to the host regulator for the verification. 'Stopping-the-
clock' is already a normal practice and the two-month period currently provided for in the UCITS 
Directive not always respected. 
 
EN 22   EN host markets is done through EU or national regulated actors (e.g.  around 75% of fund 
distribution takes place through actors regulated by the MiFID). Third, the preventive effect 
of ad hoc ex-post checks35 that should deter breaches of the relevant rules. A procedure much 
simpler than (costly and cumbersome) system atic ex-ante verifications could therefore 
achieve the same level of investor protection. A number of parallel (also more proportionate) 
measures could reinforce the attainment of that  objective. It has for example been suggested 
that host regulators make public the laws and provisions with which UCITS will need to 
comply in their territories. This approach has been already adopted by a number of MS. 
Table 5: Notification: Summary of impacts  
 Specific Objectives Overall Objective 
 Efficiency36 
 Investor protection administrative 
burden sector 
efficiency Pro Single 
Market? 
Ex-ante 
control + 
(no investor protection 
risk) - 
(higher burden)  - 
(higher costs; less 
business opport.) no 
(barrier entry to host 
market) 
Ex-post 
on-going 
control +/≈ 
(current protection 
levels maintained)  + 
(lower burden)  + 
(lower costs; more 
business opport.)  yes 
(will encourage market 
integration)  
Other procedural choices have be en made in the detailed IA pr esented in annex 7. Most of 
them aim to (further) simplify the notification procedure. One that deserves particularly to be highlighted is the proposed choice regarding the language regime applicable to the documents 
that the notification f ile needs to contain.  
The analysis recommends that only key investor  information would be translated into the 
official language of the host MS. Translation costs and the l ong time needed for translations, 
often act as a barrier to entry into other MS  markets (particularly small ones). Requiring only 
translation of the key investor  information would entail a c onsiderable reduction of the 
administrative burden borne by the industry (and ultimately passed on to investors in the form 
of higher fees) and improve UCITS time-to-marke t. It would also e ffectively respond to a 
practical reality (investors make generally li ttle use of most fund documents due to their 
complexity). The envisaged revi ew of investors' disclosures (please see section 4.4 below) 
should ensure that even if only the key investor  information is translated a proper protection 
of investors is guaranteed. A few voices have ho wever expressed concerns about this choice. 
In order to overcome them, a compromise soluti on could be to indicate in the key investor 
information in which language(s) the other fund documents would be available. The investor 
could then decide by him/herself whether this poses any problem to him/her. (It should then 
remain up to the fund provider to decide wh at fund documents, othe r than key investor 
information, need to be transl ated for commercial reasons.)  
                                                
 
35 As well as fund promoter's natural interest to minimise reputation risks 
36 Administrative burden refers to the costs linked to the production/provision of information that would 
have not been collected/provided in  the absence of a legal obligation.  Sector efficiency refers to 
efficiency gains derived from lower fund production costs, more rationalised processes or the greater 
flexibility and opportunities offered to industry players. 
 
EN 23   EN 4.2. Addressing the proliferation of funds of a small size (problem 2) 
The WPIA put forward two solutions in orde r to achieve economies of scale in the 
management of assets: facil itating fund mergers and enabling asset pooling. The reason for 
this was that, although both may pursue a simila r goal, they serve diff erent business logics. 
Mergers would be more appropriate for industry players wishing to offer a (cross-border) fund 
range from a single location; while pooling would be the rationa lisation technique chosen for 
those offering a range of (national)  funds established in several MS. 
4.2.1. Fund mergers 
The WPIA recommended changes to the Directiv e in order to create the conditions for the 
rationalisation of the fund landscape while, at the same time, ensuring high levels of investor 
protection. The exposure draft pr esented stakeholders with a pr eliminary design  of an EU 
framework for UCITS mergers. The proposed fr amework would cover a series of commonly 
used merger techniques (please see diagrams below) and would apply to both domestic and 
cross-border mergers. A set of  requirements for the regulator y approval of mergers was put 
forward, the main principle being that only th e regulator of the disappearing fund would 
approve (or refuse) the proposed merger. The e xposure draft also contained specific investor 
protection provisions, including th e right for investors to receive information on the merger 
(particularly on its potential impact on them) and th e right to redeem free of charge if they do 
not agree with the merger operation. 
Figure 6: Fund merger schemes 
 
The proposed approach was generally supporte d by all types of stak eholders (industry, 
regulators and investors). However, some invest or protection concerns were voiced in relation 
to the proposed investor rights and, in par ticular, regarding the conditions under which 
investors of the receiving fund could exercise them. Responses have proved very useful in 
order to refine the objectives (please see the table below) and the principles of a fund merger 
framework. 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  
 
EN 24   EN Table 6: Problem-Objectives-Solution  
Problem area Overall objective & detailed 
specific objectives  Detailed operational 
objectives Recommended solution 
Proliferation of 
funds of small 
size - eliminate barriers to integration 
of the European fund market 
- encourage cost savings at 
different levels of the value chain => improved competitiveness of 
UCITS 
- appropriate investor protection - consolidation of the fund 
industry 
- economies of scale realised 
- simple and swift merger 
procedure  
- properly informed investors 
with the right to dissent Enabling framework for 
fund mergers 
 
In order to address the investor concerns e xpressed during the consultation, the IA developed 
in annex 7 analyses two possibilities regardin g the provision to investors of information on 
the merger (the conclusions could then be extended  to other investor's rights, such as the right 
to redeem free of charge): 
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 funds37 
The analysis of impacts concludes that none of  these options are fully satisfactory from both 
an efficiency and an investor protection poi nt of view. The first option minimises the 
administrative costs for the industry but gives ri se to some investor protection concerns; the 
second minimises investor protection risks but  is overly onerous. Th e rationale behind the 
first option is based on the pr actical reality of f und mergers. Those most affected by the 
merger operation are the investors of the fund that will disappear. Re ceiving fund investors 
remain invested in the fund th at they had originally chosen  and that maintains its main 
features, notably its investment policy.  
However, the merger can also have an effect  on those investors. When the disappearing fund 
is relatively big or when the por tfolio composition of both funds is  very different, the transfer 
of assets into the receiving fund may have a negati ve effect on its performance38. This 
performance dilution risk does not seem to be  significant; there ex ist well-known techniques 
to minimise it (already often used in order to  deal with big subscr iptions or redemptions 
into/from a fund). However, although small, the risk remains. Pr oviding receiving fund 
investors with information on the merger would enab le them to protect their interests; but this 
appears to be a rather disproportionate meas ure. It may also discourage fund mergers 
(particularly cross-border) thus hi ndering further market integration.  
Therefore, option 1, i.e. informing only invest ors of the disappearing fund, remains the most 
cost-effective one. However, the analysis in annex 7 concludes that this option should be 
accompanied by other parallel investor protec tion provisions. It is for example recommended 
that the regulator responsible for approving (or reject ing) the merger proposal would assess 
                                                 
37 A third option would be 'no information to investors at all' but this is, for obvious investor protection 
reasons, deemed as unrealistic. 
38 For instance, due to the transaction costs associated  to the rebalancing of the receiving fund's portfolio. 
 
EN 25   EN the potential impact of the merger on the in vestors of the receivi ng fund and decide, if 
appropriate, that these invest ors are also adequately informed about the merger's 
characteristics and possible impacts. Since the main negative potential impact on the investors 
of the receiving fund is of a purely technical natu re (i.e. the dilution of performance 
mentioned above), the regulator of the disappeari ng fund should be able to asses that risk (as 
it is already currently do ne for national mergers) independen tly of where the receiving fund is 
based39. In any event, some form of communicati on or co-operation between regulators could 
also be considered. For example, the possibility  for the regulator of the disappearing fund to 
consult with the regulator of the receiving f und before taking a decision. A combination of 
both possibilities (1 and 2) seems theref ore the most advisable policy choice. 
Table 7: Fund mergers: Summary of impacts  
 Specific Objectives Overall Objective 
 Efficiency 
 Investor protectionadministrative 
burden sector 
efficiency Pro Single 
Market? 
Only to 
disappearing 
fund 
investors - 
(protection risk for 
receiving fund investors)+ 
(lower burden)  + 
(higher scale 
savings) yes 
(potentially more 
mergers) 
To all 
investors + 
(all investors duly 
protected)  - 
(higher burden)  - 
(lower scale 
savings)  no 
(may discourage 
mergers)  
4.2.2. Asset pooling 
Two types of asset pooling were discussed in the WPIA: virtual pooling and entity pooling40. 
In the case of virtual pooling, the WPIA analysis left the door  open to the introduction of a 
common approach but recommended to give furt her consideration to the issue. Subsequent 
research in this area led Commission services to conclude in the exposure draft that it did not 
seem appropriate at that stage to take any m easure to create a pan-European environment for 
virtual pooling. Important cross-liability and other investor protection concerns were 
highlighted as the main reason. Additionally, it a ppeared that the use of virtual pooling was 
rare outside a few MS and that there did not exist cross-border experiences. Besides, there had 
not been strong demand on the industry side for such an environment41. Analysis of the issues 
blocking the cross-border development of virtua l pooling should therefore first be discussed 
in appropriate fora. 
With regards to entity pooli ng, the WPIA report concluded th at the UCITS Directive should 
be changed to allow it. It also provided a fi rst analysis of the sc ope of this new UCITS 
freedom. Two possibilities were considered: entity pooling in a broad sense and so-called 'master-feeder' structures. These concepts ar e described graphically in the boxes below. 
                                                
 
39 Given the technical nature of the performance dilution effect, no particular knowledge of the local rules 
in the country of the receiving  fund should be required.  
40 For a description of each of these techniques please refer to the IA fiche on asset pooling in annex 7. 
41 Contributions to the consultations on the Green Paper and the Expert Group report on Market 
Efficiency had showed a greater interest for entity  pooling (particularly master-feeder structures). 
Responses to the exposure draft have confirmed this position. 
 
EN 26   EN Figure 7: Entity pooling techniques  
 
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. The main 
characteristics of that proposed preliminary fr amework were the following: a) prior regulatory 
approval of the feeder's investment into the ma ster was required, b) poo ling structures needed 
to have at least two feeders, c) the minimum investment of th e feeder into the master was 
fixed at 85% (of the feeder's assets); d) prope r arrangements between master and feeder (and 
between its depositaries and auditors) needed to be in place; e) information to investors should clearly explain the implications of the two-layer investment; and f) both master and 
feeder, as UCITS, needed to comp ly with the Directive provisions. 
Respondents to the exposure draft consulta tion found the suggested framework rather 
prescriptive. They recommended to concentrate at level 1 (i.e. Directive changes) on key 
regulatory principles, leaving de tails on procedure or applica tion of those principles to 
specific scenarios to be fill ed in through implementing legi slation (level 2) or common 
supervisory practice. These level 1 principles should however respond to the expectations of 
the different stakeholders as reflected in the objectives listed in the table below. 
Table 8: Problem-Objectives-Solution  
Problem area Overall objective & detailed 
specific objectives  Detailed operational 
objectives Recommended solution 
Proliferation of 
funds of small 
size - eliminate barriers to integration 
of the European fund market 
- encourage cost savings at 
different levels of the value chain => improved competitiveness of UCITS 
- appropriate investor protection - economies of scale realised 
- wider fund offer 
- greater management 
flexibility; limited additional administrative burden 
- investors properly informed
- easy on-going supervision  Allow entity pooling 
As regards the entity pooling technique selected (master-feeder s structures), a majority of 
respondents supported this choice. There was however a number of  contributors that invited 
the Commission to consider th e introduction of a framework fo r entity pooling in a broad 
sense. For some of these, limiting the scope of this new market freedom to master-feeders was 
a serious missed opportunity. Taking into a ccount the new arguments provided supporting 
each of the two entity pooling techniques the anal ysis of impacts has therefore focused on the 
following options: 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 % 
 
EN 27   EN 1) Allowing entity poolin g in a broad sense. 
2) Allowing master-feeder structures. As explained in the detailed IA analysis in annex 7, the possibility to use entity pooling in a 
broad sense could bring important advantages to industry players. Flexibility to tailor feeder 
funds' composition would allow fund promoters to adapt quicker their fund ranges to changing trends and investors' demands. It could however be argued that some of the advantages related to this tech nique are already available to industry players thanks to the 
current funds of funds regime
42. Option 1) would entail allowing an UCITS to invest in more 
than 5 other funds. This relaxation of the dive rsification requirements for fund of funds could 
have significant unintended consequences for investors. Additionally, if the objective is to achieve economies of scale thr ough the pooling of assets, this  seems to be more easily 
attained through master-feeder st ructures (through enti ty pooling in a broa d sense, feeder's 
assets would be split into a number of masters) . Given the complexity of 'entity pooling in a 
broad sense' structures, additi onal investor information obliga tions may need to be imposed 
on fund providers. Thus, the impact on administ rative burden of option 1) risks been greater. 
The IA analysis therefore concludes that the ma ster-feeder option is to be preferred both in 
terms of efficiency and of investor protection. 
Table 9: Asset pooling: Summary of impacts  
 
Specific Objectives Overall Objective
 Efficiency 
 Investor 
protection administrative 
burden sector 
efficiency Pro Single 
Market? 
Entity 
pooling 
broad sense - 
(supervisory concerns) - 
(higher burden)  + 
(higher flexibility 
lower ec. of scale) yes 
(will encourage 
market integration) 
Master-
feeders + 
(more well-known and 
positively tested)  + 
(lower burden)  + 
(less flexibility; 
higher ec. of scale)  yes 
(will encourage 
market integration)  
 
Further to determining the optimal scope of this  new single market freedom, the IA fiche also 
provides concrete recommendati ons on how to simplify the design of the framework 
presented in the exposure draft. Thus, the analysis recommends abandoning the minimum two-feeder requirement (in favour of other mo re proportionate investor protection solutions) 
and to provide a certain degree of flexib ility as regards requirements governing the 
relationship between the different actors.  
                                                
 
42 A fund of funds is a fund whose portfolio is basically made of funds (and liquidity). The UCITS 
Directive includes a set of  rules that UCITS fund of funds need to comply with; notably the obligation 
to invest in at least 5 funds. 
 
EN 28   EN 4.3. Addressing the lack of organis ational flexibility (problem 3) 
4.3.1. Management Company Passport The exposure draft tried to strike a balance between a comprehensive Management Company 
(MC) passport and supervisory concerns. The proposed framework included provisions to 
ensure a minimum of "substance" in the fund do micile (indicating the functions that should 
remain in that MS) and to enhance the superv isors' cooperation mechan isms. According to the 
exposure draft proposals, the fund domicile would be determined by using two criteria: 1) the 
country under whose laws the f und is constituted and 2) wher e the verification of the fund 
valuation and the maintenance of the unit-holders ' register take place.  The passport would be 
also extended to funds of a c ontractual type. The depositary w ould remain based in the fund 
domicile. 
Contrary to the other four to pics, responses to the exposur e draft consultation expressed 
divergent views regarding the management company passport proposals. Industry respondents 
voiced their disappointment rega rding the proposed scope of the passport. Others, mainly 
national authorities, considered  that the proposed approach pr ovided neither a clear definition 
of regulators' respective responsib ilities nor the means to fulfil their supervisory duties. Some 
concerns were expressed regarding the risk of  double taxation and the feasibility of extending 
the passport to contractual funds.  
Table 10: Problem-Objectives-Solution  
Problem area Overall objective & detailed 
specific objectives  Detailed operational 
objectives Recommended solution 
Lack of 
flexibility in 
organising the 
industry value-
chain - eliminate barriers to integration 
of the European fund market => 
greater cross-border activity 
- encourage savings by 
eliminating costs duplication => improved competitiveness of 
UCITS 
- appropriate investor protection - scale and specialisation 
gains realised 
- freedom to organise 
business structures cross-
border  
- effective supervision  
- clear regulators' 
responsibilities Make the Management 
Company Passport work 
The divergence of positions expressed during th e exposure draft shows how difficult the task 
of conciliating the objectives of greater flex ibility and adequate supervision. Given the 
fundamental questions raised du ring 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 work for corporate funds and extend it to contractual funds  
3) Make the MC passport work for corporate funds 
Commission's analysis suggests that the abse nce of a management company passport does 
deprive the industry of flexibility in domiciling functions and of costs savings. Work since the 
exposure draft has concentrated on the design  of provisions which avoid regulatory gaps, 
uncertainty or overload by 1) clarifying th e respective respons ibilities of fund and 
management company supervisor, 2) providing mechanisms to allow th e fund supervisor and 
depositary with means to monitor and enforce co mpliance with the rules in force in the fund 
domicile and 3) ensuring that the manageme nt company and its supervisor provide all 
necessary support to the fund supervisor and depositary. 
 
EN 29   EN Work on the design of effective prov isions reveals that this would: 
• Entail extensive information exchange and reporting obligations between fund 
management company, fund supervisor, ma nagement company supervisor, fund 
administrator and depositary. 
• Leave open many concerns about respective responsibilities – fund supervisor and 
depositary would be largely dependent  on the management company and the 
management company supervisor to discharge their obligations. Concerns exist that incentives and responsibiliti es would not be properly aligned 
• Enforcement concern remains, particularly  as regards contractual funds. As these 
are the only existing UCITS form in 13 MS, the economic impact of the 
management company passport only for corporate funds appears limited. 
The IA therefore concludes that the type of  provisions needed to provide a management 
company passport would entail extensive bureau cracy and administrative costs. They would 
not fully dispel the supervisory concerns and in vestor protection risks associated with cross-
border fund management. They would provide neith er a cost-effective ba sis to introduce the 
passport. Potential drawbacks are considered  to outweigh the expected benefits. The 
Commission therefore proposes not to change at this stage the provisions of the Directive in 
this regard but to maintain  the status quo whereby fund ma nagers undertake cross-border 
management through delegation-based solutions . The Commission intends to ask CESR to 
provide advice on safe, efficient and cost effect ive solutions that can provide confidence in 
respect of a range of supervisory and risk management issues. 
Table 11: Management Company Passport: Summary of impacts  
 
Specific Objectives Overall 
Objective 
 Efficiency 
 Investor 
protection administrative 
burden sector 
efficiency Pro Single 
Market? Feasibility 
Do 
nothing +/- 
(some 
operational 
risks) ≈ 
(status quo)  - 
(untapped 
savings) no 
(barrier entry to 
service host market)  Not applicable 
Passport 
for all 
funds -- 
(concerns re. 
split supervision 
and contractual 
funds)  -- 
(burdensome 
procedure)  ++ 
(lower costs; 
specialisation 
gains)  yes 
(will foster market 
integration)  Difficult 
(particularly re. 
contractual 
funds) 
Passport 
only for 
corporate 
funds - 
(split 
supervision 
concerns)  -- 
(burdensome 
procedure)  + 
(some cost 
savings/ 
specialis. gains)yes 
(will facilitate 
market integration)  Doubtful  
 
EN 30   EN 4.4. Addressing the ineffectiveness of th e Simplified Prospectus (problem 4) 
4.4.1. Key investor information The WPIA not only considered an amendment to  the UCITS Directive as the most effective 
solution but it also put forward a list of poten tial changes. These related to the length, the 
content and even the name of the Simplified Prospectus (consi dered by some as confusing).  
In line with these recommendations, the exposur e draft presented a completely new approach 
to investors' disclosures: the ke y investor information (KII) conc ept. It put forward the idea of 
a fair, clear and not misleading set of inform ation, not necessarily embodied in a specific 
document. KII would include all the product inform ation relevant for the investor to assist 
him/her in taking an informed investment decisi on, as well as practical information necessary 
for the investor to be able to exercise hi s/her rights. The planne d changes to the UCITS 
Directive would concentrate on defining the hi gh-level principles of the KII (purpose and 
main characteristics); the detailed provision s (content and format) would then be designed 
later (Level 2 measures). The table below summarises the objectives  pursued with those 
proposed changes. 
Table 12: Problem-Objectives-Solution  
Problem area Overall objective & detailed 
specific objectives  Detailed operational 
objectives Recommended solution 
Ineffective 
investor 
disclosures 
(simplified 
prospectus) - eliminate barriers to integration of 
the European fund market 
- more cost-effective disclosure 
procedures => improved 
competitiveness of UCITS 
- improve competition and 
transparency in distribution 
- reduce risks and improve 
information and choice for investors => enhanced investor 
protection - greater comparability 
between funds  
- effective tool to take an 
investment decision 
- less administrative burden
- clear regulators' 
responsibilities Simplify the Simplified 
Prospectus 
The framework proposed in the exposure draft was 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 analysis in annex 7 therefore 
focuses on the impacts of two possible alternatives: 
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 As described in annex 7, the building block approach would allow for greater flexibility 
regarding the presentati on of the information. It would th en be possible to better adapt 
disclosures to the type of investor and/or to the distribution cha nnels and methods used. 
However, a single document would probably be si mpler to use for inve stors. It would be 
easier for them to understand and to assess the virt ues/drawbacks of the fund if all the relevant 
(or key) information is provided together. Investors will be ab le to compare between products 
and therefore to chose the one more in line with  their needs. This ability to compare among 
funds should, in the medium term, encourage competitive forces and therefore put pressure on 
 
EN 31   EN prices (fees). Additionally, from a compliance cost s point of view, it should be noted that the 
building block approach represents an important  change vis-à-vis the current situation. It 
would therefore probably imply higher adjustment costs for the industry. 
Thus, a single stand-alone docum ent appears to be the option th at complies better with the 
objectives of investor protection and efficiency. Since it will allow a easier comparison among different MS funds, it s hould also encourage the inte gration of the European fund 
market. 
Table 13: Key Investor Inform ation: Summary of impacts  
 
Specific Objectives Overall Objective 
 Efficiency 
 Investor 
protection administrative 
burden sector 
efficiency Pro Single Market? 
Building 
blocks +/- 
(adapted 
disclosures but no 
global view) - 
(risk of higher 
burden)  - 
(risk of higher 
costs)  no 
(less comparability, could 
act as entry barrier to host 
markets) 
Single 
document + 
(more user-
friendly)  + 
(lower costs and 
administrative 
burden)  + 
(lower costs)  yes 
(comparability will 
encourage market 
integration)  
Other practical choices have been made in the detailed IA presented in annex 7. Many of them 
aim to reduce the burden associated with the pr oduction and delivery of the KII. For example, 
clarifying the liability attached to the KII w ould help in reducing the complexity of the 
document (avoiding thus long and complicated legal di sclaimers). Allowing the possibility to 
use different KII distribution methods (includi ng electronic delivery) could have a positive 
impact on delivery costs. 
4.5. The overall impact of the proposed measures 
4.5.1. Overall impacts The economic savings to be expected from th e proposed measures are not negligible. They 
range from the modest identified savings of  the new notification procedure (most of the 
current € 20 million initial notification costs and probably also the € 25 million annual costs 
of maintaining notification) to  the several billion to be saved annually if European funds 
could fully exploit the economies of scale deri ved from consolidated management through 
fund mergers or asset pooling. The simplification of investors' di sclosures, the possibility to 
use electronic transmission means and the reco mmended language regime (i.e. only KII is to 
be translated into the host MS language) will  also entail important savings. These, although 
difficult to quantify, were considered as subs tantial by many respondents to the exposure draft 
consultation. The overall impact of the propo sal on administrative burde n is provided in the 
box below. 
 
EN 32   EN Impact on administrative burden 
The guiding principles of  this analysis have been market efficiency and investor protection. 
However, particular attention has also been given to the need to reduce administrative 
burdens.  
As regards to already existing mechanisms , the recommended decisive simplification of the 
notification procedure and of i nvestors' disclosures would lead to a significant reduction of 
those burdens. The recommendation to limit translation (into the hos t MS official language) to 
solely the KII is one of the key elements with regards to the notification procedure. While the 
corresponding reduction of administrative burd en is difficult to quantify, one of the pan-
European players contributing to the consulta tion on the exposure draft estimated savings of 
approximately one-third of its no tification costs. To further al leviate the admi nistrative burden 
linked to the notification procedure the conten t of the notification file should be clearly 
determined (and thus rule out host MS' requests for additional information). The shortening 
and standardisation of the contents of the KII will also be an important step forward, although 
savings are difficult to quantify at this stage (CESR is currently working on a 
recommendation to the Commission on the format and content of the KII). The possibility to 
use electronic means for the transmission of the notification file and to provide the KII to 
investors would also cont ribute to this savings.  
Two of the proposals introduce new freedoms  but also new obligations and therefore 
additional administrativ e burden; these are the framewor k for fund mergers and for asset 
pooling. It needs to be noted however that th e harmonisation of the merger procedure sought 
by the new provisions would considerably reduce the administrative burden actually borne by 
fund promoters wishing to merger funds cross-bo rder (and who currently need to comply with 
a set of different national requirements). In the case of pooling, the additional administrative 
burden appears justified by the need to ensure adequate le vels of investor protection. 
Recommendations in relation to these two areas aim at ration alising the proposed framework 
by clearly identifying the re spective responsibilities of the indu stry and competent authorities.  
While the scale of those savings may not be se em as compelling in certain cases, important 
dynamic effects  are also to be expected43: 
• The shorter time-to-market for funds will enhance their competitiveness vis-à-vis 
other investment products.  
• A more efficient notifica tion procedure could also reduce the need to have 
different national fund ranges. A single cross-border fund could then pool the 
assets from investors in several MS and attain more easily economies of scale.  
• The greater openness of national market s should encourage competition and 
encourage industry's players to pursue economic efficiency.  
• Rationalised fund ranges through fund me rgers should reduce confusion among 
distributors and investors and render inve stment choices easier. The fund offer 
will also benefit from the innova tion possibilities offered by pooling. 
                                                 
43 More details on the impacts per measure are to be found in annex 7. 
 
EN 33   EN • Enhanced disclosures will provide investor s the necessary tool to take informed 
decision. The possibility to compare between funds should encourage competition 
and, thus, put pressure on fees. 
Over the long run, these positive effects will cont ribute to the greater economic efficiency and 
competitiveness sought by the Lisbon strategy. 
4.5.2. Synergies and trade-offs of  the package of measures 
These effects should however not been seen in isolation. Important  synergies could be 
expected of the interaction of the different pr oposed measures. The most relevant are given by 
the combinations below. Synergies should reinfo rce, in the medium to  long-term, the above 
individual impacts.  
Notification procedure-KII : As often highlighted during the exposure draft consultation 
period, a swift notification pro cedure will up to a certain extent depend on the on-going work 
on the KII. A number of respondents to the expo sure draft required the Directive to clarify 
that the KII was not to be cons idered as marketing material a nd thus, could be used without 
changes across borders (i.e. without inte rference of the host MS regulator).  
KII-Fund mergers/asset pooling : Streamlined KII could play an important role helping 
investors to take an informed  decision regarding the merger operation or the pooled structure 
presented to them. In the first case, it shoul d facilitate the compar ison between the funds 
merging and the understanding on how the operati on will influence their investment. In the 
second, it would help to understand the implicat ions for them of the double-layer investment.  
Fund mergers-asset pooling : As already highlighted in s ection 4.2, fund mergers and pooling 
pursue similar goals (economies of scale in asse t management). However, they are not to be 
considered as alternative but rather as comp lementary measures. Opting for one or the other 
will depend on the business model adopted: merger s might be more appropriate for industry 
players wishing to offer a (cro ss-border) fund range from a si ngle location; pooling might be 
more appropriate for those offering a range of (national) funds estab lished in several MS.  
Notification procedure-fund mergers: It has been recommended that the receiving fund be 
notified to the relevant authorities in all MS wh ere the disappearing fund is sold to investors. 
A simplified notification proce dure would make it easier and quicker for the industry to 
comply with this requirement. The simplifi cation of the notificati on procedure can also 
reinforce the consolidating e ffect of fund mergers. By ac hieving a greater openness of 
national markets, fund promoters will feel less th e need to launch parallel ranges of funds in 
other to assure their presence in different MS.  
4.5.3. Impact on investors 
Investor protection : The analysis carried out has system atically tested the impact of the 
different proposed measures on investors. Contri butions of investors' representatives during 
the whole UCITS review process have been key in  order to identify the potential impacts and 
to assess their likelihood and importance. When a possible detriment to investors have been 
identified, solutions have been put forward in order to eliminate it; the objective being 
maintaining the high levels of protecti on already enjoyed by UCITS investors. 
 
EN 34   EN Economic benefits : The assessment has identified clear an d direct benefits for stakeholders. 
Often these seem more straight forward in the case of industry players. Investors are however 
also to benefit importantly, a lthough in certain cases, advantag es will only materialise over 
time. The positive effects of the package of measures will fl ow to investors through four 
distinct channels: 
a. Some efficiency savings will take pl ace directly at the level of the fund. The 
proposed framework for fund mergers and as set pooling will allow managers to put 
in the market bigger orders and thus, obtain better execution prices. Lower transaction costs will have a positive eff ect on the fund's performance from which 
investors will directly benefit. 
b. Thanks to the streamlining of the notification procedure and the greater competition 
in national markets that this will bring about, fund promoters will need to find new 
ways to attract or keep clients (e.g. th rough additional services or lower fees) 
c. Studies have shown that distribution is an important source of costs and that the 
bargaining power of distributors is high. Fo r the package savings to be passed on to 
investors, it is also necessa ry to act at the point of sale. MiFID conduct of business 
requirements will oblige distributors to put the interest of investors first.  
d. Investors have also the possibility of accelerating the process of passing through of 
the savings. Improvements on investors' disclosures (KII) aim at empowering 
investors. Clear and standardised inform ation will help them to compare among 
funds and assist them in taking an info rmed investment decision. This should 
strengthen their ability to push for mo re competition between fund providers.  
Finally, it needs to be noted that, although 'inve stors' in this report and its annexes mainly 
refer to the physical person inve sting in UCITS, institutional investors represent an important 
part of the UCITS' 'client base'. Some, such as  insurers and pension funds, invest more than 
20% of their assets in UCITS
44. They will therefore not only importantly benefit from the 
identified efficiency gains but also reinforce the positive dynamic effects of the package of measures on the economy. 
4.5.4. Impacts on the industry organisa tion and global competitiveness 
Employment level
: the European fund industry being a non-labour intensive sector, the impact 
of the package of measures on employment s hould be minor. The economies of scale pursued 
by the fund merger and asset pooling measures shoul d not lead to a reduction of the relevant 
work force, especially considering that the c ontinued launching of new f unds (due to financial 
innovation and changes in investors' needs/pr eferences) is an important counterbalancing 
trend in this respect. 
Industry organisation : While the package of measures shou ld not have an important impact on 
the organisation of the European fund indu stry, greater integration and new business 
possibilities should lead to a conc entration of certain activities in the mo st efficient fund 
centres. Well-established centres already enjoyi ng a good repute should be able to make the 
most from the package of measures.  
                                                 
44 EFAMA Fact Book 2007. 
 
EN 35   EN Effects beyond EU borders : The proposed package of measur es will have, as explained, an 
important positive effect on the development of the European fund industry. The identified impacts have also a global dimension. On one hand, strong levels of investor protection will 
reinforce the attractiveness of the UCITS bra nd beyond EU borders. Enhanced efficiency and 
lower costs will also assist UCITS funds in facing global competition. This should help 
UCITS to reinforce the privilege position they already enjoy in Latin America and Asia markets as well as to enter new ones. On the othe r hand, a more integrated market will act as a 
magnet for international players wishing to have  access to the savings of  a pool of 493 million 
investors
45. The on-going regulatory dialogue with thir d countries such as the US, Russia and 
China should ensure that UCITS change s are well understood  outside the EU. 
4.6. Other general considerations 
Impact on SMEs : EU initiatives ha ve sometimes been criticised  for favouring mainly big pan-
European players. The proposed UCITS changes will however have al so a positive impact on 
smaller players (including SMEs). Firstly, as investors, they would have access to more 
efficiently managed funds (notably important with respect to their treasury management). 
Secondly, as fund promoters, they will have ea sier and cheaper access to new markets from 
where they were excluded for economic reason s (e.g. notification fees, translation costs of 
investor disclosures or management company related costs). They could also more easily 
complement 'in-house' expertise tha nks to the new pooling possibilities46.  
Impact on the EU budget : The proposed measures do not have an impact on the EU budget. 
Realisation of the impacts : While no specific transposition difficulties are anticipated, 
realisation of the expected impacts will also depend on the form (and implementation) of the more detailed (technical) provisi ons to be developed through im plementing measures at level 
2. CESR is however developing its own IA methodology
47 along the lines of the 
Commission's IA guidelines. The design of level 2 provisions w ould therefore in the future 
also benefit from an analysis of th e options available and their impacts. 
Environmental impact : The streamlining of the KII and the possibility to use electronic 
transmission means will have a positive enviro nmental impact. However, this should remain 
marginal given the size of the environmental challenges we face.  
5. M ONITORING AND EVALUATION  
General monitoring of the European investment  fund market framewor k already includes the 
following elements: 
– Monitoring of the implementation of Market in Financial Instruments Directive (MiFID) 
and its impact on UCITS. (MiFID-UCITS vademecum to be published in spring 2008) 
                                                 
45 Eurostat 2006 data. 
46 Pooling is sometimes used to offer investors a fund managed by another (well-known) asset 
management team/group but with the brand of the fund promoter itself ('white labelling'). 
47 In May, CESR submitted for consultation its proposed IA methodology. CESR is currently reviewing 
its document in line with the contributions  received (the consultation deadline was 24th August). 
 
EN 36   EN – Study on investment policies of harmonise d (i.e. UCITS) and non-harmonised funds, 
evaluating the use actually ma de of the enlarged investme nt powers intro duced by the 2001 
amendments (end 2007) 
– Study on the sale of non- harmonised funds in the EU (end 2008) 
– Commission report on the need and identificat ion of possible options for developing the 
single market framework for certain retail-oriented non-harmonised funds. 
– European Financial Integration Report (annually) 
Monitoring of the proposed legislative changes would imply following the indicators listed in 
the table below. 
Table 14: Monitoring indicators  
Issue Indicators Source of verification
Notification • Number of funds no tified in other MS 
• Notification costs (including regulators' fees) 
• Number of local marketing rules infringement casesPWC, FERI data 
Industry organisations CESR 
Mergers Short-term indicators 
• Number of cross-border mergers 
• Length of the merger process  
Long-term indicators 
• Average fund size 
• Average fund costs 
• Number of investor prot ection related complaints FERI, Lipper data 
Industry organisations CESR 
Pooling • Number of master-feeder structures 
• Average size of the master 
• Average fund costs 
• Number of investor prot ection related complaints Industry organisations 
CESR 
Key Investor 
Information • Length of the KII 
• Comprehensibility of the KII 
• Number of investor prot ection related complaints Stakeholders' 
feedback (particularly investors) 
Provisions of the amended UCITS Directive coul d also foresee a formal evaluation of the 
changes (e.g. four years after it en ters into force). Given the difficulty to measure at this stage 
of the legislative proposal a number of impacts,  that evaluation could also focus on a more 
comprehensive quantification of the e ffects of the Directive amendments.  
 
EN 37   EN ANNEX 1: Procedural i ssues and consultation of interested parties  
Chronology 
The five-year Financial Services Action Plan (FSAP) launched in 1999 very much 
concentrated on the completion of the single ma rket for wholesale services. Towards the end 
of the FSAP period, it was clear that other ar eas would need close attention after 2004. In 
preparation of the strategy for the post-FSAP, the Commission set up four groups of experts 
of which one focused on improvements to be done in the area of asset management. 
Since then, the Commission has launched a pr ocess of analysis and design of possible 
solutions on the basis of inputs of a very different nature. These ranged from bilateral 
informal meetings with stakeholders to studie s, further expert groups, open hearings, public 
consultations and workshops. Many of these events  brought together differ ent stakeholders in 
order to better design and assess the implica tions of possible actions on each side of the 
market. Most of these exercises have been open and largely documented on the Commission's 
website. The openness and transparency of  the process has been highlighted and 
acknowledged frequently by stakeholders. The m ilestones of that proces s are summarised in 
the table below. 
Table: Chronology of the preparatory process 
Date Item 
2004 
May  FSAP Expert Group on Asset Management Report 
10th Sept. End of the expert gr oup report's consultation period 
2005 
14th July Green Paper on the enhancement of the framework for investment funds 
September  White Paper Roadmap 
13th Oct.  Open Hearing on the Green Paper 
21st Oct.  Start of "Potential Cost Savings" study 
15th Nov.  End of the Green Paper's consultation period 
21st Dec.  Start of "Current trends" study 
2006 
31st Jan. Establishment of two Expert Groups 
8th March 1st meeting of the Inter-service Impact Assessment Steering Group 
15th May 1st Workshop on the Simplified Prospectus 
19th May 2nd meeting of the Steering Group 
4th July Final reports of the Expert Groups published 
11th July 2nd Workshop on the Simplified Prospectus 
18th July 3rd meeting of the Steering Group  
19th July  Open Hearing on the Expert Groups' reports 
Aug./Sept. Final report "Potential Cost Savings" and "Current trends" studies 
8th Sept. 4th meeting of the Steering Group 
15th Nov. Adoption of White Paper on investment funds  
16th Nov. Publication of White Paper and Impact Assessment 
2007  
6th March 1st meeting of the re-establishe d Inter-service IA Steering Group 
22nd March Publication of DG Markt's working document 'Initial orientations on 
changes to the UCITS Directive' (a lso referred to as 'exposure draft') 
 
EN 38   EN 26th April Open Hearing on the exposure draft  
15th June End of the exposure draft consultation period 
13th July 2nd meeting of the (re-established)  Inter-service IA Steering Group 
18th Sept. 3rd meeting of the (re-established)  Inter-service IA Steering Group 
26th Sept. Submission of draf t report to IA Board 
24th Oct. Decision of the IA Board 
Consultations 
As described in the main report, the asset management expert group's report published in May 
2004, identified a list of issues requiring ac tion. Reponses to the ope n consultation showed 
that there was a widespread consensus on the fact that there was considerable room for 
improvement in the EU legislative fr amework regulating asset management. 
The Commission Green Paper (Jul y 2005) identified concrete st eps in this direction. It 
proposed a series of actions in  the short-term and launched a debate on the need for a more 
wholesale reform of the investment funds legisl ative framework in the medium to long-term.  
Views expressed during the Open  Hearing on the Green Paper (October 2005) and during the 
open consultation (mid-July to mid-November 2005) widely agreed with the Green Paper's 
approach for the short-term, that is, improvi ng the implementation of the provisions of the 
existing framework48.  
The European Parliament has al so contributed to the debate with an own-initiative report 
adopted in April 200649. The report main conclusions are that:  
– there is no need for a complete make-over of UCITS Directive;  
– it is however necessary to make the UCIT S Directive evolve in line with changes 
in the market through a combination of better implementation of existing 
provisions and targeted adjustments or additions to the Directive; 
– any legislative adjustments to the Directive should integrate the possibility for 
adoption of detailed implementing le gislation via comitology (Lamfalussy 
procedure). [please see annex 4] 
In July 2006 the recommendations of the Expert Group50 on Market Efficiency were 
published51. The general public was invited to discu ss the reports at the occasion of an open 
hearing which took place 19th July52 or in writing during the following two months.  
The hearing showed that the industry's views on e fficiency issues are very much in line with 
the views of the Parliament report. Responses to  the consultation provide d a valuable input for 
the completion of the WPIA report. 
                                                 
48 A summary of the conclusions of the Open Hearing can be found at: 
http://europa.eu.int/comm/internal_market/secur ities/ucits/index_en.htm#hearing The Feedback 
Statement on the Green Paper consultation can be found at: 
http://europa.eu.int/comm/internal_market/securities/do cs/ucits/greenpaper/feedback_statement_en.pdf 
49 European Parliament's report on asset management (2006/2037(INI)), March {27/03/2006} 2006 (also 
called the Klinz' report). 
50 For more information on its mandate pl ease see section 'expert groups' below. 
51 http://ec.europa.eu/internal_market/s ecurities/ucits/index_en.htm#reports   
52 http://ec.europa.e u/internal_marke t/securities/ucits/index_en.htm#060607 , a flash report summarising 
the discussions is also available on this website. 
 
EN 39   EN Other informal consultations of stakeholde rs during 2006 have taken place using ad hoc 
questionnaires to CESR53 and EFAMA54. These have focused on specific issues such as the 
use of the management company passpor t or on the taxation of fund mergers. 
In March 2007, DG Markt published a working document (exposure draft) presenting its 
initial orientations on the possible shape of the amendments to the UCITS Directive. The overview document published at the sa me time is provided in annex 3. 
A well-attended open hearing on 26
th April provided stakeholders' first reaction to the 
exposure draft proposals. A summary of the op en hearing discussions was published shortly 
afterwards55. Written reactions to the working document were published on 26th July.  A 
summary of the responses were published on 7th September. Details on the main comments 
received per topic from respondents are provided in the detailed IA fiches annexed to this 
report.  
Table : Compliance with consultations minimum standards56 
 Clear content Target 
groups Publication Time 
limits Feedback 
AM expert 
group report Yes (list of 
recommendations) • Regulator
s 
• Investors 
• Industry Internet 06/05 – 
10/09 Published in 
Nov. 2004 
Green Paper Yes (list of 
questions) • Regulator
s 
• Investors 
• Industry Internet + 
hard copies distributed at open hearings 12/07 – 
15/11 Published 
on 13/02/06 
Market 
Efficiency 
expert group 
report Yes 
(recommendations per topic) • Regulator
s 
• Investors 
• Industry Internet + 
hard copies distributed at open hearings 04/07 – 
20/09 Published 
on 16/11/06 
Exposure 
draft Yes (possible 
drafting of legal provisions) • Regulator
s Internet 22/03 – 
15/06 Published 
on 07/09/07 
                                                
 
53 Committee of European Securities Regulators. 
54 European Fund and Asset Management Association. 
55 This can be consulted at http://ec.europa.eu/internal_market/securities/ucits/index_en.htm#hearing  
56 On the based of the recommendations in the Commission Communication "Towards a reinforced 
culture of consultation and dialogue - General principles and minimum standards for consultation of 
interested parties by the Commission" COM (2002) 704 final 
 
EN 40   EN • Investors 
• Industry 
 
Expertise  
(1) Studies:  
In order to complement internal  research and public consultations ' results with empirical data, 
two studies were launched in 2005:  
– The "Current trends in the European A sset Management industry" study aimed at 
providing historical series of asset manageme nt related data relevant to understand the 
functioning of the industry and how it has been evolving over the years. It provided useful 
data to develop the 'context' section of the WPIA. 
– The "Potential cost savings in a fully inte grated European invest ment fund market" study 
aimed to present a detailed comparative descript ion of the main sources of cost in the EU 
investment fund value-chain and an estimation of the savings that could be achieved by 
enhanced market integration. This study helped to  quantify the effect of  several barriers to 
the single market for funds and provided some estimates used in the 'assessment of options' section of the WPIA. 
(2) Expert Groups:  
Expert groups were established at two stages of the process: 
– Independent expert group on the review of  the FSAP (asset management) in 2004. This 
group identified a series of actions needed in order to improve the functioning of the 
European fund market. Their work was key for th e development of the analysis that led to 
the Green Paper. 
– Two expert groups were set in 2006 to further explore the need and form of possible 
measures with regards to market efficiency  and alternative investments (namely private 
equity and hedge funds). The first group advise d on how to give effect to some of the 
actions recommended by the asset management e xpert group (notably those considered as 
priorities by stakeholders during the consultations on the 2004 expert report and on the 
Green Paper). Most of them are covered by the legislative measur es announced in the 
White Paper and are dealt with in this report. The group on alternative investments helped 
in developing an understanding about some fo rms of collective investment schemes that 
are growing outside the UCITS framework. 
(3) Committee of European Securities Regulators (CESR): 
(Although the UCITS Directive as a whole is not  a so-called Lamfalussy Directive some 
"Lamfalussy" elements were introduced wi th the 2001 amendments. These allow for 
clarifications of definitions to be develope d through (level 2) implementing legislation, 
adopted via comitology procedures. For details on the Lamfalussy approach to legislation see 
Annex 4. ) 
 
EN 41   EN CESR has contributed to and supported the Commission's effort s to improve the legislative 
framework for UCITS with variou s consultations and advice on di fferent subjects as well as 
with fruitful discussions and contributions . Concretely, CESR has provided the Commission 
with advice on UCITS eligible assets and adop ted guidelines on the transitional provisions of 
the 2001 changes to the Directive and on the notif ication procedure. The work on eligible 
assets was translated into implementing meas ures (adopted in March 2007). The notification 
guidelines represent a first step towards a more streamlined procedure. Their effectiveness is 
however restricted by thei r voluntary nature and by the fact that they were developed within 
the limits of the existing Directive (and can therefore not solve the problems inherent to the Directive's current drafting). CESR is currentl y working on the contents  of the new simplified 
prospectus (please see 'key investor informati on' section). This is an important preparatory 
effort ahead of the level 2 work that would be  required once changes to the Directive in this 
area are introduced.  
In April 2007, Commission services  presented their exposure draf t to CESR members. One of 
the main conclusions of the discussion was that substantial work still needed to be done in 
order to enhance supervis ory trust and cooperation.  Exchanges within CESR on this issue 
during the following months have importantly contributed to the development of the relevant 
provisions of the draft legisl ative proposal, notably in th e areas of notification and 
management company passport. 
(4) Financial Services Consumer Group, FIN-USE 
One of the challenges faced in financial services consultations (particularly when the subject 
is as technical as in the UCITS case) is the ri sk of not receiving the views of all relevant 
stakeholders. In fact, invest ors representatives' responses  are often less numerous than 
industry's ones. In order to reinforce the i nput of investors into the process, Commission 
services have worked closely with severa l groups representing investors' interest. 
Thus, the Green Paper and the Commission's prep aratory work were presented in the first 
meeting of the Financial Services Consumer Group
57 in June 2006. The White Paper and its 
IA was presented to the group in December 2006. Members of the group were invited to 
provide the Commission with their views. 
Commission services have also actively sought the input of FIN-USE, the Forum of user 
experts in the area of financial services. Pa rticipation to FIN-USE meetings (in December 
2005, June 2006, December 2006, June 2007 and July 2007) has aimed to present experts the 
developments in the asset management area, en courage their contributio n to the process and 
exchange views on the proposals. FIN-USE pr oduced responses to the consultation on the 
Asset Management expert group report, the Gr een Paper on investment funds, the market 
efficiency and alternative investments expert  groups' reports and the exposure draft. 
(5) IA Steering Group  
A steering group was established in February 20 06 in the framework of the WPIA. It was re-
confirmed early in 2007 to assist in the pr eparation of this repo rt. Colleagues from 
Directorates General Competition, Economic and Fi nancial Affairs, Enterprise and Industry, 
                                                 
57 The Financial Services Consumer Group (FSCG) is a sub-group of the already existing European 
Consumer Consultative Group (ECCG). The overall objective of the FSCG is to ensure that consumer 
interests are properly taken into account in EU financial services policy development. 
 
EN 42   EN Health and Consumer Protection,  Internal Market and Services , Taxation and Customs Union, 
and the Secretariat General part icipated in the discussions. The Group met three times in 2007 
ahead of the finalisation of this report. 
 
EN 43   EN ANNEX 2: Condensed overview of the IA analysis  
(Preferred options are marked in bold) 
 Impact on: In favour of? :
Available options Investor's 
protection EfficiencyMarket 
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 s uperior, the analysis has identified important 
feasibility concerns regarding the other two.  
Assessment: '+' = positive; '-' = negative; ≈ = neutral
 
EN 44   EN ANNEX 3: The exposure draft's overview  
WORKING DOCUMENT DG MARKT SERVICES 
Initial orientations of possible adjustments  
to UCITS Directive (85/611/EEC) 
Overview of key features 
Important note:  This document is a working documen t of DG MARKT services which is 
published for discussion purposes only. It  presents DG MARKT services preliminary 
reflections on possible future adjustments to the UCITS Directive. It does not necessarily 
reflect the views of the European Commission . The Commission retains full autonomy and 
discretion as regards the content of any subsequent legislative proposal. 
 
EN 45   EN 1. GUIDE TO CONSULTATION PROCESS AND MATERIAL  
Initial orientations of possible adju stments to UCITS Directive (85/611/EEC) 
The following extensive body of material has been prepared as the basis for public 
consultation on the form of future possible ad justments to the UCITS Directive. The basic 
case for introducing these changes was anal ysed in the Commission White Paper on 
investment funds and the supporting impact assessment. The White Paper set out the 
Commission's view that changes to the UCITS Directive were urgently needed: 
(6) To remove administrative obstacles and dela ys to the cross-border marketing of funds 
through overhaul of the current UCITS notification procedure ; 
(7) To allow fund managers to manage funds wh ich are domiciled in other Member States 
(management company passport);  
(8) To facilitate consolidation through fund mergers ; 
(9) To provide for centralised management of  assets gathered through local funds by 
allowing master-feeder  structures ; 
(10) To refocus and improve the quality and usef ulness of product disclosures provided to 
retail investors wh en considering investment in UCITS (reworking of Simplified 
Prospectus) ; 
(11) To strengthen supervisory powers and supervisory cooperation to  ensure effective 
oversight of the increasingly inte grated European fund market.  
The purpose of the present consultation is to ga ther feedback on prelim inary thinking of DG 
MARKT services on how to give effect to thes e objectives. This material is preliminary in 
nature and without prejudi ce to any decision that the Commission as a whole may 
subsequently adopt in respect of these issu es. The Commission retains full autonomy and 
initiative in determining the form and cont ent of its ultimate pr oposal. The consultation 
exercise should provide technical and hands -on insight as regards the usefulness and 
practicability of the envisaged possible adjustments which DG MARKT services and 
Commission as a whole can take into account when preparing its formal legislative proposal. 
The following documents are published as the basis for the consultation: 
– The present overview document  which provides a brief statement of the desired outcome 
from the changes, a summary presentation of  the guiding principles  and content of the 
envisaged adjustments. 
– For each of the envisaged changes , a detailed presentation of the envisaged possible 
adjustments is published. This presents the main options considered for realising the stated 
objective. It undertakes a preliminary analysis of these options from a cost-effectiveness 
and investor protection perspec tive. It sets out the working assumptions which inform the 
envisaged adjustments. It also includes a mo re detailed presentation of the shape of 
possible provisions supporte d by free-format commentary. 
In publishing this material, the services of DG MARKT hope to receiv e considered feedback 
and views from interested parties in respect of the following  
 
EN 46   EN – the design and scope of the preliminary appr oach: do the envisaged adjustments represent 
an effective way of achie ving the desired result?  
– the coherence of the envisaged adjustments w ith the overall UCITS framework and related 
legislation; 
– the appropriate borderline between high level pr inciples which should be enshrined in the 
modified UCITS Directive and more detailed  measures which should be adopted through 
implementing legislation; 
– any unintended consequences for stake holders – particularly investors; 
– the cost-effectiveness of the envisaged adjustments.  
Each working document includes a number of  specific questions on which views would be 
welcome. The basic case for proceeding with the envisaged adjustments has been established 
in the White Paper and supporting impact assessme nt. However, respondents may also wish to 
comment on the case for/against continuing wi th the envisaged adjustments having had an 
opportunity to consider the possible concre te measures for giving effect to them. 
The deadline for responses to the init ial orientations is 15 June 2007 . Feedback should be 
sent to: 
– e-mail: markt-ucits-exposure-draft@ec.europa.eu .  
– post: MARKT G4, Directorate-Ge neral for the Internal Market and Services, European 
Commission, B-1049 Brussels, Belgium. 
A public hearing on these initia l orientations will be held in Brussels on 26 April 2007.  
In the light of reactions to th e initial orientations and views expressed at the open hearing, DG 
MARKT will review its impact assessment and cost-effectiveness analysis, and prepare its 
draft Commission proposal for legislation. The Commission proposal will be finalised 
towards the end of 2007/early 2008. 
2. I NTRODUCTION : 
The White Paper on investment funds concluded th at there were no grounds, at this stage, to 
revise the scope of UCITS Dir ective or overhaul rules on inve stment policy. Any decision on 
the need for a wider reshaping of the Directiv e is deferred pending the results of systematic 
analysis and preparation. Instead, the short- term focus should be on boosting efficiency and 
facilitating market-driven restructuring of the investment fund ma rket through targeted 
amendments to the Directive.  
In the White Paper, the Commission undertook to  prepare a set of targeted modifications to 
the UCITS Directive to: (1). Remove delays an d administrative obstacles to placing funds on 
other EU markets; (2). Permit fund mergers;  (3). Allow pooled ma nagement of assets 
gathered by different funds; (4 ). Enable fund manage rs to manage fund s in other Member 
States; (5). Simplify and improve product disclosures a nd (6). Strengthen supervisory 
cooperation mechanisms.  
The first 4 sets of adjustment should enable fund managers and other actors to better exploit 
business opportunities across the single market. Fund managers wi ll be able to restructure 
their fund complexes (via mergers and pooling), and export their funds  and their services 
 
EN 47   EN more easily. In the case of the Simplified Pros pectus, the objective is to refocus and scale 
back product disclosures so that they are more  relevant and meaningful for investors.  
DG MARKT services' preparatory work is based on extensive preparation and lengthy 
consultation of all stakeholders. This includes responses to the Green and White Papers (2005, 
2006), the work of the expert group on market  efficiency (2006); two open hearings (2005, 
2006), workshops, studies, ad hoc meetings with industry, regulator s and investors, as well as 
ad hoc fact finding missions.  
DG MARKT services believe that this work can provide the basis for extensive use of 
relevant new single market freedoms. However,  strong investor prot ection safeguards are 
foreseen to ensure continued smooth functioning  and sustained investor confidence in UCITS 
funds. DG MARKT services also contem plate stronger provisions on cross-border 
enforcement and cooperation among regulators to limit the risk that cross-bo rder operations or 
structures operate to the detrim ent of investor or markets.  
 
EN 48   EN 3. T HE FUND PASSPORT (NOTIFICATION PROCEDURE ): 
Strategic objective: Ensure the smooth functio ning of the product pas sport by eliminating 
administrative obstacles, delays and uncertainty to the marketing of UC ITS in host Member 
States.  
3.1 Why should the cross-border pass-porting procedure be reviewed? 
Procedures for cross-border marketing ar e cumbersome, costly and subject to undue 
supervisory interference. Direc tive deadlines for completing revi ew of fund notif ications have 
frequently been exceeded. Difficulties have also  taken the form of intrusive checks of the 
UCITS during the notification procedure, additi onal information requirements or requests to 
modify documentation or certain fund features  (e.g. name/denomination of fund). These 
difficulties undermine the effectiveness and credibility of the fund passport. 
The types of control currently undertaken by host competent authorities do not materially add 
to the protection of investors or the achiev ement of other policy objectives. The soundness of 
the product stems from the comp liance of the fund and its mana ger with the requirements of 
the Directive, as already certif ied by the home country authori ties. Protracted delays and 
administrative impediments associated with th e current notification procedure destroy value 
and impose significant opportunity costs. 
DG MARKT services envisage a complete overhau l of the notification procedure. This should 
significantly reduce delays and transform the pr ocedure into a straightforward regulator-to-
regulator filing. Under the modifi ed procedure, a host Member State would have no ex ante 
grounds on which to prevent a UCITS authorised in anothe r Member State from being 
marketed on its territory. The new procedure would rely heavily on a regulator-to-regulator 
approach, as in the Prospectus Directive. The UCITS would submit a defined set of documents to its home authority. The latter wo uld be responsible for verifying completeness 
of this information, certifying that the UCITS is duly authorised and transmitting the specified 
information to relevant host Member State c ounterparts. Information covered by the previous 
'marketing arrangements' document would now be  subsumed in a notification letter. The 
content and form of local marketing information would be subject to ha rmonisation at level 2. 
The right to place UCIT S on the market of a host Member State would become effective 3 
days after transmission of required documents by  the authorities of the UCITS home Member 
State to those of the host Member State. 
 
3.2 Initial orientations for work on cross-border fund notifications: 
1. In the event that a fund manager wishes to market units of its UCITS in another 
Member State, it should be required to s ubmit a set of relevant information and 
documents to its home competent authorities.  This set of information should include 
the notification letter with the description of arrangements for marketing (cf. section 
3 below).  
2. The documentation to be filed should in clude a translation of key investor 
information (cf. section on envisaged new approach on simplified prospectus/ product disclosure) into the lo cal language of the target  host Member States. These 
translations should be prepared under th e responsibility of the UCITS. Other 
documents which should be filed for the purpos es of notification (p rospectus, rules of 
the fund or instruments of incorporation, annual report) could be  provided in the 
 
EN 49   EN local language of the target host Member States or a language whose use is 
customary in the sphere of international finance. This language regime for UCITS 
notification is modelled on the approach la id down in the Prospectus Directive. 
3. The notification letter should provide, inter alia, details relating to local subscription 
and redemption facilities for local unit-holder s, paying agent facilities, facilities for 
distribution of obligatory disclosures to  investors, general information about 
proposed distribution channels and a contact point where list of distributors can be 
obtained. This letter should be produced in the language  common in the sphere of 
international finance. Envisaged adjust ments would provide for the adoption of 
detailed implementing legislation to  harmonise its scope and form.  
4. The authorities of a home Member State should verify that no document is missing 
before transmitting it to the host authorities.  They should enclose in the information 
package to be sent to the host Member St ate the attestation th at the fund is duly 
authorised as a UCITS and obligatory disclo sure documents (documents already filed 
with authorities of UCITS home Member St ate according to its national procedures 
including prospectus, fund rules or inst ruments of incorporation, key investor 
information on product, financial reports).  
5. The fund manager could begin the marketi ng of the UCITS in the host Member State 
three days after the transmission of th e notification by the home authorities. 
6. The authorities of a host Member State would have no grounds to ex ante oppose the 
marketing of duly authorised UCITS in the host Member State. They could check and enforce compliance with applicable national rules on an ongoing basis. The 
Directive would be modified to confer on host authorities the power to intervene and 
suspend marketing of a UCITS under certain  circumstances. In particular the host 
Member State competent authorities would be able to invoke emergency powers in 
the event of clear and demonstrable gr ound that a UCITS domiciled in another 
Member State and marketing its units within it s territory is in breach  of the Directive, 
and a potential source of investor detriment. The use of these emergency powers 
would be subject to necessa ry checks and balances a nd review by the European 
Commission (see Section 8 on supe rvisory powers/cooperation). 
7. Any concerns on the part of host country au thorities relating to compliance of 
proposed organisation of advertising or distribution methods with non-harmonised 
provisions of national law should not constitute  a reason to refuse ex ante the right to 
place the UCITS on the host country market.  
 
EN 50   EN 4. F UND MERGERS : 
Strategic objective: Lay down clear and commo n requirements and procedures for funds 
wishing to merge, so as to en sure effective protection of the rights of unit-holders in the 
merging/dissolving fund(s) and remove any regu latory grounds for competent authorities to 
object to the proposed merger besides the fulfil ment of such requirements and procedures. 
4.1 Why should the UCITS Directive provi de for mergers of UCITS funds?  
54% of European funds manage less than € 50 million of assets. The average European fund 
size is less than one fifth of that of an Amer ican fund. The cost of running and selling these 
micro-funds is significantly higher than for larger funds. Recent rese arch found that, in a 
leading European fund domicile, the average TER  of a fund with asse ts under US $ 5 million 
was more than double that of a fund with over US $ 250 milli on. Annual scale savings of up 
to 6 billion€ have identified by other studies in this area. 
In order to facilitate the rationalisation of the fund landscap e and to foster economies of scale 
the exposure draft includes provisions to create a framework for fund mergers.  
4.2 Initial orientations fo r work on fund mergers: 
1. Scope: The new regime would require Member States to provide for the possibility to 
merge/amalgamate two UCITS funds (or inve stment compartments thereof) through 
three typical methods of merger/amalgamati on ((i) merger by wa y absorption or (ii) 
by creation of a new fund, which are technique s mainly used in civil law countries; 
or (iii) merger by way of a scheme of  amalgamation, which is widely used in 
common law jurisdictions). Other nationa l techniques used fo r mergers between 
funds remain untouched by the proposal a nd would remain valid in a domestic 
context. 
2. Coverage of cross-border and domestic merger s: it is considered preferable not to 
limit the scope of the envisaged mergers pr ovisions to mergers of UCITS established 
in different Member States. Given the in creasingly cross-border investor base of 
many UCITS, a merger between two widely  pass-ported funds dom iciled in a single 
Member State may have implications for a large population of inve stors outside that 
country. Consequently, DG MARKT foresees  applying the envisaged measures and 
related investor safeguards to both cross-border and domestic mergers. 
3. Both the merging/dissolving and receivi ng fund should be authorised as UCITS 
before the merger can proceed. In additi on, the receiving fund must be notified for 
marketing in each Member State where the merging/dissolving fund was notified. 
4. There would be no requirement/restriction as  regards comparability or similarity of 
the investment policies of the me rging/dissolving and receiving fund. 
5. Regulatory approval: The envi saged provisions foresee that the competent authorities 
of the merging/dissolving fund(s) would ha ve to give their approval before the 
merger could be presented to unit-holders (i ncluding for a vote where this is required 
under national law). The competent authorities  could only refuse th is approval in the 
case of non-compliance with the envi saged measures. They should grant 
 
EN 51   EN authorisation within 15 working days of  submission of a complete file by the 
merging/dissolving fund(s). 
6. The competent authorities of the receivi ng fund would not be re quired to approve the 
merger and could not veto the operation. Fund mergers ar e expected to have less 
significant consequences for the unit-holders  of the receiving f und (principal risk 
would be dilution of fund performance thr ough increased transaction costs associated 
with portfolio rebalancing: this economic impact can be managed and monitored in 
other ways, in particular through adequate di sclosure to unit-hol ders by the receiving 
fund and the latter's right to exit the fund free of charge). 
7. The competent authorities of the merging/dissolving fund(s) would receive the 
common draft terms of the merger, the envi saged disclosure to unit-holders of the 
merging/dissolving fund, the written approval of the depositary of the merging/dissolving fund and a draft report of  an independent auditor, as a basis on 
which to grant their approval. The deposita ry should ensure that the terms of the 
merger are in conformity with the law; the independent auditor should draw up a 
valuation report.  
8. Investor information: Investors of the merging/dissolving fund would have the right 
to receive all relevant information regard ing the proposed merger in order to allow 
them to take an informed decision on th e impact of the proposed merger on their 
individual situation. In certain cases, inve stors of the receiving fund would also be 
entitled to receive information about the merger. 
9. Investor voting right s: Whether or not investors ha ve the right to vote on the 
proposed merger would be determined by re ference to national law. Where such a 
vote is provided, it is envisaged to im pose a maximum limit on the percentage of 
votes in favour required (i.e. maximum 75% of the votes cast) in order to prevent 
excessively demanding voting thresholds  from impeding merger completion.  
10. Investors would have the possibility to  exit the merging/di ssolving fund without 
having to bear redemption or any othe r type of charges prior to merger 
completion/within a fixed period of merger completion. In certain cases, investors of 
the receiving fund would have the same right. 
11. Legal, advisory or administrative costs related to the preparation and completion of 
the merger should not be borne, dire ctly or indirec tly by unit-holders. 
 
EN 52   EN Diagram: Main steps of th e possible merger procedure 
 Decision on merger by 
management of the 
UCITS involved 
Approval by 
competent authorit ySubmission of merger 
dossier to the dissolving 
UCITS' competent 
authority  
vote Depositary 
approval 
Information to 
investors
No vote foreseen in 
national le gislation 
Merger 
 (depositaries responsible 
for transfer of assets and 
exchange of shares) Auditor 
draft report
Possibility for 
investors to 
redeem free 
of charge 
 
EN 53   EN 5. A SSET POOLING /MASTER -FEEDER STRUCTURES : 
Strategic objective: Allow several funds (feeder f unds) to pool their assets in a single fund 
(master fund). 
5.1 Why should the UCITS Directiv e provide for asset pooling? 
Proliferation of funds of a small size crea tes a heavy burden on the fund industry and 
ultimately investors. Economies of scale are not realised and inefficiencies are passed on to 
investors. Increasing fund size th rough mergers is not the only r oute to achieve economies of 
scale. Nor is it necessarily the preferred rout e for fund managers who wish to adapt fund 
features to local investor preferences (e.g. charging structure). Asset pooling may provide a 
more appropriate solution. However, fund pooli ng is currently ruled out by the Directive's 
diversification rules. Master-f eeder structures should allow the following benefits to be 
realised: 
• Economies of scale (esp ecially for small funds  with high charges); 
• Reduction of charges or better performance for the investor as a result of scale savings; 
• Centralisation of core investment management  in a single high-performing team (either 
within the same financial group or among diffe rent financial groups (“white labelling”)); 
• Allowing a financial group to commingle sim ilar funds designed for different types of 
investors (institutional or retail) and with different fee structures in one entity  
• Local presence of the feeder funds providing adva ntages in terms of se rvicing client needs, 
and greater tax-efficiency  for the end-investor; 
• Two merging financial groups ma y pool similar funds of both groups in one master fund 
(and thereby reduce management costs) wh ile preserving the different fund labels; 
• Complementary economies of scale alternative to fund mergers.  
DG MARKT services have focusse d on traditional master-feeder structures. The possibility 
for a feeder to invest into several masters ha s been examined but rejected for the following 
reasons. There is limited practical experience wi th and demand for that approach. Supervision 
would become more complex and the prevention  of operational risks or  possible investment 
policy breaches more difficult. Such a regime wo uld also be hard to distinguish for legal and 
supervisory purposes from the existing UCITS 'fund of funds' regime. DG MARKT services 
have also decided not to pursue further the technique of virtual pooling at this stage. Further 
research has highlighted potentially important cross-liability and othe r investor protection 
concerns. This technique is not  widely used – and there are supervisory concerns about its 
application in cro ss-border contexts. 
5.2 Initial orientations for work on master-feeder structures: 1. While the general UCITS prohibition on fu nds investing solely in another fund 
would remain, a special regime should be  created for master-feeder structures 
complying with a new set of requirement s. The competent authorities should not 
refuse authorisation to any proposed master-feeder structure meeting these 
requirements – including situations where the master or one or more feeders is 
located in another Member State. 
 
EN 54   EN 2. The feeder fund should invest almost all (at least 85%) of its assets into a single 
master fund. The investment of a feeder f und in more than one master is prohibited. 
Both funds should consequently have the same/near-identical investment policies. 
3. The feeder fund would have no/limited inve stment policy role of its own. It would 
have some limited possibility to use deri vatives to modify fund performance with 
respect to the master fund or to hedge currency risks. It has some power to use cash 
to satisfy redemptions or meet other requirements. 
4. Both master and feeder are UCITS. Both master and feeder must be fully compliant 
with all provisions of the UCITS Directive – as regards the provi sions governing risk 
management controls, governance structur es, appointment of de positaries etc. It 
would be possible for master  and feeder UCITS to appo int the same management 
board/trustees, and employ the same mana gement company (including on the basis 
of the management company passport), depositary (where domiciled in same 
jurisdiction) and auditor. 
5. Provided the envisaged provisions are complie d with, the investment of a feeder into 
a master would have to be permitted by competent authorities. 
6. The competent authorities should allow exis ting UCITS to be conve rted into a feeder 
UCITS – subject to requirements to inform  investors of the pending change in 
investment policy and offering them th e right to redeem free of charge. 
7. The investment of a feeder into a ma ster would not affect the obligations, 
responsibility and liability of the feeder, or its management company/depositary. In 
particular, the feeder woul d need to comply with its obligations vis-à-vis its 
investors.  
8. Information to the feeder's investors s hould clearly explain the implications of 
investing into the master from both an i nvestment policy and a fees point of view. 
Disclosures about feeder investment policy a nd costs should be harmonised as part of 
the work on key information disclo sures (see section 7 on simplified 
prospectus/investor disclosures). 
9. The master fund would only need to be au thorised as a normal UCITS: no specific 
authorisation is re quired to enable it to assu me the role of master fund. 
10. The master can receive assets from non-UC ITS asset gathering ve hicles, institutional 
or individual investors: these non-UCITS i nvestors in the master fund would not be 
subject to any harmonised require ments under the UCITS Directive. 
11. Regulatory co-operation: The competen t authorities of th e master should 
communicate without delay any decision or m easure taken with regards to the master 
to each of the feeders' competent authori ties (as that may have  an impact on the 
feeder). 
 
EN 55   EN 6. T HE MANAGEMENT COMPANY PASSPORT : 
Strategic objective: to allow fund managers to manage funds (of either contractual or 
corporate type) domiciled in another Member  State, without generating fiscal or 
supervisory uncertainty which might undermine th e effective oversight or  tax-efficiency of 
the management company/fund chain. 
6.1 Why should the UCITS Directive provide for an effective management company 
passport? 
Currently, management groups must establish a fully functional management company in 
each country where they domicile their funds. This considerably adds cost and hinders 
specialisation gains. The White  Paper impact assessment estimated savings of € 381 to €762 
million/year if each asset management group w ould be allowed to operate from only one 
location. 
The White Paper and supporting impact assessm ent concluded that the management company 
passport was a worthwhile objective, and that the Directive should be amended to that end. 
The White Paper and impact assessment highlighted  the need to give fu rther consideration to 
definition of the scope of the management co mpany passport. In particular, should the 
management company be allowed to provide  the full range of collective portfolio 
management services on a remote basis or should some functions be considered as an integral 
part of the fund administration/op eration? Advocates of the first approach argue that only the 
right to passport the full range of collective por tfolio management activities would allow full 
exploitation of the benefits of th e single market. However, it ha s also been observed that such 
an approach could empty the fund domicile of all substance. This could have detrimental 
consequences on two counts: 1). It could underm ine the capacity of the fund supervisor and 
depositary to assume certain responsibilities wi th respect to the administration and operation 
of the fund; 2). It could lead  to the tax authorities of th e management company domiciles 
claiming jurisdiction over the in come and revenues of the fund, in addition to taxation in the 
fund domicile itself.  
In the exposure draft, DG MARKT services seek  to provide clear and operational tests to 
identify the respective domiciles of the manage ment company and of the fund in cases where 
the management company passport is employe d. Without that clarity, the jurisdictional 
uncertainty which has sabotaged  previous attempts to introduce a management company 
passport would persist.  
DG MARKT services believe that the envisage d approach would also limit the danger of 
overlapping tax jurisdictions, i. e. of the fund and its manageme nt being both taxed in their 
respective domiciles. This risk arises only in respect of non-fiscally transparent funds (some 
contractual funds, trusts and pa rtnerships): funds of a corpor ate type and many contractual 
funds from a wide range of juri sdictions would not be subject to the risk of competing tax 
claims. Where a residual risk remains, it would be for the different national tax authorities to 
align their taxation policy with  the regulatory approach presen ted below. Should they fail to 
do so, fund managers in their juri sdiction would not be able to ma nage some types (of fiscally 
non-transparent) structure in other Member States. It then falls to each Member State to ensure that its tax policy does not deprive it s fund management indus try of the opportunities 
offered by the management company passpor t. Experience from related sectors (e.g. 
investment manager exemption in UK for overs eas non-transparent structures) demonstrates 
that tax authorities can be res ponsive to these considerations. 
 
EN 56   EN 6.2 Initial orientations for management company passport: 
1. The right for the fund manager to manage funds of corporate and contractual type 
which are domiciled in other Member St ates would be clea rly enshrined. The 
Directive would also provide for th e corresponding right for a UCITS to 
appoint/designate a management company in another Member State. 
2. Clear tests would be introduced to de termine the domicile of the management 
company and of the fund. Clear tests to determine jurisdic tion would be necessary to 
avoid uncertainty over the relevant tax or  regulatory jurisdictions. For the same 
reasons, the tests should also ensure that there is 'substance' in the fund domicile. 
Fund domicile would be determined by re ference to the country under whose laws 
the fund is constituted. It w ould also be stipulated that the shareholder register and 
that reporting of valuations  should be maintained/com pleted in this country. 
3. UCITS management companies would be allowed to undertake the full range of 
collective portfolio management services in respect of funds domiciled in other 
Member States. No changes are envisaged to the list of functions that are covered by 
collective portfolio management (apart from decision to clarify that this list is exhaustive). 
4. However, where a management compa ny manages a fund domiciled in another 
Member State via the freedom to provide se rvices, it should ensure that performance 
of activities related to maintenance of shar eholder register and/ or completion/filing 
of fund valuation reports actually/physically  take place in the Member State of the 
fund, and subject to direct re porting to the local competen t authorities. It could not 
perform these functions on a remote basi s. However, it could undertake these 
activities through branching (i.e. thr ough the exercise of the freedom of 
establishment under the management company passport) or delegation arrangements.  
5. The depositary would be domiciled in the Me mber State where the UCITS is located, 
as is currently the case. 
6. Management companies would be subject to a notification procedure when wishing 
to managing funds in another Member State (on a remote basis or via branches). The 
management company home competent au thorities should remain exclusively 
responsible for those services provided on a remote basis
58. This procedure would be 
distinct from and not cumulated with the separate procedure for marketing UCITS in 
another Member State.  
7. The provisions governing co-operation betw een regulators would be reinforced to 
underpin the effective and seamless oversi ght of situations wh ere the fund and its 
manager are located in different Member States. The envisaged adjustments would 
provide for mechanism for competent au thorities to carry  out on-the-spot 
verifications in the other Member State; to  enumerate strictly any grounds to refuse 
cooperation; and to stipulate conditions fo r competent authoritie s to take emergency 
measures in the event of demonstrable concerns.  
                                                 
58 With the exception of the rules of conduct applicable to individual portfolio management, investment 
advice and custody when performed by the management company via a branch, where the Directive 
confers certain powers to the host Memb er State (article 6b(3) and 6c(3)). 
 
EN 57   EN 7. S IMPLIFIED PROSPECTUS /PRODUCT DISCLOSURES : 
Strategic objective: Ensure that product di sclosures made by fund managers provide 
relevant and meaningful information to poten tial investors; reconfigure these disclosures 
so that they can be used in the different sales channels through which investors buy funds; 
remove unnecessary legal or re gulatory information which cr eate information overload and 
excess compliance cost.  
7.1 Why does the Simplified Prospectus need to be reviewed? 
The Simplified Prospectus was meant to provi de investors with concise and understandable 
information about the investment policy, risks and associated charges of a fund. However, it 
has suffered from national gold-plating and dive rgent implementation. The result is a lengthy 
user-unfriendly document that is  a source of costs to the indus try and of limited utility to 
investors.  
The exposure draft introduces a completely ne w approach. The Simplified Prospectus is now 
referred to as "key investor information" - not necessarily to be embodied in a specific 
document. Level 1 provides for principles only. Further details on content and format are to 
be decided at Level 2, hence Schedule C of th e current Directive (contents of the SP) is 
deleted. 
The approach seeks to adapt product disclosures to take account of the different means 
through which UCITS are sold to end investors – direct sales (which accounts for only a small 
fraction of sales), intermediated sales, wrapping or structuring of products in other wrappers. 
The envisaged measures would require fund managers to make available information 
concerning their product. However, a joined-up a pproach is needed whereby this information 
would be used in a timely a nd effective way by the intermediaries which sell the bulk of 
UCITS or other institutions which integrate UCITS into hybrid products (unit-linked life 
insurance). This would require complementary wo rk on 'point of sale' disclosures outside the 
framework of the UCITS Directive to ensure th at these disclosures are effectively used by 
banks/investment advisors which sell UCITS;  and to extend comparable disclosure 
obligations to intermediaries selling UCITS wr apped in other products (insurance contracts, 
tax wrappers, individual  savings accounts).  
7.2 Initial orientations for work on Simplif ied Prospectus/key investor disclosures: 
1. The envisaged adjustments should dis tinguish clearly between prospectus, 
annual/semi-annual reports (these would contin ue to be produced and made available 
on request as at present), and “key investor  information” disclosures which should be 
provided to potential retail investors prior to purchasing units in a fund. 
2. The key investor information disclosure s should be fair, clea r and not misleading. 
Key investor information shoul d be consistent with the re levant parts of the (full) 
prospectus. Liability issues  should be made clear.  
3. The key investor information should de fine the product information which fund 
managers must make available, free of ch arge. This would include information about 
costs relating to the purchase  of units, risks and other es sential characteristics which 
would have an important bear ing on the investment. The in formation to be provided 
would be confined to those disclosures which are meaningful and useful to the 
 
EN 58   EN potential investor. Fund would not be held responsible for disclosure of advisory or 
sales related fees which are charged separately from th e product. It should be for 
intermediaries to disclose costs or fees arising from their role in the sales/advisory process. 
4. The key investor information should also de fine the practical information that should 
be conveyed to investors to enable them to  adequately exercise their rights. Some 
information points could differ according to th e domicile of the investor in certain 
well-defined cases (subscription/redemp tion facilities, tax treatment).  
5. The envisaged adjustments would not pres cribe the detailed content and form of 
investor disclosures. Instead, they fore see the adoption of detailed implementing 
legislation (at level 2) to  flesh out the guiding princi ples. The proposed approach 
envisages particular attention at level 2 to  the disclosures that should be provided 
where the fund manager is issuing units of UCITS with different sub-funds or share 
classes, funds of funds, ma ster or feeder units.  
6. Product information should not be altere d when UCITS are marketed in another 
Member State (under the notif ication mechanism provided for in Article 46 of the 
UCITS Directive). Only translations into  the local language of the home Member 
State should be allowed.  
7. The envisaged adjustments would seek to clarify the obligations of the fund manager 
(for the product) when funds are so ld through independent advisors or 
intermediaries. However, the envisaged ad justments to the UCITS Directive should 
not be the means through which direct oblig ations are imposed on investment firms, 
insurance brokers or other non-UCITS entities to make effective use of mandatory fund disclosures. While attention must be gi ven to how authorised  entities use this 
information, the UCITS Directive does not regulate these actors . Regulation of how 
this information is used at the point of sale is better addressed in the relevant 
intermediary regulation (e.g. MiFID,  Insurance Mediation Directive).  
8. The envisaged adjustments would impose a clear obligation on fund managers to 
make the relevant disclosures availa ble in appropriate form to other 
parties/intermediaries who may execute  orders (i.e. sell UCITS) or issue 
recommendations on UCITS (i.e. advice on UC ITS), or integrate UCITS into another 
product/wrapper (e.g. insurance contract). 
9. The envisaged adjustments should consider  the different nature of investors and 
provide for a possible waiver of the required key investor information disclosures for 
UCITS taking account of the prof essional nature of investors.  
 
EN 59   EN 8. S UPERVISORY COOPERATION : 
The envisaged possible adjustments to the UCIT S Directive accentuate the need for enhanced 
cooperation framework between au thorities. These adjustments could facilitate growth in 
cross-border fund sales and the organisation of  fund complexes on a cross-border basis. These 
transactions and operations should be undertaken  in a way that supports high levels of 
investor protection, supervisory confidence a nd the smooth functioning of the UCITS market. 
To this end, the current UCITS provisions on su pervisory powers and supervisory cooperation 
should be strengthened. This could be done larg ely by aligning the relevant UCITS provisions 
on comparable provisions in the MiFID Direct ive and other recent securities legislation. 
Accordingly, the existing provisions of the UC ITS Directive dealing with these issues should 
be strengthened to:  
1. ensure equivalence of powers for competent authorities; 2. develop existing mechanisms relatin g to exchange of information; 
3. create arrangements which allow competent authorities of a Member State to, in the 
exercise of their responsibilities under the Directive, carry out on the spot 
verification of information and investiga tion on the territory of another Member 
State, or have them carried out by the competent authorities of another Member State/ third parties.  
In addition, the envisaged adjustments recognise  the possibility for hos t competent authorities 
to intervene in the event of demonstrable and material detriment to local investors or market conditions resulting from a breach of provision s of the Directive by UCITS or management 
companies from another Member State. The right of the host authority s hould be a 'last resort' 
in the event of failure of the home authority of the UCITS or manage ment company to take 
effective and timely corrective action. The exer cise of such right would be subject to 
notification to and review by relevant committee structures and/or the European Commission. 
 
EN 60   EN ANNEX 4: The Lamfalussy process  
The new regulatory structure of the so-called Lamfalussy process has been initiated by the 
Stockholm European Council Resolution of 23  March 2001 on “more effective securities 
market regulation”. The Lamfalussy proces s is based around the four-level regulatory 
approach recommended by the Committee of Wi se Men on the Regulation of European 
Securities Markets, chaired by Baron Alexandre Lamfalussy59. 
The Lamfalussy process was designed to make Community legislation on securities markets 
more flexible, so that it can be agreed and adapted more quick ly in response to innovation and 
technological change in financial markets; to  allow the Institutions to benefit from the 
technical and regulatory expe rtise of European securities regulators and from better 
involvement of external stakeholders; and to focus more on even implementation and 
enforcement of Community law in the Member States. 
One of the key innovations of the Lamfalussy pr ocess is the creation of two Committees to 
advise the Commission on Level 2 implementing measures – the European Securities 
Committee (ESC)  representing the Member States and functioning as a so-called ‘regulatory 
committee’ under the Comitology arrangements60 – and the Committee of European 
Securities Regulators (CESR) . The two Committees were set up by Decisions of the 
Commission on 6 June 200161. The ESC acts in its capacity as a regulatory committee, 
assisting the Commission in the exercise of its delegated executive powers, within the terms defined in the Directives adopted at Level 1. 
Transparency  is another important feature of the process. The Lamfalussy process has 
established a rigorous mechanism whereby the Commission seeks, ex-ante , the views of 
market participants and end-users (companies , investors and consum ers) by way of early, 
broad and systematic consultati on, with particular regards to Level 1 proposals, but also at 
Level 2.  
As the UCITS Directive has been adopted long be fore the Lamfalussy process has been put in 
place, it can not directly take advantage of thes e procedures. However, some of the structures 
have been successfully implemented with the 2001 amendments to the Directive. 
                                                
 
59 The Lamfalussy report, published on 15 February 2001, can be found on the Commission’s website: 
http://europa.eu.int/comm/internal_market/securities/lamfalussy/index_en.htm  
60 See Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of 
implementing powers conferred on the Commission, OJ L 184, 17.7.1999, p. 23. 
61 See Commission Decision of 6 June 2001 establishing the Committee of European Securities 
Regulators (2001/527/EC), amended by Commission Decision of 5 November 2003 (2004/7/EC), and 
Commission Decision of 6 June 2001 establishing the European Securities Committee (2001/528/EC), 
amended by Commission Decision of 5 November 2003 (2004/8/EC). 
 
EN 61   EN • Graph: The four-level regulatory ap proach under the Lamfalussy process62 
 
                                                 
62 SEC(2004) 1459; the Level 2 phase will be modified following the entry into force of new comitology 
arrangements, anticipated for the end 2006/ beginning 2007. 
 
EN 62   EN ANNEX 5: List of acronyms  
AFG: Association Française de la Gestion Financière 
ALFI: Association of th e Luxembourg Fund Industry 
AM: Asset Management AMF: Autorité des Marchés Financiers AuM: Assets under management bn: billion CA Competent Authority/ies CEIOPS: Committee of European Insu rance and Occupational Pensions 
Supervisors 
CESR: Committee of European Securities Regulators CIS: Collective investment schemes CPM: Collective portfolio management EFAMA: European Fund and Asset Mana gement Association, formerly FEFSI 
FEFSI: Fédération Européenne des F onds et Sociétés d´Investissement
 
ESC: European Securities Committee 
EVCA: European Private Equity and Venture Capital Association 
FEAM: Forum of European Asset Managers FIN-USE : Forum of user experts in th e area of financial services 
FSA: Financial Services Authority (UK) FSAP: Financial Services Action Plan GDP: Gross Domestic Product IA: Impact Assessment ICI: Investment Company Institute (US) IFA: Independent Financial Advisors  
IMA: Investment Management Association 
IOSCO: International Organizatio n of Securities Commissions 
LDI: Liability-driven investment MC: Management company MiFID: Markets in Financial Instruments Directive
 2004/39/EC 
MS: Member State REF: Real estate funds TER: Total expense ratio TNA: Total net assets UCITS: Undertakings for collective inve stment in transferable securities 
UCITS III: Directive with 2001 amendments WPIA White Paper Impact Assessment 
 
 
EN 63   EN ANNEX 6: References  
• European Commission (2004): Financial Servi ces Action Plan: Progress and prospects, 
Asset Management Expert Group, Final Report, May 2004; 
http://ec.europa.eu/intern al_market/finances/docs/act ionplan/stocktaking/report-
assetmgnt_en.pdf  
• European Commission (2005): Green Paper on enhancing the European framework for 
investment funds, COM(2005) 314 final, 12th July 2005; 
http://ec.europa.eu/internal_market/s ecurities/docs/ucits /greenpaper_en.pdf  
• European Commission (2006a): Feedback St atement on the Green Paper consultation; 
http://europa.eu.int/comm/internal_market/secu rities/docs/ucits/gree npaper/feedback_state
ment_en.pdf  
• European Commission (2006b): Financ ial Integration Monitor FIM 2006; 
http://ec.europa.eu/internal _market/finances/fim/index_en.htm  
• European Commission (2006c): Report of th e Expert Group on Investment Fund Market 
Efficiency, July 2006 
http://ec.europa.eu/internal_market/ securities/ucits/index_en.htm#experts  
• European Commission (2006d): Report on Curren t trends in asset management, lot 2; 
prepared by Oxera Consulting 
• European Commission (2006e): Report on Current  trends in asset management, lot 1, 
prepared by ZEW/OEE 
• European Commission (2006f): Report on Potentia l savings in a more integrated European 
fund market, prepared by CRA (t hese three studies can be found 
at:http://ec.europa.eu/internal_mar ket/securities/uc its/index_en.htm#ecs ) 
• European Commission (2006g): White Pape r on the enhancing the single market 
framework for investment f unds, COM (2006) 686 final, 15th November 2006 
• European Commission (2006h): Impact Assess ment to the White Paper on investment 
funds, Commission staff working document, 16th September 2006. 
• European Commission (2007): 'Initial orienta tions on possible adjustments to the UCITS 
Directive', Working document of  DG Internal Market ; (also referred to as 'exposure draft') 
http://ec.europa.eu/internal_marke t/securities/ucits/index_en.htm#ini  
• European Parliament (2006): Report on asset management (2006/2037(INI)), March 2006 
(also called the "Klinz' report") 
• Invesco (2005): "Building an Integrated European Fund Management Industry: cross-
border mergers of funds, a quick win?", Invesco, January 2005 
• Invesco (2006): "Building an Integrated European Fund Mana gement Industry: Putting the 
wheels in motion for cross-border merg ers of funds", Invesco Think Tank 2006 
• IMA/EFAMA (2005): "A Harmonised, Simplifi ed Approach to UCITS Registration", 
April 2005. 
• IMA (2005): "Pooling: how can fun managers respond efficien tly to different investor 
needs?", July 2005. 
• PriceWaterhouseCoopers (PwC) (2006): "P an-European UCITS Distribution 2005" 
 
EN 64   EN Data sources 
• EFAMA (2005): "EFAMA Fact Book 2005" 
• EFAMA (2006): "EFAMA Fact Book 2006" 
• EFAMA (2007): "EFAMA Fact Book 2007" 
• EFAMA (2007): Quarterly statistical releases n° 28 (March 2007) and n° 29 (June 2007) 
• European Central Bank; http://www.ecb.eu/home/html/index.en.html   
• FERI Fund Market Information: European Fund  Market data digest 2007; FERI FundFile; 
http://www.feri-fmi.com/FERIFMI/  
 
EN 65   EN ANNEX 7: Detailed Impa ct Assessment Fiches  
 Notification…………………………………………... 64 
 Fund mergers………………………………………… 79 
 Asset pooling………………………………………… 92 
 Management company passport…………………….. 107  Key investor information…………………………… 117 
 
EN 66   EN Notification 
Problem description 
The UCITS Directive introduced in 1985 the firs t financial product pa ssport. Investment 
funds authorised in accordance wi th the Directive requirements c ould be sold in other MS. A 
notification procedure was however foreseen. Th is requires UCITS to send the regulator of 
the country targeted (host MS) a file includ ing the planned marketing arrangements and a 
series of fund related documents, such as the fund rules, prosp ectuses, authorisation 
certificate… Marketing in the host MS can start two months after this notification; unless the 
host MS regulator considers that the marke ting arrangements do not comply with national 
rules63.  
The idea of the fund passport relies on the mu tual trust between na tional regulators that 
recognise the UCITS authorisation given by an other MS regulator. Having the fund notified 
instead of authorised in ever y MS where the fund provider wish es to market it was aimed to 
create a single market for funds that would co nsiderably reduce costs a nd delays in bringing 
new funds to the public across the EU. Investor protection was guaranteed at different levels. 
First, through the authorisat ion given by the fund home MS regulator. Then, by the host MS 
regulators who verified the compliance of mark eting arrangements with applicable national 
rules. 
However, host MS regulators have adopted different appr oaches in implementing the 
notification provisions. Some re quest additional documents to those listed in the Directive, 
impose additional translation requirements or ask for changes to documents such as the 
simplified prospectus. Some cases have also b een reported in which re gulators verified or 
questioned the authorisation given in another MS. As a result, the UCITS notification has 
turned in many cases into a kind of second auth orisation, rendering pan- European distribution 
of funds a time-consuming, cumbersome and costly task64.  
According to a survey carried out in 2006 for the European Commission65, notification costs 
in terms of internal resources and use of external lawyers are often limited. It accounts for less 
than 0.25 basis points66 of the total fund costs for the largest providers. Despite this small 
figure, regulatory processes were nonetheless one of the key areas where fund managers 
expressed most concern in the interviews conducted. Fund manage rs regarded the differences 
between MS in respect of notification as one  area where cost savings could be achieved 
                                                 
63 Marketing arrangements need to comply with natio nal rules governing issues falling outside the scope 
of the Directive and issues for which national rule s apply under the UCITS Directive. Host Member 
State verification covers i.a. distribution infrastruct ure, marketing techniques and channels, facilities for 
making payments, repurchase, redemp tion of units of UCITS, facilities for distribution of compulsory 
information to investors. The scope of host Member States' residual powers has been discussed in the Commission Interpretative Communication on respective powers retained by the Home and the Host 
Member State in the marketing of UCITS pursuant to section VIII of the UCITS Directive, published on 
19
th March 2007 (COM(2007) 112 final. 
64 A practical example showing to which extend MS regulators see th e notification procedure as a re-
authorisation is the level of notification fees that equal authorisation ones in a number of MS. Time-
wise, in some cases, the notification procedure even takes longer than the authorisation one. (Please see 
European Commission 2006e (CRA study)) 
65 CRA study 
66 Measure used in financial services. 100 basis points is equivalent to 1%. 
 
EN 67   EN relatively easily and rapidly. A report in 2005 by EFAMA/IMA67 estimated direct annual 
costs for the fund industry for maintaining not ification of about €25 million (in addition to 
more than €20 million for the initial notification).  
However, many consider that even more im portant than those sa vings are the business 
opportunities missed. For newly developed products there is a race to the market in order to 
benefit from the first mover advantage resulti ng from the early recogni tion of the product by 
distributors and investors. Time-to-market is ke y, not only vis-à-vis other funds but also vis-à-
vis competing products. Numerous voices during the exposure draft's open hearing (April 
2007) and consultation highlighted 'level playing field' concerns. Notification of other similar 
financial products, such as stru ctured notes, certificates and shares of closed-ended funds, 
covered by the Prospectus Directive is done  within three days. This difference might 
encourage financial services pr oviders to focus their offer more on these products. However, 
these products are often subject to less restrictive information and other investor protection requirements. There is therefore a risk th at investor protectio n would be undermined. 
Delays in notification are regard ed as having a severe impact on  competition. It results in fund 
promoters being frustrated and retreating from the respective (host) market (notably small 
ones). This is a cost in terms of dynamic comp etition with the impact of competitive forces 
being reduced. This translates in higher costs and a more reduced fund choice for the investor. 
Host regulators' attitudes are often seemed as a disproportionate way to protect investors. 
Only the incorrect application of the UCITS Directive in the authorisation process by the 
home Member State could justify any need for "d ouble-checking". That sai d, even if that were 
the case, infringement procedures seem a more appropriate way to deal with a mis-
implementation of the Directive. 
However, the current situation is  not only due to over-zealous host authorities. It is also the 
result of unclear or incomplete provisions re garding important aspects such as the residual 
powers of the host MS regulator or translatio n requirements. Additionally, in view of new 
technical means, more could be done to enha nce efficiency. Modern transmission methods 
could be used to considerably reduce delays. 
The adoption in June 2006 of CESR guidelines on the notification procedure has been an 
important step to improve the situation (a summary of its recommendations is provided in the box below). However, without a decisive change of the Dir ective related pr ovisions, the 
improvements risk to remain marginal
68. Also, the effectiveness of many of those non-binding 
recommendations would very much benefi t from new provisions in the Directive 
underpinning them.  
                                                 
67 "A Harmonised, Simplified Approach to UCITS Registration", EFAMA and IMA, April 2005. 
68 e.g. recommendations to speed up the procedure as much as possible may have little effect if the two-
month deadline remains in the Directive.  
 
EN 68   EN Box : CESR main recommendations 
• A standardised notification letter should be prepared. It may be submitted in a 
language common in the sphere of interna tional finance and by electronic means. 
• If marketing arrangements comply with th e relevant provisions, the passport needs 
to be respected. 
• The two-month period is to  be respected; unless ho st regulator establishes 
(reasoned decision) that ma rketing arrangements don't comply with the relevant 
provisions. The period starts  when the notification file is complete. It should be 
shortened whenever possible. 
• Self-certification by the UCITS (that the submitted versions are the last ones) 
should be accepted. 
• Host regulator can approve the use of la nguages other than the official one(s). 
• Procedure for notification of sub-funds of  an umbrella fund may be simplified and 
shortened. 
• The notification file should contain: UC ITS attestation, notif ication letter, fund 
rules, prospectuses, annua l report and marketing arrangements. Changes or 
updates need to be submitted without delay to the host regulator. 
• Regulators to publish overview of non-harm onised national provisions in their 
websites. 
In March 2007, the Commission adopted an im plementing Directive clarifying whether 
certain financial instruments are eligible for inclusion in a UCITS fu nd's portfolio. At the 
same time, the Commission also issued guidance (in the form of an Interpretative Communication) on how host country authori ties should exercise their limited scrutiny 
powers when UCITS are notified for sale in  their country. In th at Communication, the 
Commission reaffirmed that the fund's home supe rvisory authority has sole responsibility for 
monitoring compliance with UCITS rules, and th at the notification proc edure cannot be used 
by Member States to challenge authorisation of UCITS granted in another Member State. 
These two sets of clarifications aimed to  ensure consistency in the authorisation
69 and 
marketing of UCITS across the EU. However,  as announced in the White Paper a more 
fundamental redesign of the UCITS passport is indispensable. In this  respect, the WPIA 
recommended amending the Directive in order to  a) reduce notification delays, b) replace the 
current procedure by a regulator-t o-regulator communication exchange70 and c) remove legal 
uncertainties regarding regulators' re spective roles and responsibilities. 
                                                 
69 This should help reducing hos t regulators' reticence to accept th e authorisation given by home 
regulators. 
70 This communication between authorities follows the ex ample of other more recent financial services 
Directives. It also aims to avoid that the process is delayed by additional documents or clarifications' 
requests to the UCITS. Implications on the side of regulators should be limited since communication 
and information channels between re gulators are already in place.  
 
EN 69   EN On that basis, the exposure draft published in  March 2007 presented a real overhaul of the 
current notification procedure. It put forward a direct transmission from the home regulator to 
the host regulator of a (exhaustive) list of doc uments; allowing marketing 3 days after this 
transmission. According to the proposal, the authorities of a host MS could not oppose the 
marketing of duly authorised UCITS in the host Member State. They would check and enforce compliance with applicable national ru les on an on-going basis. They could, however, 
invoke emergency powers in certain cases.  Finally, a new language re gime was suggested in 
order to reduce the burden of producing invest ors' disclosures: only the key investor 
information would need to be translat ed into the host investor's language.  
Responses to the Exposure Draft consultation  
General principles : The revamped notification procedur e proposed in the exposure draft was 
considered a significant step forward (also by non-industry stak eholders). Some respondents 
were however concerned about the elimination of the host MS regulator ex-ante controls. 
They considered that this may be detrimental to  investor protection. On the other hand, others 
opined that the risk is limite d since distribution was generall y done by authorised actors and 
regulated by MiFID.  
Procedure length : Although most respondents welcome the time reduction of the proposed 
procedure, a few questioned the need for the three-day delay following transmission of the 
notification file. Others considered this three day delay as too short. A few asked to provide 
also a fixed period for the home regulator to  check (and transfer) the notification file. 
Local marketing rules : Many contributions asked for regula tors to publish national rules 
regarding the non-harmonised issues with which notified funds must comply. Clarifications 
were also requested regarding the resi dual powers of the host MS regulator.  
Language regime : proposals relating to the translati on of documents were very much 
appreciated by contributors to the consultation. Many anticipa ted substantial cost savings. 
Some national authorities and investors' associ ations however defended the right of the host 
MS investor to have access to all documents in his/her language (as the investor in the fund's 
home MS has). 
Other procedural proposals : The possibility to use electronic communication means was 
broadly welcomed.  
Objectives  
A new notification procedure s hould properly respond to the diffe rent stakeholders' concerns 
and expectations and thus should: 
a) from a single market  perspective: 
• Facilitate the entry into a national market  of foreign UCITS (therefore widening 
the offer and fostering competition) 
• Promote the development of funds raisi ng assets from across the EU (and thus 
encourage scale savings and specialisation gains) 
b) from an industry  angle: 
 
EN 70   EN • Improve UCITS' time-to-market into othe r MS (thus, enhancing funds ability to 
compete with other similar investment products) 
• Create the minimum (administrative) burden 
• Reduce the costs associated to the procedure 
c) from the regulators ' point of view: 
• Be clear as regards regulator s' respective responsibilities 
d) as well as, ensure that investors : 
• Have access to an enlarged fund offer 
• Are adequately protected 
Benefits   
The main benefits of a new notifica tion procedure would be the following: 
 For investors For the industry 
Short-term A greater fund choice More business 
opportunities; lower 
costs 
Long-term Lower costs  More business 
opportunities; lower 
costs  
 Although the short-term costs savings derived from the simplified procedure would most 
probably not be outstanding, the dynamic effects triggered by an  easier access of UCITS to 
other MS markets will have an important and decisive positive impact. Both industry and investors are to benefit from it. New business opportunities by th e industry will be matched 
by a greater choice for investors. In the long-run, fund providers would be able to pool in a 
smaller number of funds the asse ts raised from a number of MS  (achieving thus economies of 
scale). The increased number of funds in na tional markets should encourage competition and, 
therefore, lower costs for investors.
 
 
EN 71   EN Design of the new notification procedure  
Preferred choices are pres ented in bold and italics.  
a) (First) notification 
 
b) Subsequent notifications 
Relevant 
aspects Possibilities Comments 
No notification required 
(unless changes of marketing 
arrangements)  
Reduced notification 
requirements New sub-
funds in an 
umbrella 
fund71 
Normal notification 
requirements Even within the same umbrella fund, sub-funds often 
pursue completely different investment policies. It 
seems therefore appropriate that new sub-funds would 
be notified (please see above). On the other hand, part of 
the information would have already been submitted. A 
simplified procedure could then be envisaged. It remains 
however to be decided whether clarification of such 
details should not be left for Level 2 (Level 1 would 
then focus on main principles). 
No notification required 
(unless changes of 
marketing arrangements)  
Reduced notification 
requirements New share 
classes 
Normal notification 
requirements Creation of new share classes within a fund does not 
most often substantially change its main characteristics 
or distribution method. Therefore, requiring notification 
for the shares of an already notified fund may be seemed 
as a disproportionate (and onerous) measure. Whether 
clarification of such details should not be left for Level 
2 remains however to be decided. 
                                                 
71 An umbrella fund is an investment term used to describe a collective investment scheme which is a 
single legal entity but has several distinct sub-funds which in effect are traded as individual investment 
funds (definition from http://en.wikipedia.org). Possibilities Comments 
Host regulator checks marketing 
arrangements before the fund 
starts marketing in the host MS  
(ex-ante control) 
Host regulator checks on an on-
going basis marketing 
arrangements after the fund has 
started marketing  
(on-going ex-post control) Verification of marketing arrangements ex-ante will not 
change significantly the current situation. This option would 
need then to be accompanied by a firm time reduction and 
clear provisions as regards host regulator competences in order to make a difference. On-going ex-post controls would allow 
to considerably improve funds' time-to-market. This option 
may however give rise to some investor protection concerns if 
marketing arrangements do not comply with national rules. On 
the other hand, some consider that UCITS are generally distributed through regulated intermediaries and there should 
then be no need for the host regulator to pre-check the fund's 
marketing arrangements. Giving the complexity of these 
options a more in-depth analysis (please see the following 
section) seems therefore necessary. 
 
EN 72   EN Home regulator provides 
host regulator with updates
UCITS provides host 
regulator with updates Marketing 
arrange-
ments 
updates Updates are made 
available in home 
regulator's website Since the host regulator will need to check changes to 
marketing arrangements, simply relaying on its 
publication in the home regulator's website may (from 
an investor protection point of view) not be appropriate. 
On the other hand, introducing a direct UCITS to host 
regulator transmission will somehow go against the new 
regulator to regulator approach. However, this would 
seem the most cost-effective solution (particularly if the 
host regulator needs clarifications or requires changes to 
the arrangements) 
Home regulator provides 
host regulator with updates
UCITS provides host 
regulator with updates Other 
documents 
updates Updates are made 
available in home 
regulator's 
website/database Providing for a regulator to regulator transmission 
would considerable burden the process for not 
significant benefits. Introducing a direct UCITS to host 
regulator transmission will still impose a certain 
administrative burden on both the UCITS and the host 
authority. Since those documents don't need to be 
checked by the host regulator, their posting on the home 
regulator's website/database may be sufficient. 
Modalities could be then determined at level 2.  
    
Relevant 
aspects Possibilities Comments 
No notification required  
(unless changes of marketing 
arrangements)  
Reduced notification 
requirements New funds 
of the same 
provider 
Normal notification 
requirements It can be argued that if marketing arrangements remain 
the same, new funds would not need to go through a 
full notification procedure. Notification could serve 
other purposes though, such as letting host regulators 
know about the funds sold in their jurisdiction. Besides, 
the additional benefits of 'reduced' notification 
requirements appear limited if these still imply 
providing the host regulator with prospectus, simplified 
prospectus and annual report (different from a fund to 
the other) or if notification delays have been (as 
intended) significantly reduced.  
 
EN 73   EN c) Other procedural choices 
                                                 
72 A 'healthy competition' among CA (as the observed in the recent past with regards to the authorisation 
procedure) could be expected. Systematic long delays could encourage fund promoters to base their 
new funds in other jurisdictions. 
73 The option 'no translation at all' is ruled out for evident investor protection reasons. 
74 This is consistent with the approach followed by the Prospectus Directive (which covers other 
investment products that compete directly with UCITS funds). 
75 'Key Investor Information' is aimed to provide all the information the investor needs in order to make an 
informed decision as regards to the fund offered to him/her. Subsequent monitoring of his/her 
investment is facilitated by the fact that UCITS have the obligation to update the KII. 
76 A respondent to the exposure draft consultation estimated savings amounting to a third of its total 
notification costs if translation of the fu ll prospectus was not required anymore. 
77 It has also been proposed to provide for a delayed translation of such other fund documents or for a 
translation upon request only. Relevant 
aspects Possibilities Comments 
Fixed period of time for 
home regulator to check 
the notification file  
Transmis-
sion delay 
No deadline is imposed 
on the Home regulator The Prospectus Directive provides for a maximum period 
of 3 days, after submission by the issuer of the notification 
file, for the home regulator to transmit it to the host 
regulator. Imposing a similar deadline would ensure a 
swift notification procedure and would partly re-level the 
playing field between UCITS and competing products. It 
would reduce also uncertainties re. the duration of the 
procedure. However, it should be noted that there is not a 
particular interest for the home regulator to unduly delay 
the transmission72. EU level intervention in this respect 
may then be of little effectiveness and rather unnecessary. 
All disclosures are 
translated into local 
language 
Language 
regime73  
Only the key investor 
information is 
translated into local 
language  
 The requirement to translate all obligatory disclosures into 
a host MS language considerably adds to the industry's 
administrative burden and leads to delays in the marketing 
of the fund. It is an important entry barrier into certain 
markets (particularly small ones) that has important 
implications on investors' side: additional costs are 
ultimately passed on to investors; smaller fund ranges are 
available to them. It is often argued that investors do not 
make use of most of those documents due to their 
complexity. Requiring only translation of the 'key investor 
information'74 appears then a cost-effective measure to 
ensure the protection of investors75 and, at the same time, 
shorten delays and allow costs savings76. It has been 
argued that in order to enhance investor protection the key 
investor information should clearly indicate in which 
language(s) the other fund documents are available. It 
would then be advisable to give the fund provider the 
possibility to decide (for commercial reasons) which other 
documents would be translated77.  
 
EN 74   EN Impacts analysis  
The tables above provide an overview of the main recommended features for a new 
notification procedure. Many of  the choices are uncontroversia l. However, as shown during 
the exposure draft consultation, the moment (and time available for it) in which the host MS 
regulator will be able to check  the fund's marketing arrangeme nts is considered by many as 
key in order to ensure investor protection. T hus, as indicated above, the following options will 
be analysed in more detail in this section:  
Option 1: Ex-ante control of marketing arrangements 
Description: Following transmission (by the home regulat or) of the notification file, the host 
regulators will have 2 weeks to check marketin g arrangements. Home re gulator will inform 
the UCITS of the date of transmission. Problem s identified (or clarifications needed) by the 
host regulator should be communicated to the f und promoter within thos e 2 weeks. The clock 
can be stopped only if those ar rangements are not in line with national rules (or incomplete). 
After 2 weeks, the UCITS can start marketing it s units in the host MS unless formal refusal 
has been provided.  
Option 2: On-going ex-post cont rol of marketing arrangements 
Description: The UCITS can start marketing its units  in the host MS immediately after 
transmission (by the home regulator) of the not ification file. Home regulator will inform the 
UCITS of the date of transmission. The host re gulator checks 'ex post' on an on-going basis 
that marketing is conducted in a ccordance with national rules.  Relevant 
aspects Possibilities Comments 
Full harmonisation 
Local 
marketing 
rules Different local rules apply 
(status quo) A full harmonisation of local marketing rules would 
reduce uncertainty and costs, as well as, ensure an 
equivalent level of investor protection in different MS. 
However, achieving this harmonisation would be a real 
challenge. The existence of different rules often reflects 
cultural or investor protection preferences. Efforts may 
then prove to be fruitless. Besides, the UCITS Directive 
may not be the most adequate framework for this 
harmonisation (MiFID could be a more appropriate 
one). 
Full harmonisation 
Host MS rules apply Distribu-
tion of 
disclosures 
in host MS  
Home MS rules apply According to the current art. 47 of the Directive, the 
distribution of disclosures follows home MS rules. 
These may differ from those of the host MS. A full 
harmonisation of disclosures distribution methods would 
reduce uncertainty and costs as well as ensure an 
equivalent level of investor protection in different MS. 
However, to achieve this harmonisation may prove 
difficult. The existence of different methods often 
responds to national cultural or investor protection 
preferences. However, if different distribution rules for 
disclosures remain, it seems more appropriate, for the 
sake of investor protection, that the rules with which 
host investors are more familiar apply. 
 
EN 75   EN Option 1: Ex-ante control 
Impacts from the point of view of : 
a) Industry : The resulting situation would most proba bly differ very little from the current 
one. The need to check the marketing arrangement s may be used to justify current notification 
fees. Also hiring a local team of consultants to prepare the notification file and to deal with 
the host regulator may most probabl y still be required. This is of ten not a negligible cost. One 
of the respondents to the e xposure draft consultation estima ted at some €300,000 their annual 
legal expenditure related to notificati on. Also the 2005 EFAMA/IMA report showed 
examples in which legal costs amounted to some 40% of the total costs of (initial) notification (i.e. some € 8 million). Thus, the expected economic savings of this option are small (if any at all). Uncertainty about UCITS time to market in the host MS would also remain
78. The 
notification procedure woul d then continue to act as an entr y barrier to nationa l markets. This 
may in the medium-term protect the national f und players. However, it will also restraint 
competition forces and therefore hinder national industry's incentives to pursue economic efficiency. 
b) Investors : From the point of view of investor  protection, the reduction of the time 
available to the host MS regul ator to check marketing arra ngements (from the current 2 
months to 2 weeks) should not have any negativ e impact. An important proportion of the sales 
in a market of foreign funds are done through re gulated distributors. Around 75% of funds are 
sold through MiFID authorised entities such as banks or investment firms
79. (The rest is 
basically sold through insurance providers [cove red by the Insurance Mediation Directive] or 
other nationally regulated entities .) The MiFID sets the minimum rules that intermediaries 
should comply with. From an economic point of  view, a burdensome notification procedure 
restricts the entry into national markets of  foreign funds and, thus, reduces the choice 
available to investors. It also restrains hea lthy competition forces that could otherwise push 
prices (fees) down. The additional costs imposed  by the procedure would be passed on to 
investors at the end of the day. It is also  argued that UCITS long time-to-market limits 
industry's ability to exploit financial innova tion possibilities and to respond timely to 
investors' needs. There is therefore the risk that  faced with products both  more costly and less 
adapted to their preferences; investors will turn to othe r similar investment products 
(generally subject to less strict investor pr otection obligations). In  that case, investor 
protection could be at risk. This is not a mere theoretical possibility. Re gulators and investors 
start to voice this concern. Concretely, du ring the exposure draft consultation some 
consumers' associations highlighted the probl em of "unlevelled playing field" between 
financial products and asked for "consistent st andards of investor pr otection throughout the 
different investment options available to them"80. The Green Paper on Retail Financial 
Services recognises the need for greater cohere nce. While this is so mething that the UCITS 
Directive cannot address alone81, Commission services are reflect ing on the extent of the 
potential risks and the need and form of possi ble measures. A call for evidence on this issue 
has been launched by Commission services on 26th October 2007. 
                                                 
78 There exists the risk that the two-week deadline would be abused (and 'stopping-the-clock' could 
become a normal practice for host re gulators in order to be able to check fund documents other than the 
marketing arrangements). 
79 Estimation based on FERI distribution data (end 2006) 
80 e.g. FIN-USE response to the exposure draft consultation. 
81 Also, the Green Paper concluded that 'it would be a retrograde step for investors if UCITS disclosures 
were scaled back as a result of regulatory competition'. 
 
EN 76   EN c) Regulators : Additional resources may be needed on the side of the host regulator to 
comply with the two-week deadline. (Howev er, in many cases, this could just imply a 
reallocation of resources from those currentl y used to check fund documents other than 
marketing arrangements.) On the other hand, the ne w role of the home regulator will require 
new resources. These would, howev er, not be substantial if its role is limited to checking 
completeness of the notification file and if tr ansmission is done electronically. Further needs 
for additional resources are not to be exclude d though. Mis-trust between regulators may still 
require a strengthening of regulators' power s, as well as of cooperation mechanisms. 
However, this could take place  within existing cooperation fram eworks and should, therefore, 
not be exceptionally onerous.  
Option 2: Ex-post on-going control 
The rationale behind this option lays on the fa ct that marketing of UCITS generally takes 
place through regulated intermed iaries and, therefore, the ju stification for pre-checking 
marketing arrangements is lesser.  
The following table provides an overview of the percentage of fund sale s taking place through 
different distribution channels. 
Table: Distribution channels (end 2006) 
 retail 
bank private 
bank pension/ 
insurance 
wrapper IFA¹ 
advised super-
market direct fund of 
funds institutional other 
Austria 51,5% 31,0% 2,0% 1,0% 0,5% 0,2% 13,3% 0,5% 0% 
France 25,9% 11,0% 19,5% 4,0% 0,4% 0,3% 12,7% 26,0% 0,20%
Germany 47,5% 13,4% 18,7% 11,4% 1,0% 0,5% 2,9% 4,5% 0,10%
Italy  63,0% 8,7% 15,2% 10,2% 0,5% 0,2% 1,5% 0,5% 0,20%
Nordic 55,0% 7,0% 27,0% 3,0% 3,0% 1,0% 1,5% 2,4% 0,10%
Spain 64,6% 5,9% 3,0% 4,3% 0,2% 0,0% 11,1% 11,0% 0,00%
UK 8,0% 6,0% 16,2% 50,2% 5,0% 1,0% 1,7% 11,5% 0,40%
Source: FERI data digest 2007; ¹ Independent Financial Advisors 
Impacts from the point of view of : 
a) Industry : In the absence of a pre-check of the marketing arrangements,  the current € 20 
million initial notification costs could be saved82. More dynamic effects are also to be 
expected. The shorter time-to-market for funds will enhance their competitiveness vis-à-vis other investment products. Besides, a more e fficient passport could also reduce the need to 
have different national fund ranges. A single cr oss-border fund could th en pool assets from 
investors in several MS. This should, in the medium to long-term, promote economies of scale 
and reduce costs. 
                                                
 
82 It has been argued that this would imply more responsibilities (and possibly a higher burden) for 
distributors. Additional costs for those could then  be passed back to the fund promoter through 
distribution agreements and, at the end of the day, to investors. Nevertheless, most of this additional 
burden would probably already have been incurred by the implementation of the MiFID. 
 
EN 77   EN b) Investors : In the short-term, the new procedure will lead to an increase in the number of 
funds and, thus, allow a better match between i nvestors' needs and preferences and the offer 
available to them. In the long-term, the incr ease in the number of funds should foster 
competition and therefore put pressure on fees. So me investor protection concerns have been 
expressed during the exposure draf t consultation though. It is ar gued that, in the absence of 
prior verification by the host regu lator, the interest of its country's investors would be 
endangered83. This argument however does not take into  consideration that another regulator 
has already verified the UCITS'  compliance with the Directive's provisions. UCITS also need 
to comply with all host country  legislation relating to the fi elds not covered by the UCITS 
Directive and ex-ante checks of marketing arra ngements is not the only tool available to 
regulators in this respect. National rules on publicity, misleading information…would still 
apply. Additionally, the implementation of MiFID will ensure that conflicts of interests or mis-selling risks are reduced
84. Other on-going initiatives, such as the Simplified Prospectus 
planned repair work (please see the 'key inve stor information' fiche) would ensure that 
investors are better informed and, therefore, allo w them to be more cr itical. Host regulators 
on-going 'ex-post' checks should also ensure a ce rtain discipline. If a fund promoter does not 
comply with the applicable local rules of a home Member State, it will risk infringement 
procedures and penalty payments. Additionally, fund promoters have an interest to avoid such procedures and penalties since th ese could endanger their image. 
c) Regulators : The new procedure should not have a significant impact on host regulators' 
resources. Resources used until now to ch eck marketing arrangem ents (and other UCITS 
related documents) will be freed for the new tasks (e.g. 'ex-post' checks). As already indicated, the need for the home regulator to comply with its new obligations should not have 
a significant impact on its resources. As also  explained above, the introduction of greater 
powers
85 and new cooperation mechanisms should not  have a considerable impact either. 
Additionally, this modus operandi will not be completely at odds with current supervisors' 
practices. In fact, a num ber of MS already carry out ex-post checks . Some of them have 
moved away from ex-ante controls which were  considered too burdensome. The publication 
of guidelines by the regulator a ppears often as an effective wa y to help industry players to 
comply with the rules. (Publication of releva nt local rules was also recommended in a number 
of industry and regulators' responses to the exposure draft consultation) 
Other effects  
Impact on SMEs: A positive impact on smaller cro ss-border industry players can be expected 
under the second option. Burdenso me host requirements and prac tices prevent the access of 
smaller fund providers to certain national markets. Due to their more limited resources, they 
are then forced to confine their cross-border expansion to markets of  easier access. Option 
two would thus create greater business opportuni ties for a larger number of fund providers. 
Administrative burden: In addition to the saving s in notification fees and legal costs the new 
notification procedure will have an important  impact on the administrative burden borne 
                                                 
83 Some respondents to the exposure draft consultation stressed that, in the case of breaches of national 
rules, the regulator's intervention risks taking place once the damage has already be done (please see the 
responses of the Financial Services Consumer Panel. 
84 As shown in the table above, an important percentage of funds distribution (notably through banks) is 
covered by the MiFID. 
85 In particular, emergency powers for the host MS authorities (e.g. when the home MS regulator's 
measures prove inadequate or wh en that regulator fails to act) may need to be considered. 
 
EN 78   EN currently by the fund industry. The recommenda tion to limit transla tion (into the host MS 
official language) to solely the KII will consid erably reduce that burden. While this reduction 
is difficult to quantify, one of the pan-European  players contributing to the consultation on the 
exposure draft estimated savings of approximately  one-third of its notification costs. Other 
recommendations to further alleviate the administrative burden linked to the notification procedure would be to clearly de termine the content of the notific ation file (and thus rule out 
host MS' requests for additional information) and to allow for its electronic transmission. 
Summary table
 
 Specific Objectives Overall Objective 
 Efficiency86 
 Investor protection administrative 
burden sector 
efficiency Pro Single 
Market? 
Ex-ante 
control + 
(no investor protection 
risk) - 
(higher burden)  - 
(higher costs; less 
business opport.) no 
(barrier entry to host 
market) 
Ex-post 
on-going 
control +/≈ 
(current protection 
levels maintained)  + 
(lower burden)  + 
(lower costs; more 
business opport.)  yes 
(will encourage market 
integration)  
Preferred option  
As showed in the above summary table, op tion 2 (ex-post on-going ch ecks) is a superior 
solution from an efficiency and single market  point of view. It should not be either 
detrimental to investor protection. As explai ned above, marketing of UCITS does not take 
place in a vacuum, national and EU rules exist. Compliance with those is facilitated by the fact that a high proportion of UCITS are mark eted to the public through EU or national 
regulated channels. Therefore, the correct en forcement of the rules set by national law or 
Directives such as the MiFID appears a more e ffective way to minimise any potential investor 
protection risk (than to foreseen systematic ex-ante checks in the UCITS Directive). There 
remains however a risk that distribution thr ough non-regulated intermed iaries/channels would 
breach relevant rules and cause investor prejud ice. However, as shown by the figures in the 
'distribution channels' table (this category of intermediaries is included in the percentage 
displayed in the column 'other'), the like lihood (and magnitude) of this risk should be 
minimal. 
Other (general) considerations  
As often highlighted during the exposure dr aft consultation period, a swift notification 
procedure will up to a certain extent de pend on the on-going work on the simplified 
prospectus/key investor info rmation. A number of respondent s required the Directive to 
                                                 
86 Administrative burden refers to the costs linked to the production/provision of information that would 
have not been collected/provided in  the absence of a legal obligation.  Sector efficiency refers to 
efficiency gains derived from lower fund production costs, more rationalised processes or the greater 
flexibility and opportunities offered to industry players. 
 
EN 79   EN clarify that the KII was not to be  considered as marketing material87 (but just as product 
information) and thus, could be used without  changes across borders. If the KII does not 
include local (marketing) information, the justification for ex-ante checks by the host 
regulator will be further weakened.  
Changes to the notification procedure can also  have an impact on other of measures the 
measures analysed in this IA. For example, one  of the evident conditions for the approval of 
fund mergers is that the receiv ing fund be notified in all MS were the disappearing fund is 
sold. A streamlined and quick notification proce dure will make it easy to comply with this 
requirement. It should also be noted that the simplification of the notification procedure can 
also reinforce the consolidati ng effect of fund mergers. By  achieving a greater openness of 
national markets, fund promoters will feel less th e need to launch parallel ranges of funds in 
other to assure their presence in different MS.  
                                                 
87 Please see the response by IMA and the jo int position of UK FS A and HM Treasury. 
 
EN 80   EN Impact table  
Option Affected 
parties Effect 
Direct: D 
Indirect: I Impacts 
Positive: + 
Strongly positive: ++ 
Negative: - 
Strongly negative: -- 
Neutral/marginal: ≈ Impact 
Timing 
One-off 
Short-term 
Medium-term 
Long-term 
On-going Impact 
Nature 
 
Dynamic 
Static Impact 
Likelihood
Certain 
High 
Medium 
Low 
-  
(limited costs 
reduction) Industry D 
--  
(less cross-border 
opportunities) on-going dynamic high 
D ++ 
(high investor 
protection) static 
Investors 
I -  
(maintenance of cost 
levels) on-going  
dynamic high Ex-ante 
control 
Regulators D ≈  
(more resources 
needed) one-off static medium 
+  
(greater costs 
reduction) medium 
Industry D 
+  
(more business 
opportunities) medium-term dynamic 
high 
D +/ ≈ 
(protection level 
maintained) on-going  static low 
Investors 
I +  
(lower costs) long-term dynamic medium Ex-post 
on-going 
control 
Regulators D + 
(better resources 
management) on-going static high 
 
EN 81   EN Fund mergers 
Problem description  
The European fund landscape is characterised by an ever increasing number of funds. Large 
fund ranges may render management more comple x and require more investments in time, 
means and/or human resources at different leve ls of the industry value-chain. However, funds 
are not only numerous but also relatively sma ll. At the end of 2006, 54 % of European funds 
managed less than € 50 million in assets; 20% less than € 10 million88. In fact, at the end of 
2006, the average size of a European fund was le ss than a fifth of that of its American 
counterpart (please see graph be low). As a result, the Total E xpenses Ratio (TER) paid by the 
investor of a typical cross-bor der European equity fund is tw ice as much as that borne by 
American fund investors89.  
 
Source: ICI, EFAMA, ECB 
The reason is that small sizes impede the e xploitation of economies of  scale and increase 
costs. The potential for economies of scale in  fund management is not negligible. A study by 
Fitzrovia in 2005 showed that the TER of actively managed f unds considerably diminishes 
with the size of the fund. According to this study funds with up to $25 million assets had an 
average TER 15% higher than that of a fund with up to $ 100 million assets90. A study 
conducted more recently by CRA91 also found evidence of economies of scale in the 
European fund industry (the greater scope fo r scale savings being at the level of fund 
administration and asset management). Althoug h, according to CRA, additional scale savings 
would fade out once the fund's size has r eached €200-300 million, the fact that a high 
percentage of European funds are far from that size (as shown by the FERI data above), 
proves the importance of the ec onomies of scale potential. 
Several studies have tried to assess and quantify the missed opportunities. The so-called 
"Heinemann report" estimated that € 5 bn could be saved annually if the European average fund size would converge to that of an American mutual fund
92. In 2005, an Invesco report 
considered that European investors were charged an estimated € 2-6 bn in annual fees more 
                                                 
88 FERI, Data digest 2007 
89 "Economies of scale and consolidation in collective funds", Fitz rovia, March 2005. 
90 Funds with up to $ 25 million assets were reported to have an average TER of 2.01% compared to 
1.75% for a fund with up to $ 100 m. ("Economies of scale and consolidation in collective funds", 
Fitzrovia, March 2005.) 
91 "Potential cost savings in a fully integrated Euro pean investment fund market", CRA, August 2006. 
Study based on a sample of European countries representing 90 % of the UCITS market (European 
Commission (2006f)). 
92 "Towards a single European market in asset management", ZEW, May 2003. 8.11731.915
05.00010.00015.00020.00025.00030.00035.000
US EUNumber of funds
7.907
5.784
02.0004.0006.0008.000
US EUAuM (€ bn)
974
181
02004006008001.000
US EUAverage size (€ million)
 
EN 82   EN than they would if scale econom ies could be fully exploited93. According to CRA annual 
savings of up to 17 basis points could be atta ined if European equity fund sizes would 
converge to that of the average US fund94.  
Finally, in addition to these unnecessary extra cost s, it should be noted that the existence of 
broad fund ranges also creates confusion among distributors and investors rendering choice 
more difficult. 
The WPIA considered that in action was not a valid option; fund proliferation is set to 
continue. Fund launches remain th e preferred strategy for asset managers to innovate, raise 
new assets and respond to new investors' need s or preferences. In 2006, the number of funds 
increased by 1,542 (compared to an increase  of 887 funds in 2005). According to FERI, 
observed fund closures were sometimes the c onsequence of products, such as guaranteed 
funds, reaching maturity rather than the result of fund rationalisation efforts.  
But where does the problem lie? Fund mergers do take place, notably among funds based in 
the same country ('domestic' mergers in the ta ble below). However, the absence of a common 
EU fund merger framework has been identified  as one of the main obstacles to further 
consolidation across borders. The coexistence of different national approaches and rules 
renders cross-border mergers, when at all pos sible, expensive, complex and time consuming. 
The Commission's Expert Group on market effici ency reported that often 18 months were 
needed to complete cross-borde r mergers, i.e. much more than the 3 months generally 
required for domestic fund mergers95. Difficulties derive mainly from divergences in 
regulatory requirements. Some cr iteria are seen as overly prescr iptive. For instance, in some 
countries 100% of unit-holder approval is requ ired. Uncertainty rega rding the outcome and 
important delays discourage pan-European industry players as is evidence d in the table below. 
As a result, parallel similar ranges of funds develop in different MS markets. 
Table : Fund mergers in the EU  
Type of merger 2002 2003 2004 2005 2006 
Domestic 452 804 583 764 644 
Cross-border 1 26 57 28 7 
 Source: Feri FundFile 
The WPIA therefore recommended changes to the Directive in order to create the conditions 
for the rationalisation of the fund landscape while , at the same time, ensuring high levels of 
investor protection. The WPIA also examined carefully the options av ailable in order to 
overcome the potential adverse tax conseque nces of (cross-border ) fund mergers. It 
considered the option of adopting a Direct ive on the 'Taxation of Fund Mergers' (as 
recommended by the Expert Group) and compared  it to other options , including the adoption 
of a Communication (and the 'no action' one ). The WPIA concluded that adopting a 
                                                 
93 "Building of an integrated European Fund Management: Cross border merger of funds, a quick win?", 
Invesco, January 2005. 
94 CRA study (European Commission (2006f)). 
95 "Report of the Expert Group on Investment Fund Market Efficiency", European Commission, July 
2006. 
 
EN 83   EN Communication was the most propor tionate and cost-effective me asure. This conclusion was 
motivated by the fact that domestic mergers ha ve already a neutral ta x treatment in many MS 
and that this could be extended to cross-borde r mergers on the basis of existing European 
Court of Justice case law.  
The exposure draft published in March 2007 presen ted stakeholders with a preliminary design 
of an EU framework for UCITS mergers. This  framework would cover a series of commonly 
used merger techniques (please see the diagra ms below) and would apply to both domestic 
and cross-border mergers. A set of requirement s for the regulatory approval of mergers was 
put forward, the main principle being that onl y the regulator of the disappearing fund would 
approve (or refuse) the proposed merger. The e xposure draft also contained specific investor 
protection provisions, including th e right for investors to receive information on the merger 
and the right to redeem free of charge if they do not agree with the merger operation. 
 
Responses to the Exposure Draft consultation  
General principles : The proposed approach was gene rally supported by all types of 
stakeholders (industry, regulator s and investors). Some responde nts however considered that 
mergers should only be allowed between UCIT S having similar investment policies.  
Authorisation procedure : Respondents generally supported the proposal that the regulator of 
disappearing UCITS decides on the merger, a lthough its exact role might need further 
clarification. Some respondent s advocated greater involvement of the regulator of the 
receiving UCITS in respect of disclosure items.  Several contribu tions also stressed that 15 
days was too short a period for approving the merger. 
Third party control:  Several respondents asked that the ex act role and respons ibilities of the 
depositary be clarified. Their main concern was that the depositary should not decide on the 
merits of the merger. A few contributors also as ked to eliminate the requirement regarding the 
independent auditor, or at least to clarify its role.  
Information to unit-holders:  Responses offered mixed views.  Some respondents considered 
that investors of the receiving UCITS should not be informed at all (o r only at the discretion 
of the fund promoters), while othe rs argued that they s hould always be info rmed or that they A B CReceiving  
fund
Disappearing  
fundDisappearing 
fund
Both the disappearing funds transfer their 
assets and liabilities to the receiving fund in 
exchange of units issued by the receiving fund 
to the investors of the disappearing funds.  Merger by creation of a new 
A B 
Disappearing  
fundReceiving  
fund
The disappearing fund transfers its assets 
(scheme of amalgamation) or assets and 
liabilities (merger by absorption) to the receiving 
fund in exchange of units issued by the receiving 
fund to the investors of the disappearing fund.  Merger by absorption / 
Scheme of amalgamation  
 
EN 84   EN should only be informed if there was a "subst antial" impact. Some considered that the 
proposed assessment of the potential "negative"  impact on the receiving UCITS unit-holders 
by the UCITS itself was not the right approach. I nvestors generally considered that the form 
and content of the information should be made cl ear and that such information should be sent 
to all investors automatically and not merely "on request".  
Unit-holders' rights : The proposed approach to follow national regimes to determine whether 
or not unit-holders could vote on the proposed merger was broadly a ccepted. The proposed 
threshold of 75% of votes cast was generally welcomed. Some respondents indicated that in 
practice the right to redeem free of charge might not necessary provide the most optimal 
solution for investors, taking into account possibl e tax consequences and the loss of entry fees 
already paid. They therefore suggested to offe r investors also the pos sibility to switch to 
another fund of the same promoter with similar investment policies. Views regarding the right 
for receiving fund investors to exit free of charge diverged. So me believed that it should be 
automatic; others only if the merger would have a negative/substantial impact on them. 
Various respondents (industry and regulators) co nsidered that under certain circumstances, the 
costs of the merger could also be (partially ) born by the fund/investors and not merely by the 
management company/promoter. This view was not shared by investors. 
Finally, a non negligible number of contributions  expressed concerns regarding the potential 
adverse tax implications  of fund mergers. It was argued th at, particularly in cross-border 
situations, mergers may be treated as a disi nvestment (by the disappearing fund unit-holders) 
and therefore subject to capital gain taxes.  
Objectives  
A common EU fund merger framewor k will need to comply with the general objectives of the 
UCITS Directive (enhanced market efficiency a nd adequate investor pr otection). In addition, 
the design of such framework should properly re spond to the different stakeholders' concerns 
and expectations. The framework should therefore: 
a) from a single market  perspective: 
• Encourage the pan-European consolidation of the fund industry 
• Foster economies of scale  
• Promote competition  
b) from an industry angle: 
• Clearly state industry's obligations 
• Create the minimum (administrative) burden 
• Be swift  
c) from the regulators' point of view: 
• Allow an adequate supervision 
• Clearly indicate the involved regu lators' respective responsibilities 
• Ensure that the interests of i nvestors are adequately protected 
d) as well as, ensure that investors: 
 
EN 85   EN • Are properly informed 
• Have the right to dissent 
• Do benefit 
Benefits   
The main benefits of such a framework would be: 
 For investors For the industry 
Medium-
term A rationalised choice 
(less confusion between 
funds) More manageable fund 
ranges 
Long-
term A share of costs savings 
(e.g. lower fees or higher 
performances) More manageable fund 
ranges; cost savings 
Advantages will take some time to materialise.  At a first stage, ra tionalised fund ranges will 
benefit both investors (and dist ributors), who will be presen ted with a less overlapping (and 
often confusing) fund offer, and fund provide rs, for whom fund ranges will be easier to 
manage. In the longer term, savings from eco nomies of scale (and from the elimination of 
maintenance costs of the disa ppearing funds) would considerably reduce the costs of funds. 
Under the appropriate competition conditions, part of those savings  will be passed on to the 
investor. 
Design of the optimal framework  
There is a certain consensus on the main featur es of the required fund merger framework. The 
analysis presented in the IOSCO's report on Collective Investment Schemes' mergers96 and 
the recommendations of the Expert Group on market efficiency's report are largely 
convergent. The following table summaris es the conclusions of both reports.  
 IOSCO review Expert Group 
Regulatory 
approval • Before presented to unit-holders 
• Verification of requirements • Before presented to unit-holders 
• Disappearing fund regulator 
decides 
Unit-holder 
approval Generally in line with national 
company law • Following national legislation 
• Threshold max. 75% of votes cast 
Information 
disclosure • Sufficient for informed decision 
• Accurate and well balanced • Prior submission to regulator  
• In the language of investor's MS  
                                                 
96 "An examination of the regulato ry issues arising from CIS me rgers", IOSCO, November 2004 
 
EN 86   EN • On merger rationale, continuing 
fund, tax implications, costs • On investment policy, charges, 
valuation, voting process 
Costs • Clearly disclosed 
• Borne by the manager ───  
Redemption Dissenting unit-holders: possibility 
to redeem free of charge Dissenting unit-holder s: possibility to 
redeem free of charge 
Third-party 
monitoring Disappearing fund audited; 
depositary reviews proposal Valuation audited; depositary 
responsible for assets transfer 
On the basis of the above comparative table, it  could be concluded that an ideal framework 
would have two basic elements: a) the approva l by the competent authority (CA), and b) the 
right of the investor to be appr opriately informed and to protect his/her interests. However, in 
order to efficiently implement these basic principles, some choices need to be made. The following tables identify possible alternatives.
 Preferred choices are presented in bold and 
italics.  
a) Regulatory approval  
Relevant 
aspects Possibilities Comments 
Before submission to 
investors Timing 
After investors' approval In line with the general practice, the first possibility 
should be retained. It would ensure higher investor 
protection since it allows the CA to check the 
information to be provided to investors 
Disappearing fund authority
Both disappearing and 
receiving fund authorities 
(common decision)  Competent 
authority 
(CA) 
Both disappearing and 
receiving fund authorities 
(independent decision)  These 3 options were analysed in the exposure draft 
published in March 2007. A majority of 
respondents favoured the first one, as the most cost-
effective. Additionally, the concerns of those asking 
for a more active role for the receiving fund 
authority could be addressed with other investor 
protection measures developed below. 
Merger file completeness Approval 
criteria 
Similarity of investment 
policies A mere formal check (1st possibility) would shorten 
the procedure. It is also a more objective criterion. 
However, it could give rise to investor protection 
concerns. Basing the regulatory decision on criteria 
such as the similarity of investment policies could 
increase uncertainty (difficult to define what similar 
policies are). On the other hand, considering only 
investors' interest could be redundant (if investors 
are given the means to protect their interests and/or
 
EN 87   EN  
 
Other relevant aspects would be the content of the merger  file on which the competent 
authority will need to base its decision. Many different combinations of required documents 
could have been identified in the above 'possibilities' colum n. However, comparing all those 
possibilities would have not been quite meani ngful nor would have it added much to the 
analysis. Instead, it is recommended to retain th e list of required documents proposed in the 
exposure draft. This had been drawn up in line  with national practices  and was considered 
appropriate by respondents to the consultation.  
                                                 
97 Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-
border mergers of limited liability companies. 
98 This is the merger technique most used in common law countries. It implies a transfer of assets from the 
disappearing into the receiving fund . The liabilities are not transferred but  discharged at a latter stage. 
Only then, the disappearing fund will be wound up. Inclusion of this merger technique was explicitly 
recommended by the Expert Gr oup on market efficiency. Investors' interest are given the means to protect their interests and/or 
third parties have an oversight role). A certain 
balance between criteria 1 and 3 could however be 
found (e.g. if CA assesses the risk of potential 
[negative] impact of the merger on investors) 
Relevant 
aspects Possibilities Comments 
Only cross-border fund 
mergers 
Coverage 
All fund mergers (cross-
border and domestic)  There seems to be few obstacles to merging funds 
domestically. Consolidation at national level is 
already quite intense in certain countries, such as 
France where 600 domestic mergers take place 
every year. Therefore a framework covering only 
cross-border mergers could be seen as a logical 
choice. However, domestic mergers may have 
cross-border effects (e.g. in the case of the merger 
of two Luxembourg funds widely notified for 
selling across the EU). It would therefore appear 
appropriate to ensure that a minimum set of 
coherent investor protection provisions would apply 
to all type of mergers (cross-border and domestic). 
By absorption 
By creation of a new fund Merger 
techniques 
covered 
Schemes of 
arrangement/amalgamation An appropriate approach seems to include the 
possibility of both mergers by absorption and by 
creation of a new fund. This would follow the 
example of the Cross-Border Mergers Directive97. 
However, these merger techniques are not often 
used for merging funds in certain MS (particularly common law countries). It may therefore be 
necessary to include some other commonly used 
merging techniques, such as schemes of arrangement/amalgamation
98. 
 
EN 88   EN b) Investors' rights 
Impacts analysis  
The tables above provide an overview of the main features a fund mergers legal framework 
should ideally have. In some cases, the choice among the different available possibilities is 
uncomplicated. In others, a more in-depth analysis is required. This is particularly the case for Relevant 
aspects Possibilities Comments 
Only to disappearing 
fund investors 
Information 
To both funds' investors Investors will need to be informed about the merger's 
and its potential impacts in order to take a decision. 
Considering that investors of the disappearing fund will 
be the most affected by the merger, the less burdening 
measure would be to inform only those. However, in 
certain cases, information to the receiving fund 
investors may also be appropriate (particularly if the 
merger risks having a negative/substantial impact on 
them). Both options deserve therefore to be carefully 
looked at in the following section. 
Only for disappearing 
fund investors Possibility 
to redeem 
free of 
charge To both funds' investors Again, as the investors of the disappearing fund are 
those most affected by the merger, it seems logical that 
at least such investors would have the possibility to 
redeem without charge if they don’t agree with the 
merger. However, it may also be appropriate to give the 
same possibility to receiving fund investors 
(particularly if the merger risks having a 
negative/substantial impact on them). 
Only disappearing fund 
investors 
Both funds' investors Vote on the 
merger 
According to national 
law All investors should be able to decide on the merger of 
the fund they invested in with another. However, an 
investor vote is not always the normal practice (in some 
MS and/or for some fund types) and voting rules often 
are linked to company law provisions. In addition, 
investors rarely play an active role. Other investor 
protection issues seem therefore more cost-effective 
without interfering with national laws and practices. 
Not charged to 
investors 
Costs of the 
merger 
Shared between fund 
manager and investors Fund mergers are often the result of a commercial 
decision by the fund provider. It would therefore appear 
appropriate that the costs associated to the merger are 
borne by the fund provider and not by investors. On the 
other hand, investors should also benefit in the medium 
to longer-term from the efficiency savings achieved. 
The second option would then need to be reinforced 
with provisions guaranteeing the passing on to investors 
of some of the savings. This may be, however, difficult 
to implement in practice and risks creating legal 
uncertainty. 
 
EN 89   EN the obligation to send information on the merger to investors and the ri ght to redeem free of 
charge. In both cases the options are the same and the implications similar (particularly from an investor protection point of view). The fo llowing analysis will thus focus on only one of 
these cases, more specifically the informati on obligation. The conclusions can then be 
extended to the "right to re deem free of charge" case. 
As indicated, two options have been identified: 
(Note: the option "no information at all" is fo r obvious investor protec tion reasons ruled out)  
Option 1: Only to disa ppearing fund investors 
The rationale behind this option is that the i nvestors of the disappear ing fund are those most 
affected by the merger. The merger should in pr inciple not have any significant implications 
on investors of the receiving fund. The investme nt policy of the rece iving fund remains the 
same and the merger would usually  have an impact similar to th at of a big subscription into 
the fund.  
Option 2: Always to both funds' investors 
The rationale behind this option is that bot h the disappearing fund and the receiving fund 
investors have a right to be informed of  the possible impacts of the merger on them. 
(Additionally, information to the receiving fund investors will need  to be provided for in any 
case if national law foresees their vote on the merger.)  
This option was vehemently supported by investor  associations (FIN-USE , Financial Services 
Consumer panel, Test-achats, Verbraucherzentr ale Bundesverband) in their responses to the 
exposure draft consultation. Some national author ities also considered that receiving fund 
investors should receive the information whatever the impact of the merger on them was (Finnish Ministry of Finance,  Dutch regulator). On the othe r hand, industry players tended to 
favour a facultative approach, i.e.  leaving to the fund promoter the decision to inform or not 
investors in the receiving fund (e.g. AFG, JP Morgan, Pioneer, Unitcredit Group) or imposing 
it as a requirement only if the impact on the receiving fund investors would be substantial 
(e.g. ALFI, State Street). 
Option 1: Only to disa ppearing fund investors 
Impacts from the point of view of:
 
a) Industry : Preparing information adapted to both types of investor should not be overly 
onerous (often the relevant information/documen ts will be similar). However, distributing it 
will definitely be onerous. Requiring the provi sion of information only to disappearing fund 
investors would considerably limit the admini strative burden on industry players. Lower 
merger costs should then encour age further fund consolidation99.  
b) Investors : For the receiving fund investors, th e merger would most often have no 
perceptible impact. There is a risk of performan ce dilution due to the tran sfer of assets from 
the disappearing fund into the receiving fund, but  this could be mitigated with techniques 
                                                 
99 If, as recommended in the 'investors' rights' table above, these costs cannot be passed on to investors, 
fund providers will be more relu ctant to propose fund mergers. 
 
EN 90   EN already well-known by fund providers100. A 'dilution levy' could be applied to reduce the 
impact of cash transfers (as is already commonl y done for big subscriptions). With regards to 
the securities transferred, these may need to be sold in order to rebalance the portfolio of the 
receiving fund. This could be done during a long  enough period in order to alleviate potential 
negative effects on the performance. In some cases a realignment of the portfolio of the 
disappearing fund in line with that  of the receiving fund takes place before the merger in order 
to mitigate any potential performance dilution101. The risk however exists that, particularly 
when investment policies differ significantly, the rebalancing of portfolios would still have a 
definite negative impact on the performance. If receiving fund invest ors are not properly 
informed of this risk they will not be able to act consequently and would therefore not be 
adequately protected.  
c) Regulators : Providing merger information only to  the disappearing fund investors could 
give rise to supervisory concerns. The authority responsible for the receiving fund may feel unable to fulfil its obligations towards investors. To mitigate these concerns greater safeguards would be required. Th e decision of the disappearing fund regulator may then need 
to be based not only on a formal/completeness check  of the merger file but  would also need to 
take into consideration the interest of investor s. (This would require a greater reliance on the 
judgement of the disappearing fund regulat or by the other regulators involved). 
Option 2: Always to both funds' investors 
Impacts from the point of view of:
 
a) Industry : A considerably high administrative burde n will need to be assumed by industry 
players. Distribution and transl ation costs may be considerable102, notably if the receiving 
fund has been notified for marketing in severa l MS. (According to PW C/Lipper data, at the 
end of 2006 the typical cross-bo rder fund is notified for sell ing in at least 7 countries103.) A 
longer preparation period (for the drafting and translation) will most probably also be 
necessary. This would delay the completion of the merger and therefore the achievement of 
the savings pursued.  
b) Investors : Although the impact to receiving fund investors mo st often would not be 
important, the risk of performance dilution as  explained above remains in certain cases 
(notably when the investment polices of the f unds merging significantly differ). In such cases, 
receiving fund investors would only be prope rly protected by receiving information on the 
merger (so as to allow them  to exercise their rights)104. On the other hand, this information 
requirement could be seem as burdensome by th e industry and effectively discourage mergers. 
In the absence of fund consolidation activit y, investors would then continue to pay 
unnecessarily high fees (please s ee problem description above).  
                                                 
100 Please see Pioneer's response to the exposure draft consultation. 
101 Please see State Street's response to the exposure draft consultation. 
102 These costs would be extremely difficult to quantify even for a single merger since it would depend on 
the number of investors and from how many MS they are from (which determines the distribution 
method and the language of communication). Extrapolating this quantification to the estimated number 
of potential mergers would make little sense. 
103 "Global Fund Distribution 2007", Price Waterhouse Coopers and Lipper, 2007. 
104 Information should also obviously be provided whenever the receiving fund investors are entitled, 
under the relevant national provisions, to vote on the merger. 
 
EN 91   EN c) Regulators : Having to check the information prepar ed for the receiving fund's investors in 
addition to that prepared for the disappeari ng fund's ones should not add a significant 
additional burden to the regulators' work. As  explained above, conten ts would be largely 
similar. Regulators would however also need to  verify whether the information on the merger 
has been provided to investors according to the (language and distribution) requirements in 
the Directive. When the information is provi ded to both disappearing and receiving funds' 
investors, more resources should be deployed on the side of regulators.  If investors of the 
receiving fund are not to be affected by the merger, the deployment of additional regulator 
resources may not be adding much to their protection.  
Other effects  
Administrative burden: although th e choices in the above sections  have been made with the 
objective to minimise the administrative burden for the industry, the creation of a legislative 
framework for mergers could be seen as introducing a dditional (administrative) requirements. 
It needs to be noted however that the harm onisation of the merger procedure sought by the 
new provisions would considerably reduce the administrative burden act ually borne by fund 
promoters wishing to merger funds cross-border (and who currently need to comply with a set 
of different national requirements). Under th e proposed framework, a single merger dossier 
for a single regulator (that of the disappearing fund) will need to be prepared.  
Summary table  
 Specific Objectives Overall Objective 
 Efficiency 
 Investor protectionadministrative 
burden sector 
efficiency Pro Single 
Market? 
Only to 
disappearing 
fund 
investors - 
(protection risk for 
receiving fund investors)+ 
(lower burden)  + 
(higher scale 
savings) yes 
(potentially more 
mergers) 
To all 
investors + 
(all investors duly 
protected)  - 
(higher burden)  - 
(lower scale 
savings)  no 
(may discourage 
mergers)  
Preferred option  
Under certain circumstances (please see above) the performance of the receiving fund may be 
negatively affected by the transf er of assets. In those cases, it would appear normal, for the 
sake of investor protection, that  all involved investors would be adequately informed of that 
risk. Additionally, all investors should be also given the means to opt-out of the merger (e.g. 
by offering them the possibility to redeem free of  charge or to switch with no entry fees to 
another fund). However, considering that in many  cases the risk of detr iment for the receiving 
fund investors is limited and that measures exis t to mitigate the merger potential performance 
dilution, it would be unnecessarily burdensome to  require that receiv ing fund investors are 
systematically informed. Thus, neither of the opt ions seems to be optimal: the first one from 
the investor point of view, the second  from the efficiency point of view.  
A combination of both options would therefor e provide a more proportionate solution. This 
could require that information is always provi ded to disappearing fund investors but that the 
 
EN 92   EN need to send it also to receiving fund investor s would be assessed by the regulator responsible 
for the merger approval105, i.e. the regulator of the di sappearing fund. This regulator's 
decision could be then based on the potential impact of the me rger on the receiving fund 
investors. Since the main negative potential imp act on them is of a purely technical nature 
(i.e. the dilution of performance explained ab ove), the regulator of the disappearing fund 
should be able to asses that  risk (as it is al ready currently done for national mergers)106. In any 
case, some form of communication or co- operation between regulators could also be 
considered. For example, the possibility for the regulator of the disappearing fund to consult 
with the regulator of the receiv ing fund before taking a decision. 
Other (general) considerations  
A number of stakeholders during the exposu re draft consultation have highlighted the 
possibility of negative tax imp lications of cross-border merger s. It needs, however, to be 
pointed out that no new arguments have been  provided (nor the conditions/situation have 
changed) to justify a revision of the WP IA conclusion in this respect. A Commission 
Communication remains theref ore the preferred option.  
Fund mergers will often be considered as mere internal restructuring operations. However, in 
certain cases107, they may give rise to competition related considerations. In such cases, 
attention should be paid to compliance with national or EU competition rules (if the merger has an EU dimension
108).  
'Merger' and 'rationalisation' are often associated  with negative social impacts. In the case of 
fund mergers, the constant high rhythm of launching new funds should compensate for any 
such impact. (If redundancies are to be expected in the asset management business, they would most probably be rather li nked to the automatisation of functions and processes than to 
fund mergers.) 
It could also be argued that the greater overall size of UCITS may have some effects in terms 
of investment strategies. The Directive concen tration rules (article 25), could then oblige 
managers to change their investment focus, part icularly if the fund inve sts in specific or less 
liquid sectors/markets or in small companies. However, it can be expected that most often 
managers will tend to increase the diversifica tion of their portfolios rather than changing 
strategies. Also, considering the global size of capital markets (t he world market capitalisation 
for equities and bonds was $51 tr. and $ 30 tr. respectively at the end of 2006) and the current 
average size of European funds (€ 181 million as showed in the graph at the beginning of this 
section), greater fund sizes should not impor tantly change investment strategies.  
                                                
 
105 Unless this is in any case mandatory because the me rger requires a vote by the receiving fund investors, 
in which case information on the merger is to be provided prior to the unit-holders' meeting in accordance with national rules. 
106 Given the technical nature of the performance dilution effect, no particular knowledge of the local rules 
in the country of the receiving  fund should be required.  
107 e.g. the merger of two funds of two different asset management companies (without those asset 
management companies merging themselves). It could therefore been argued that the merger may lead 
to concentrations that may be not fully compatible with effective competition in the common market. 
108 The 'EU dimension' of the merger would need to be assessed taking into account turnover and other 
requirements. Given the required level of the turnover  thresholds and the small size of average EU fund, 
it is however quite unlikely that the merger of respective funds would fall in the above category.  
 
EN 93   EN Finally, there is a close relation between f und mergers and some of the other measures 
discussed in this impact assessment. First of all, asset pooling. Although fund mergers and 
pooling may pursue similar goals (economies of s cale in asset management), they are not to 
be considered as alternative but rather as complementary measures. Opting for one or the other will depend on the business model adopted : mergers might be more appropriate for 
industry players wishing to offer a (cross-bord er) fund range from a single location; while 
pooling might be more appropriate for those offeri ng a range of (national)  funds established in 
several MS. Second, given the need to provide appropriate information to investors on the 
proposed merger operation, a streamlined Si mplified Prospectus (or Key Investor 
Information) could play an im portant role in facilitating th e comparison between the funds 
merging. Finally, it would be a dvisable that the receiving fund be notified to the relevant 
authorities in all MS where the disappearing fund was sold to investors. A simplified notification procedure would make  it easier for the industry to co mply with this requirement.
 
Impact table  
Option Affected 
parties Effect 
Direct: D 
Indirect: I Impacts 
Positive: + 
Strongly positive: ++ 
Negative: - 
Strongly negative: -- 
Neutral/marginal: ≈ Impact 
Timing 
One-off 
Short-term 
Medium-term 
Long-term 
On-going Impact 
Nature 
 
Dynamic 
Static Impact 
Likelihood
Certain 
High 
Medium 
Low 
++  
(lower merger costs) short-term 
Industry D ++  
(greater  potential for  
scale savings) medium-term dynamic high 
D -  
(performance dilution) short- to 
medium-term dynamic low 
Investors 
I +  
(lower costs) long-term dynamic medium Only to 
disappearing 
fund 
investors 
Regulators D +/- 
(easier supervision; 
investor protection 
concerns) one-off static medium 
--  
(higher merger costs) short-term 
Industry D -  
(lower potential for  
scale savings) medium-term dynamic medium 
++  
(maximum protection) static high 
Investors D -  
(higher costs) on-going 
 
dynamic low To all 
investors 
Regulators D +/-  
(more resources for 
supervision; lower inv. 
protection concerns) one-off static medium 
 
EN 94   EN Asset Pooling 
Problem description  
The above IA fiche on fund mergers describes in  detail the difficulties derived from the 
proliferation of funds in the European fund ma rket. Management of growing ranges of small 
funds becomes increasingly difficult. As explaine d, that proliferation does not only lead to 
greater operational risks but, most importantly, it hinders the exploita tion of economies of 
scale. Ultimately, this results in important  (unnecessary) costs for investors. Missed 
economies of scale annual savings  amount to billions of euros109.  
The WPIA identified asset pooling as a complement ary solution to mergers. In fact, in certain 
business cases, mergers may not  be the optimal (or the most desirable) way to achieve 
economies of scale. Cross-border fund mergers will  lead to the disappear ance of less efficient 
(and overlapping) funds based in different domic iles while helping fund promoters to develop 
big funds serving several MS markets from a single location. Howeve r, local presence may 
sometimes be preferred. This would allow fund promoters to better adapt fund features (e.g. 
charging structure) to investors' preferences in  different national markets. In that case asset 
pooling would provide a more appropriate solution. Pooling also facilitates product 
innovation and a manager of managers' approach since it allows leveraging the know-how of 
a set of specialised fund managers110. The most common pooling techniques are described in 
the box below111. 
Main asset pooling techniques 
Entity pooling  is the technique that allows for the co -management of the assets of different 
funds (sometimes called feeder funds) through the crea tion of pools of assets (master funds). 
Those pools are typically collective investment sc hemes. Participating funds hold units in the 
pool(s). The value of these units depends on the net asset value of the pool's portfolio. 
Participating funds enjoy the same economic risk s and benefits as if they were directly 
invested in the underlying assets of the pool. 
Virtual pooling uses information technology to commingle the assets of two or more funds (or 
sub-funds of an umbrella) in an (virtual) in vestment pool. However, the investment pool does 
not constitute an own legal entity. The partic ipating funds remain the legal and beneficial 
owners of the assets.  
Pooling have been widely used in some EU jurisdictions but limited to funds in the same 
domicile. However, to better exploit potentia l scale economies the Expert Group report on 
Market Efficiency recommended developi ng pooling on a cross-border basis. 
Pooling savings could be achieved at three di fferent levels: 1) front-office: pooling lowers 
managers' overheads since a single manager c ould manage a higher number of assets; 2) 
middle and back-office: higher average transact ion sizes and fewer trading accounts benefit 
                                                 
109 Please refer to the merger fiche for further details  on the consequences of the proliferation of sub-
optimal sized funds. 
110 FEAM response to the Green Paper consultation, 31st October 2005. 
111 For a more detailed description of the different pooling techniques please see the Appendices to the 
report of the Expert Group on Investment Funds Market Efficiency (European Commission (2006c). 
 
EN 95   EN from lower service-provider fees; and 3) tr ading execution: grouped trades face more 
competitive spreads. Since many of these sa vings occur at the fund level, they are 
automatically passed on to investors. 
Obstacles to cross-border pooli ng in the UCITS framework were analysed in the WPIA. In the 
case of virtual pooling, these structures are not prohibited by the UCITS Directive. They are 
nevertheless regarded as complex and requiring  important investment in IT systems. As 
regards to entity pooling, it would seem easier to implement and to supervise. However, entity pooling is prevented by the Directive's diversif ication requirements. Withholding taxes could 
also have a negative impact if the entity poo ling the assets is not fiscally transparent
112.  
In the case of virtual pooling, the WPIA analysis le t the door open to th e introduction of a 
common approach but recommended to give furt her consideration to the issue. Subsequent 
research on this area led Commission services to conclude in  the exposure draft that it did not 
seem appropriate at that stage to take any m easure to create a pan-European environment for 
virtual pooling. Important cross-liability and other investor protection concerns were 
highlighted as the main reason. A dditionally, it appeared that the use of this technique was not 
much extended outside a few MS and that th ere did not exist cross- border virtual pooling 
experiences. Besides, there had not been strong  demands on the industry side for such an 
environment113. Analysis of the issues blocking the cross-border development of virtual 
pooling should therefore be first discussed in appropriate fora. More detail on these 
considerations is provided at  the end of this fiche.  
On the other hand, the WPIA report concluded th at the UCITS Directive should be changed to 
allow entity pooling. However, no detailed analysis was provide d on the scope of this new 
freedom; i.e. should entity pooling in a broad sense be allowed or should changes to the 
Directive be limited to allow only the so-called 'master-feeder' structures? These concepts are 
described graphically in the boxes below. 
 
                                                 
112 "Pooling: how can fund managers respond efficiently to different investors needs?", IMA, July 2005. 
113 Contributions to the consultations on the Green Paper and the Expert Group report on Market 
Efficiency had showed a greater in terest for entity pooling (particularly  master-feeder structures). As 
explained below responses to the exposure draft have confirmed this position. 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 
Feeders are allowed to invest their 
assets in several different masters. Master 
Feeder α Feeder β Feeder γ Master-feeder 
Each feeder invests all (or the majority) of 
its assets in a single master. (up to) 100 % 
(up to) 100 % (up to) 100 % 
 
EN 96   EN 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. The main 
characteristics of that proposed preliminary fr amework were the following: a) prior regulatory 
approval of the feeder's investment into the ma ster was required, b) poo ling structures needed 
to have at least two feeders, c) the minimum investment of th e feeder into the master was 
fixed at 85% (of the feeder's assets); d) prope r arrangements between master and feeder (and 
between its depositaries and auditors) needed to be in place; e) information to investors should clearly explain the implications of the two-layer investment; and f) both master and 
feeder, as UCITS, needed to comp ly with the Directive provisions 
Responses to the Exposure Draft consultation  
Scope : Almost half of those commenting on the issue supported the proposed focus on 
master-feeder structures. Others, while also in favour of master-feeders,  said to welcome in 
the future the possibility of using entity pooling in a broad sense. Several respondents defended the creation of a framework for entity  pooling in a broad sens e. They considered 
that limiting the scope only to master-f eeders was a missed-opportunity. Very few 
respondents pleaded for provision s to permit virtual pooling. 
Approach
: Commentators found the framework rather  prescriptive. They recommended to 
distil the key regulatory principles from the exposure draft,  leaving details on procedure or 
application of principles to sp ecific scenarios to be filled in through implementing legislation 
or common supervisory practice. 
Two-feeder requirement:  The vast majority of responde nts considered it unnecessary to 
require that a master should ha ve at least two feeders.  
Agreement between feeder and master:  Several industry stakeholders pleaded for the removal 
of the envisaged requirement for a formal agre ement between master and feeder funds. On the 
other hand, a number of regulators and investor  associations welcomed the proposal. They 
stressed that it would clarify the respective resp onsibilities of feeder  and master funds.  
Feeder's responsibility:  Several industry stakeh olders claimed that th e feeder should only be 
responsible for selecting the ma ster. The feeder fund should th en be able to rely on any 
information it receives from the master. This poi nt of view was contested by those who argue 
that master-feeder structures should be treate d as a form of (management) delegation and, 
therefore, the delegating entity (feeder) should remain responsible and be fully accountable to 
its unit-holders.  
Feeder depositary/auditor's role:  Several industry stakeholde rs opposed the idea that the 
feeder depositary/audito r should be obliged to monitor wh ether the master fund was operated 
in line with the obligat ions binding on the feeder fund. In their view, they should be able to 
rely on the information they receive from th e master's depositary/a uditor. Other respondents 
(notably regulators and investor associati ons) defended the envisaged approach arguing the 
master-feeder structures were comparable to a delegation of the asset management.  
Info-sharing agreement be tween depositaries/auditors:  Several industry stakeholders criticised 
the need for a formal info-sharing agreement be tween the depositaries/auditors of the feeder 
and master funds. They claimed that the cost s would outweigh the be nefits. On the other 
 
EN 97   EN hand, several regulators, but also some industry representatives argued that the info-sharing 
agreements were needed in order to allow thes e actors to comply with their obligations.  
Investment into the master threshold:  Most stakeholders agreed with the envisaged 
requirement that the feeder invest at least 85% of its  assets in the master.  
Derivatives:  Respondents discussed whether, for what purposes and to what extent a feeder 
should be able to hold derivatives. A few responde nts argued that no specific restrictions on 
the feeder's use of derivatives should be cont emplated. However, othe rs favoured restricting 
the use of derivatives to a few specific situations (e.g. hedging currency risk).  
Objectives  
A legislative framework for entity pooling should  properly address the di fferent stakeholders' 
concerns and realise thei r expectations. This framework should therefore: 
a) from a single market  perspective: 
• Facilitate the cross-border pooling of asse ts (and thus encourage scale savings and 
specialisation gains) 
• Encourage a broader fund offer  
b) from an industry  angle: 
• Facilitate the reapi ng of economies of scale related savings 
• Create the minimum (administrative) burden 
• Allow a high degree of flexibility in the management of pooling structures 
c) from the regulators ' point of view: 
• Allow regulators to fulfil their superv ision and investor protection duties 
• Be clear as regards regulator s' respective responsibilities 
d) as well as, ensure that investors : 
• Have access to an enlarged and innovative fund offer adapted to their needs 
• Are properly informed of the implications  of investing in a two-layer structure 
• Are adequately protected 
Benefits   
The main benefits of that new framework would be the following: 
 For investors For the industry 
Short-term A large fund choice; 
lower costs Lower costs 
Long-term A greater fund choice; 
lower costs More business 
opportunities; lower costs  
 
EN 98   EN Costs savings will materialise rather quickly once  the entity pooling struct ures in place. Since 
many of these savings will take place at the fund level, investors will benefit directly from 
them (most probably in the form of higher performances). A facilitated framework for entity pooling will also enco urage product innovation
114; enlarging thus investor's choice and 
industry's business opportunities in the medi um to long-term. Lower costs and greater 
business opportunities should also have durable positive dynamic effects on the European economy. 
Design of the new pooling framework  
Preferred choices are presented in bold and italics.  
 
                                                 
114 Pooling allows fund promoters to offer a series of  (feeder) funds with different characteristics (e.g. 
covering or not currency risk, with or without capital guarantee) even if they are all invested in the same 
master. 
115 Furthermore, even in those cases where a master fund would have only one feeder fund, the master may 
also pool assets from direct investors. The two-fe eder requirement is therefore overly prescriptive since 
a one-feeder-structure also enable s the pooling of assets and thus th e achieving economies of scale. 
116 The main negative consequence of the pooling struct ure on the master investors (other than the feeder) 
would be linked to the impact of the feeder's subscriptions and redemptions on the master's 
performance. However, as explained in the fund merger IA fiche, industry players have the tools to deal with performance dilution risk. Imposing additional regulatory control (by the master's CA) would 
probably not enhance significantly investor protection and would render the procedure considerably 
cumbersome.  Relevant 
aspects Possibilities Comments 
At least two feeders  
Minimum 
pooling 
require-
ment 
No minimum 
requirement The exposure draft's requirement for at least two feeder 
funds to pool into a master responded to investor protection 
concerns. Particularly, the risk that pooling would be used 
just to create double cost-layer structures. However, this 
does not appear to be the most cost-effective approach to 
deal with this risk. It implies cumbersome administrative 
procedures that could not only outweigh potential pooling 
savings but, at the end of the day, also increase the costs 
paid by the investor. Adequate and transparent disclosure 
provisions (e.g. clear information on the implications, 
including costs, for the investor of the pooling structure) 
seem a most proportionate way to achieve investor 
protection115. 
No regulatory 
approval 
Regulatory approval 
by the feeder's 
competent 
authorities (CA) Regulatory 
approval 
Regulatory approval 
by both the master's 
and the feeder's CA The investment of the feeder into one (or more) master(s) 
having potentially important consequences for the investors 
of both the master and the feeder, the first possibility does 
not seem to be appropriate from an investor protection point 
of view. Requiring the approval of the CA of both the 
master and the feeder could be too burdensome and 
discourage cross-border structures. Since investors of the 
feeder are most directly affected by the two-layer 
investment, involvement of only the feeder's CA appears 
more appropriate116. 
 
EN 99   EN Relevant 
aspects Possibilities Comments 
Rights of the feeder 
vis-à-vis the master 
set out in the 
Directive 
Existence of 
agreement required 
for approval Relation 
between 
master 
and feeder 
Master and feeder 
free to organise their 
relation Directly laying down in the Dir ective all the rights of the 
feeder vis-à-vis the master was considered ahead of the preparation of the exposure draft. It was however rejected since it appeared as a burdensome and inflexible solution (any need to update  those rights would require 
changes to the Directive). The requirement for feeder and 
master to enter into an agreement was also criticised by 
several (mainly industry) respondents to the exposure 
draft consultation. They pointed out the increased costs and lack of flexibility that the requirement would entail. Despite this, some form of (working) arrangement would 
be necessary for investor protection reasons. This would ensure that the feeder can m eet its obligations vis-à-vis 
its investors. In order to mitigate the risk of higher costs and operational rigidity, a principle-based requirement (allowing master and feeder enough flexibility to efficiently organise their re lation) could be envisaged 
Info-sharing 
requirements set out 
in the Directive 
Info-sharing 
agreements to be 
entered into Relation 
between 
master & 
feeder's 
depositarie
s/auditors Relevant actors free 
to organise their 
relation Again, introducing a detailed set of information-sharing 
provisions in the Directive w ould create a rather onerous 
and inflexible framework for the relation between the relevant actors. On the othe r hand, the requirement for 
depositaries/auditors of the ma ster and feeder to set up 
information sharing arrangements was also considered 
burdensome by some (industry) respondents to the 
exposure draft consultation. As in the case of the agreement between master and feeder, info-sharing arrangements appear necessary since they aim to ensure that the depositaries/auditors  of both master and feeder 
are able to fulfil their duties (enhancing thus investor protection). As explained above, the corresponding legislative provision could however consist of a (simple and) principle-based requirement.  
Feeder's 
investment 
into the 
master(s) No minimum 
investment required Allowing the feeder to invest  any proportion of its assets 
in the master(s) would give the feeder's manager more leeway in dealing with i nvestors' subscriptions or 
redemptions. On the other hand, fixing a relative high minimum investment requirement would ensure greater transparency (and reliability) of the pooling structure. It 
can also be considered as an effective wa
y to link the 
 
EN 100   EN  
Only selecting the 
master(s) 
Feeder's 
role 
Selecting the 
master(s) and close 
on-going monitoring 
of its/their activities The fact that the master is a UCITS (as proposed in the 
exposure draft) should provide  an additional layer of 
protection for investor. Re quiring that the feeder 
monitors the master may th en lead to a redundant use 
of resources. However, as ri ghtly pointed out by some 
respondents to the exposure draft consultation, pooling 
could be considered as a form of delegation (and therefore the delegating feeder should retain 
responsibility). Additionally, the feeder, as any other UCITS, has a number of obligations vis-à-vis its investors and would therefore need to monitor somehow the activities of the master. In order to avoid any duplication of costs (tha t are ultimately passed on 
to investors) the preferred solution would be the first one (only selecting the ma ster) coupled with some 
monitoring elements that would allow the feeder to comply with its duties. Minimum investment 
required can also be considered as an effective way to link the 
investment policies of ma ster and feeder. The 85% 
minimum investment threshol d proposed in the exposure 
draft was generally regarded as adequate. The remaining (free invested) 15% was consid ered to allow the feeder's 
manager to adequately manage (subscriptions and) redemptions. In any case, th e choice between these two 
possibilities will depend on the entity pooling option finally chosen (please see analysis below) 
Relevant 
aspects Possibilities Comments 
Unrestricted use 
Restricted 
qualitatively and 
quantitatively 
Use of 
derivatives 
Restricted only 
quantitatively Investment in derivatives is, under certain conditions, 
allowed by the UCITS Directive for portfolio management purposes. Imposing quantitative restrictions to their use would make sense from an 
investor protection point of view (e.g. derivatives could 
be included in the above 15% threshold and the global exposure of the pooling struct ure relating to derivatives 
limited). Some respondents to the exposure draft consultation argued in favour of introducing also qualitative restrictions. In particular, it was considered 
that the use of derivative s should only be allowed for 
currency hedging purposes. While this would appear as offering greater protection to investors, other measures 
could be sufficient to that  end (e.g. limiting the pooling 
structure's global exposure). It would also be inconsistent with the current Directive approach which does not limit investment in derivatives to that particular use. 
 
EN 101   EN Investors not 
informed 
Investors just 
informed Conversion 
of UCITS 
into a 
feeder 
UCITS 
Investors informed 
+ right to redeem 
free of charge Transforming an existing UCITS into a feeder one implies a 
change of investment policy. This should ideally be 
communicated to investors before it takes place117. The first 
possibility should therefore be excluded for investor 
protection reasons. However, introducing a simple 
information obligation may not be enough to protect 
investors' interests. They may find themselves owning 
shares of a fund quite different to that into which they had 
originally invested and that does not respond anymore to 
their particular needs. They should then, as in the case of 
fund mergers, be offered the right to redeem free of charge. 
Impacts analysis  
The tables above provide an overview of th e main recommended features for an entity 
pooling framework. Many of the choices are uncont roversial. Others are influenced by the 
type of pooling technique chosen. As explained before, the preferred technique presented in 
the exposure draft was 'master-feeder' structures. Responses to the consultation show that this 
choice is not without critics. The correspond ing advantages (and disadvantages) of both 
master-feeders and entity pooling in a broad sense are discussed be low in more detail. 
However, comparison in quantitative terms is di fficult given the absence of relevant data.  
Option 1: Entity pooling in a broad sense 
The Directive already allows UCITS to invest in other funds. Funds of funds118 rules were 
introduced with the 2001 amendments  in line with the Directive' s underlying principles, i.e. 
by enlarging the list of assets e ligible for UCITS to invest into (i.e. funds) and by extending 
the diversification criteria to this new eligible asset. Allowing entity po oling in a broad sense 
would require to reconsider (or eliminate) those diversification criteria. In order to overcome 
any concerns derived from this relaxation of the diversification rules, the Expert Group on 
market efficiency recommended that bot h feeder and the masters be UCITS.  
Impacts from the point of view of : 
a) Industry : The possibility to use this pooling tec hnique would bring important advantages 
to industry players. Flexibility to tailor f eeder funds' composition w ould allow fund promoters 
to adapt quicker their fund ranges to changing  trends and investors' demands. This pooling 
technique would also facilitate the access to the best investment managers (and should 
encourage competition between them). It could be argued that these advantages are already 
available (although to a lesser exte nt) to industry players thanks to the current funds of funds 
regime. Nevertheless, entity pooling in a broa d sense would increase the industry's leeway119. 
                                                 
117 Changes to a fund's investment policy would, in some MS, even require the approval of investors. 
However, this is not a universal practice (and depends on the legal form of the fund). 
118 A fund of funds is a fund whose portfolio is basically made of funds (and liquidity). This structure is 
however typically not used for the purpose of pooling assets but of asset alloca tion and diversification. 
Funds of funds' investors can therefore take advantage of the expertise of different asset managers and 
invest into a generally highly diversified (and therefore less risky) financial product. 
119 UCITS can invest only up to 20% of their assets  into a single fund (Artic le 24). Entity pooling in a 
broad sense would imply that a (feeder) UCITS can invest any proportion of its assets in any chosen 
number of (master) UCITS. 
 
EN 102   EN As regards to the potential savings offered by this technique, according to a number of 
industry responses to the expos ure draft consultation, entity pooling in a broad sense would 
lead to greater efficiency gain s than master-feeder structures120. However, if the objective is to 
achieve economies of scale thr ough the pooling of assets, this  seems to be more easily 
attained through mast er-feeder structures121. There is also the view th at the costs of the entity 
pooling in a broad sense model ar e not negligible. Supervision by the manager of the resulting 
structure will require robust compliance monito ring infrastructure. This could push up the 
costs of setting-up these structur es. Subscriptions/redemptions into/from the feeder need to be 
allocated proportionally (between the masters) and would entail  a high number of operations 
than for a master-feeder structure. An impor tant number of working arrangements between 
feeder and masters may also need to be ente red into, further increa sing costs. It needs 
however to be noted that many of these are one-o ff costs (contrary to the expected benefits).  
b) Investors : They would undoubtedly have access to a wider range of funds. Scale savings 
should also flow down the fund value-chain to investors. Investors may however find more 
difficult to understand the impli cations of the double-layer inve stment that this technique 
implies. It could be said  that this is not different from th e case of funds of funds (or master-
feeders structures) and could be dealt with through specific information obligations (e.g. 
regarding the total costs of th e structure). There remains ho wever an additional source of 
complexity (vis-à-vis master-feeder structures). This is the fact that the feeder's investment 
policy and performance depends on that of a number of masters. It needs also to be noted that 
investors associations expre ssed little support for this op tion during the exposure draft 
consultation.  
c) Regulators : The analysis ahead of the exposure dr aft publication conc luded that entity 
pooling in a broad sense structur es would render more difficult its oversight by the regulator, 
the fund administrator and the de positary; what was a clear cause of concern from an investor 
protection point of view. While several i ndustry respondents defended during the exposure 
draft consultation their ability to effectivel y monitor these structures, regulators often 
expressed a greater unease. Seve ral highlighted the potential confusion with fund of funds 
structures and the fact th at it was a less well-known entity pooling technique. Greater 
resources on the side of regulat ors would seem therefore to be  needed in order to ensure 
appropriate oversight. 
Option 2: Master-feeders structures  
Implementation of option 2 will imply extending the UCITS framework to a technique that is 
already employed at national level in some Memb er States. Master-feeder  structures are used 
to offer investors access to management capabilities that do not exist 'in-house' (e.g. using 'white labelling'), to adapt products  to different investor preferences
122 and/or achieve 
economies of scale. Since UCITS cannot invest more than 20% in a nother fund, existing 
feeders cannot take advantage of the UCITS passport and therefore can  only access national 
investors. Giving the possi bility to set-up master-feeders on a cross-border basi s will boost the 
potential for scale savings of these structures.  
                                                 
120 Unfortunately, no data seems to be available in orde r to give an idea of the size of these potential extra 
gains. 
121 For a master in an 'broad entity po oling' structure to attain the same size as a master in a 'master-feeder' 
structure, a more important number of feed ers need to pool their assets into it. 
122 For example, offering investors the same fund: one denominated in the fund currency (e.g. dollar) and 
the other in the investor's currency (e.g. euro) by hedging the currency risk. 
 
EN 103   EN Impacts from the point of view of : 
a) Industry : Master-feeder structures would not offer the degree of flexibility sought by the 
some industry players. Its effi ciency potential would therefor e seem more limited. However, 
this technique seems to better achieve the poo ling objective by putting the assets of different 
feeders into a single master. Thus, the potential  for economies of scale (and therefore savings) 
should be higher. Set-up costs should also be lower. On-going administration (including 
performance attribution) should be also simpler than in the case of en tity pooling in a broad 
sense. 
b) Investors : Investors support to master-feeders dur ing the exposure draft consultation was 
neither strong (although more a 'no objections' po sition than in the case of option 1). The main 
concern for investors' associations related to how cost savings would flow down to investors. 
As explained above, economies of  scale could be more quickly achieved with this technique 
than by using entity pooling in a broad sense st ructures. Running costs sh ould be then rapidly 
reduced and investors would benefit from this. (As an example of that savings potential, it 
could be noted that the average Total Expens es Ratio of a Luxembourg fund of assets under 
US $ 5 million is more than twi ce that of a fund over $ 250 million123.) As in the case of 
entity pooling in a broad sense, proper investor  protection would require clear disclosure of 
the risks and costs associated to the two-layer investment. 
c) Regulators : Most regulators during the exposure draft consultation favoured this option. 
The main reasons were its lower degree of comple xity, the fact that the use of this technique 
has already a positive track-record  and the potential conf usion with fund of f unds structures of 
entity pooling in a broad sense. Monitoring of th e master-feeder structure is facilitated by the 
fact that both master and feeder have similar, if not identical, investment policies. The regulator's role appears therefor e simpler both at the level of th e initial authorisation of the 
structure and during it s on-going supervision. 
Other effects 
 
Impact on SMEs: One suggestion made by the Expe rt Group on market efficiency could help 
to avoid the confusion between entity pooling in a broad sense and fund-of-funds structures. 
This is that the asset manager of  both master and feeders be th e same (or that they belong to 
the same asset management group). This would imply that small fund promoters may not have 
the sufficient mass of assets to be able to attain the scale savings sought by entity pooling in a broad sense
124. Also the ability to gain access to th e best managers would be diminished. 
Tax considerations: Potential tax implications ha ve not been explicitly taken into account in 
the above analysis. The WPIA report stressed th at withholding tax could be an issue as 
regards entity pooling (both in a broad sense or  master-feeder structures). An IMA report in 
2005125 pointed out that the assets of feeder funds  that benefit from tax treaty entitlements 
would need to be pooled into a fiscally tran sparent entity (master) in order to continue 
enjoying that tax advantages. (In fact, MS such as Ireland have develope d transparent vehicles 
for this purpose.) This would therefore restrict th e benefits of entity poo ling to certain type of 
structures. Accordingly, both that report a nd the expert group on market efficiency put 
                                                 
123 "Economies of scale and consolidation in  collective funds" Lipper, March 2005. 
124 As explained before, entity  pooling in a broad sense requires a highe r number of feeders per master than 
master-feeder structures in order to achieve the same degree of pooling.  
125 Please see footnote 98. 
 
EN 104   EN forward as a solution to work on a common a pproach to fiscal transparency, developed 
through the auspices of the OECD. On that ba sis, an in line with the strong stakeholder 
support for action in this area, the WPIA consid ered that the risk of potential negative tax 
implications was not an obstacle significant enough not to proceed with the creation of a 
facilitating framework for entity  pooling structures. It conc luded however that, investors 
should be fully informed of the potential tax imp lications (e.g. in terms of  lower returns) that 
the use of this pooling technique may entail. No  new elements to this debate have been 
provided during the exposu re draft consultation. 
Administrative burden: The possibility for UCIT S managers to engage in entity pooling will 
introduce new opportunities for the industry but al so new obligations and therefore additional 
administrative burden. However, the additional administrative burden appears justified by the need to ensure adequate levels of investor protection. It needs to be  noted that given the 
greater complexity of 'entity pooling in a broad sense' structures, additional investor information obligations may need  to be imposed on fund provider s. Thus, the negative impact 
on administrative burden of option 1) risks been greater. As regards to the other 
recommendations put forward (please see 'choices ' tables above), they aim at reducing the 
administrative burden by clearly identif ying the industry's responsibilities.  
Summary table
 
 Specific Objectives Overall Objective
 Efficiency 
 Investor 
protection administrative 
burden sector 
efficiency Pro Single 
Market? 
Entity 
pooling 
broad sense - 
(supervisory concerns) - 
(higher burden)  + 
(higher flexibility 
lower ec. of scale) yes 
(will encourage 
market integration) 
Master-
feeders + 
(more well-known and 
positively tested)  + 
(lower burden)  + 
(less flexibility; 
higher ec. of scale)  yes 
(will encourage 
market integration)  
 
Preferred option  
In practical terms, entity pooli ng in a broad sense would imply an important change to the 
UCITS Directive. Relaxing the di versification requirements of f unds of funds structures could 
be seen as a challenge to the principles underpinning the Directive. In addition, entity pooling in a broad sense has not yet be en widely tested at national level and both regulators and a 
number of industry players seem wary about it
126. The preferred option is therefore option 2 
(master-feeder structures). Its potential for sa vings is higher and inve stor protection impacts 
are lesser. 
                                                 
126 Support for master-feeders structures have been generally higher than for entity pooling in a broad 
sense. Please see responses to the Expert Group repor t on Market Efficiency and to the exposure draft 
consultation. 
 
EN 105   EN However, implementing master-feeder structures  will still require setting a series of 
requirements (including information obligati ons) in order to mini mise any potential 
supervisory concerns. Most of those are summarised in the ta bles of the 'Design of the 
framework' section. An effectiv e co-operation mechanism between  regulators would also be 
required in order to overcome potential investor  protection concerns in the case of cross-
border structures.  
Other (general) considerations  
There exist close interlinkages between this and other of the issues anal ysed in this report. 
First of all, clear and meani ngful disclosures would enhance investors' understanding of the 
implications of the pooling structure. Partic ularly attention should be given in the Key 
Investor Information to the resulting investment  policy and the global costs to be borne by the 
investor. Additionally, the savings potential of  cross-border master-feeders could be boosted 
if an effective management company passport would be in place. Finally, the relation with 
fund mergers, already explained in the fund mergers' fiche.  
 
EN 106   EN Impact table  
Option Affected 
parties Effect 
Direct: D 
Indirect: I Impacts 
Positive: + 
Strongly positive: ++ 
Negative: - 
Strongly negative: -- 
Neutral/marginal: ≈ Impact 
Timing 
One-off 
Short-term 
Medium-term 
Long-term 
On-going Impact 
Nature 
 
Dynamic 
Static Impact 
Likelihood
Certain 
High 
Medium 
Low 
++  
(product innovation 
flexibility) 
+ 
(scale savings) high 
Industry D 
- - 
(more complex 
monitoring/administ.) on-going dynamic 
low 
D ++ 
(greater fund choice) 
≈/-  
(lower protection) high 
Investors 
D/I +  
(lower costs) on-going  dynamic 
medium Entity 
pooling in 
a broad 
sense 
Regulators D -  
(more resources 
needed) on-going static medium 
+  
(product innovation 
flexibility) 
++ 
(scale savings) high 
Industry D 
≈  
(more complex 
monitoring/administ.) on-going dynamic 
low 
D + 
(greater fund choice) high 
≈  
(lower protection) low Investors 
D/I 
+  
(lower costs) on-going  dynamic 
high Master-
feeders 
Regulators D + 
(less supervisory 
concerns/resources) on-going static high 
 
EN 107   EN Virtual pooling  
Virtual pooling uses information technology to commingle the assets  of two or more funds in 
a virtual investment pool. This technique is ex tensively used in some MS, such as Ireland127. 
However, to achieve its full sa vings potential, some parts of the industry are asking for the 
freedom to pool fund assets across borders (N o cases of cross-border virtual pooling have 
been accounted for so far.) 
Advantages 
As indicated above, virtual poolin g achieves savings at three le vels: front-office, middle and 
back-office and on trading desks. Vis-à-vis en tity pooling, since the pool is not a fund, the 
costs associated to the establishment and mainte nance of that 'master' fund are not incurred.  
Disadvantages 
Virtual pooling relies on efficient accounting sy stems capable of identifying at any time the 
assets of each participating fund. This often im plies investment in complex IT systems. Part 
of the economic advantages of vi rtual pooling could be thus initially foiled. Overtime, the cost 
of virtual pools is considered to be limited128. 
From a supervisor's point of view, the difficu lty for virtual pooling st ructures to segregate 
assets is a source of concerns. Valuation proc esses, depositaries' m onitoring and regulators' 
supervision become more complicated. Lack of segregation of assets and interdependency of 
the funds mean that investment in one part icipating fund would have repercussions on the 
performance and costs for investors in other funds  within the same  structure. Operational risks 
are also shared among participa ting funds. For the investor, virt ual pooling is less transparent 
and more difficult to understand. 
Barriers 
Virtual pooling structures are not prohibited by the UCITS Directive. However, the absence 
of a common understanding among  regulators hinders its cross- border development. Further 
hurdles are related to the restrictions to dele gate cross-border the safe -keeping of assets. Tax 
barriers are in general not considered to be an insurmountable problem129.  
Conclusion 
No legislative change is required in order to create a pan-European framework for virtual 
pooling. Nothing in the Directive impedes the use of this pooling technique. The question 
therefore is whether the Commi ssion should take any measure in order to create a facilitating 
environment for virtual pooling. However, the anal ysis carried out does not find at this stage 
sufficient grounds to justify such measures. Savings  appear to be less straightforward than for 
other pooling techniques, such as master-feeder structures. Important cr oss-liability and other 
investor protection concerns exist. The use of the technique is rare outside a few MS and no 
experience with cross-border virtual pooling has been identified so far. Industry responses to 
                                                 
127 Allowed by the Irish regulator since 2004. 
128 The appendices to the Report on Investment Fund Ma rket Efficiency (July 2006 ) considered that "in the 
worst case virtual pooling would involve a premium charge of 4bps. In the best case, it would involve a 
premium of under one basis point."  
129 Please see the report referred to in footnote 98. 
 
EN 108   EN consultations show a clear preference for entity  over virtual pooling tec hniques. Analysis of 
the issues blocking the cross-bo rder development of virtual poo ling should be first discussed 
in appropriate fora, e.g. CESR (as recommende d by the expert group on market efficiency). 
The issue could be then revisited by the Co mmission once there is a deeper and broader 
understanding among regulators (but also w ithin the industry) about virtual pooling 
techniques. In the medium-term, however, one  of the White Paper's announced measures 
could already have a positive impact on the us e of cross-border virtua l pooling. The planned 
communication/ recommendation on delegation of  custodial functions by depositaries should 
encourage the possibility to de legate cross-border the safe-keep ing of assets and therefore 
facilitate virtual poo ling across borders. 
 
EN 109   EN  Management Company Passport  
Problem description  
The 1985 UCITS Directive introduced a passport for the product, the investment fund. This 
implied that once authorised in a MS, a UCITS fund could be marketed in other MS following 
a simple notification (to the host MS authorit ies). The management company (MC) had no 
comparable right to provide coll ective portfolio management serv ices directly to UCITS funds 
domiciled in another MS. The management compa ny needed to be formally established in the 
domicile of the fund. However, over the years, centres of excellence ha ve developed in some 
parts of the EU (based on the delegation of activities by the appoi nted MC in the fund 
domicile to other operators). Investment mana gement activities are typically carried out in 
London, Paris or Frankfurt and fund administ ration activities in Luxembourg and Dublin. 
This concentration trend has led to important ad vantages in terms of economies of scale and 
of know-how.  
Amendments made to the UCITS Directive in 2001 (also called UCITS III amendments) 
introduced important changes in re spect of management companies130. One of the main 
objectives was to up-date the regulation for MC , aligning it with that existing for other 
operators in the financial services area131. These amendments sought to introduce a 
management company passport, i.e. the possi bility for a MC to manage a UCITS (of a 
corporate form132) based in another MS. In parallel, new provisions on minimum capital 
requirements for the MC, increased risk cont rol obligations and cooperation mechanisms 
between supervisors were also introduced. 
Implementation of the management company pass port provisions has encountered difficulties. 
They were insufficiently clear. Commission serv ices recognised this problem in the Green 
Paper on investment funds. The main concer n has been that the subsequent split of 
supervision (between the fund supervisor a nd the MC one). Supervisory gaps risked 
undermining investor protection133. National regulators consider that the legal/supervisory 
conditions do not exist to allow cross-bor der fund management to take place under 
appropriate safeguards for inve stors and sound risk management . The respective roles and 
responsibilities of the competen t authority for the f und and for the MC were not specified by 
the 2001 amendments; creating uncertainty ov er the monitory and compliance of UCITS 
rules. No attention was given to  the conditions needed to ensu re effective information flows 
                                                 
130 Amending Directive 2001/107/EC of 21st January 2002 also called the "Management Company 
Directive" 
131 Explanatory Memorandum of the "Proposal for an European Parliament and Council Directive 
amending Directive 85/611/EEC", COM(1998) 451 final, 17th July 1998. 
132 'Corporate UCITS' or investment companies are UC ITS constituted under statute. They generally have a 
Board of directors and investors (shareholders) can be entitled to vote in general assemblies. Corporate 
UCITS have a legal personality. On the other hand, 'contractual UCITS' are constituted under the law of 
contract (common funds) or trust law (unit tr usts). They do not have a legal personality. 
133 The UCITS would be supervised by the authority of its home Member State whereas the management 
company would be under the supervision of anothe r Member State authority. If the UCITS does not 
comply with the rules of its home Member State th e supervisory authority responsible for it would have 
therefore no legal means to call directly to account the manageme nt company located in another 
jurisdiction.  
 
EN 110   EN between fund depositary and MC. The modalities for cooperation between national authorities 
and enforcement in the context of cross-bor der fund management were not addressed. 
In 2005, CESR concluded that "… the legislator's intention does not seem to have been to 
impose to UCITS home Member States to recogn ise the possibility for a foreign management 
company to set up a [corporate UC ITS] in their own constituency"134. The passport would, 
according to CESR, be possible for the articl e 5.3 services (i.e. individual portfolio 
management, investment advice and safekeepi ng and administration). As  shown in the WPIA, 
the possibility to passport those ancillary services  have been exploited to a limited extent by 
European management companies (only some 10% of the total number of management 
companies). According to the Expert Group on ma rket efficiency, this low take-up was the 
proof of a mismatch between th e passporting services available and the flexibility that the 
industry really needed. 
In the absence of a working ma nagement company passport, fund promoters have to establish 
management companies in all countries in wh ich they set up fund ranges. Then, they will 
quite often delegate portfolio/a sset management to an entity typically based in one of the 
European investment management centres. This not only results in a duplication of resources
135 but also impedes the industry from be nefiting from greater  specialisation and 
economies of scale. UCITS III "substance" requirements (minimum capital, at least two persons conducting the management company' s business…) are said to considerably 
exacerbate the situation. According to EFAM A, the fully-loaded costs of a management 
company in an EU jurisdiction are approxima tely € 1 million a year. The Expert Group on 
IFME considered that "the establishment and maintenance of a UCITS III management company in an ‘exporting’ country can cost  between € 500,000 and € 1 million". Hiring a 
third party to act as local MC is also expensive
136. Cost are thus pushed up and charged to the 
fund and its investors. The fact that the original passport was limited to funds of a corporate 
type also reduces the potential benefits of th e passport. Funds of a contractual form are the 
most common type of fund in 18 MS and the on ly existing type of fund in 13 of them.  
Consequently, the WP announced that the Commissi on would revisit this issue in order to see 
if the MC passport could be rendered operationa l through changes to th e relevant provisions 
of the Directive. However, it emphasised that a precondition for a management company 
passport would be that both the MC and the fund were subject to effective and coordinate 
oversight. The ambiguities and legal uncertainty that had undermined the 2001 passport provisions would need to be t ackled by the introducti on of effective prov isions. The exposure 
draft submitted to consultation in March 20 07 tried to strike a balance between a 
comprehensive MC passport and supervisory concerns. The proposed (partial passport) 
framework included provisions to  ensure a minimum of subs tance in the fund domicile 
(indicating the functions that should remain in that MS so as to provide the fund authority 
with direct control over some core administrative functions a nd a basis on which to monitor 
and enforce compliance). It also aimed at en hancing supervisors' cooperation mechanisms. 
                                                
 
134 "CESR guidelines for supervisors regarding the transitional provisions of the amending UCITS 
Directives (2001/107/EC and 2001/108/EC)", February 2005. 
135 This would typically include the costs related to the staff and premises, administration and legal costs, 
as well as the cost of capital. 
136 In its response to the Green Paper consultation, Go ldman Sachs Asset Management stated that engaging 
the services of a third party management company for its Irish and Luxembourg ranges would amount 
to € 4.4 million annually. Also IMA, in its response, reports costs of € 750,000/annum to rent a 
management company to oversee a simple structure and € 1,5000,000/annum for an umbrella structure. 
 
EN 111   EN The exposure draft proposals envi saged that the fund domicile would be determined against 
two criteria: 1) the country under whose laws the fund is constituted and 2) where the 
verification of the fund valuation and the maintenance of the unit- holders' register take place. 
The passport would be also extended to funds  of a contractual type. The depositary would 
remain based in the fund domicile. 
Responses to the Exposure Draft consultation  
Scope of the passport : A majority of respondents (mainly industry players) considered that 
management companies should be able to provide  the full range of portfolio management and 
fund administration activities on a cross-border basis. They argued that only a full passport 
would enable real economies of scale and lead to the establishment of centres of excellence. 
This would increase the quality of customer se rvice and risk management. Supporters of the 
exposure draft's approach considered that some  administrative substan ce must be located in 
the fund domicile in order to allow the comp etent authority of the fund to discharge its 
responsibilities for ensuring that the fund is operated in accordance with EU and national fund 
rules.  
Extending the passport to contractual funds : A number of respondents questioned the viability 
of the management company passport in the cas e of contractual funds. (As contractual funds 
have no legal personality distinct from the mana gement company, it is difficult to distinguish 
between MC and fund for legal or supervisory purposes).  
Regulatory responsibilities and e ffective cross-bor der supervision . Several respondents 
pointed out that split supervision was a fact of lif e in an integrated financial services market 
and would have to be dealt w ith whatever the scope of the passport. However, a number of 
respondents (including a majority of regulator s) considered that regulators' respective 
responsibilities should be furt her clarified. Most stakeholde rs were of the opinion that 
enhanced supervisors' co-operation mechanisms together with the presence of a depositary in 
the fund's domicile should prove  sufficient to ensure proper seamless supervision of fund and 
MC. Many respondents underlined the important ro le of CESR in enhancing supervisory co-
operation and solving potential problems with regards to split supervision. 
Safeguarding investor interests : Some contributors claimed that  a full passport might be a 
superior solution from an investor protection perspective because it would permit integrated 
supervision and risk management. Other respo ndents were concerned th at split supervision 
between UCITS and management company home Me mber States could compromise investor 
protection. Some respondents were  concerned that expected co st savings would materialise 
only very gradually for investors.  
Definition of UCITS fund domicile . Most respondents proposed to define the fund domicile 
by reference to the applicable law. Many contributors challenge d the proposal that 
"verification of valuation and pr icing" and "maintenance of un itholders' register" were core 
administrative functions which needed to be performed in the fund domicile. Conversely, 
some contributors believed that if all manage ment functions were performed on a remote 
basis, 'letter-box' entities woul d result; with consequent dange rs in terms of less effective 
enforcement of fund rules. 
Depositary . The majority of respondents agreed that  the depositary should continue to be 
located in the same MS as the fund. Some replies indicated that  a deeper specification of the 
responsibilities of the fund depositary could be one means to help supervision by the fund's 
 
EN 112   EN competent authorities. 
Taxation . Several respondents ra ised this issue. Many of them considered that the potential 
negative tax consequences of the full passpor t had been overstated. No tax complications 
were identifiable for corporate funds or the mo st successful (fiscally transparent) contractual 
funds. 
Objectives  
An enhanced legislative framework for the management company passport should properly 
address the different stakeholders' concerns an d realise their expectations. This framework 
should therefore: 
a) from a single market  perspective: 
• Encourage cross-border activity driven by efficiency gains and competition 
• Facilitate the development of (fund management and ad ministration) centres of 
excellence [and thus encourage scale savings and specialisation gains] 
b) from an industry  angle: 
• Allow market participants to organise  their business models on a cross-border 
basis in line with commercial priorities 
• Facilitate the reaping of specialisation and economies of scale related savings 
• Create the minimum (administrative) burden 
c) from the regulators ' point of view: 
• Allow regulators to fulfil their superv ision and investor protection duties 
• Be clear as regards regulator s' respective responsibilities 
d) as well as, ensure that investors : 
• Have access to the best asset management teams 
• Are adequately protected 
Benefits  
The main benefits of an effective management company passport would be the following: 
 For investors For the industry 
Short-term (no or limited effect)  possibly lower costs 
Long-term possibly lower costs More business 
opportunities; lower 
costs  
 
EN 113   EN Costs savings and specialisation gains will materialise slowly over the short to medium-term. 
Duplicated costs will be eliminated progressive ly (notably minimum capital requirements and 
other costs linked to the establishment of th e management company). Fund management and 
administration functions will move to the most cost-effective locations, where competition among related services providers should intensify. This competi tion may encourage savings to 
flow gradually up to the invest or level. In the l ong-term, the passport could encourage fund 
promoters to establish fund ranges in a larger number of domiciles. Lower costs and greater 
business opportunities should have a positive eff ect on the development of the European fund 
market over the long run. 
Redesign of a framework for the management company passport  
The early debate over the scope of the MC  passport has been driven by commercial 
considerations. Concerns regarding the supe rvisory and regulatory challenges posed by 
remote fund management were not initially at th e front of discussions. In  the light of concerns 
expressed by some stakeholders (including a la rge number of regulators) in response to the 
exposure draft, the Commission services have ad opted a risk-based approach to the design of 
a possible MC passport. This involved a systematic approach to identify: 
a) which risk controls should a pply at the level of the MC and which at the level of the fund; 
b) the mechanisms and conditions needed to en sure that fund administrators overseers could 
ensure the sound day-to-day function of the fund in accordance with its rules; 
c) mechanisms to create effective and timel y information flows between the respective 
national authorities to ensure that th e authority responsible for the fund is: 
– satisfied with the risk management c ontrols used by the MC (in other MS) 
– confident that it has means to monito r the functioning of the fund in an on-
going basis, to detect or avert breache s, to respond promptly in case of a 
problem and to employ effective remedies.  
The options that will be analysed are the following: 1) Maintain the status  quo (i.e. do nothing) 
2) Make the MC passport work for corporate funds and extend it to contractual funds  
3) Make the MC passport work for corporate funds
 
Impacts analysis  
Option 1:  Do nothing 
Impacts from the point of view of : 
(Since the main implications of this option have been already explained in the problem description 
part, the following analysis will highlight only the most important ones.) 
a) Industry : This will be seen as an important mi ssed opportunity by the fund industry. While 
direct annual savings are relati vely modest (the WPIA estima ted potential cost savings of € 
381 to € 762 million/year), the medium to long-te rm implications are considered important by 
 
EN 114   EN the industry. The current lack of flexibility in  organising the different activities of the fund 
value-chain hinders the industry developmen t by impeding the exploitation of scale and 
specialisation gains. 
b) Investors : They will continue to bear the indirect consequences of the lack of 
organisational flexibility: higher f ees. It has also been argued that current (asset management) 
delegation agreements render risk  controls more difficult (inc reasing therefore operational 
risks) to the detriment of investors. 
c) Regulators : Maintaining the status quo will give regu lators comfort as to their ability to 
effectively ensure the supervis ion of funds under their jurisd iction. Otherwise, no relevant 
impact on regulatory authorities is to be exp ected if the current s ituation continues.  
Option 2: A working MC passport for corporate funds and contractual funds 
Impacts from the point of view of : 
a) Industry : This is the option that could in princi ple maximise the gains from the passport 
(please see the estimated savings figure indicate d in the problem description part) and the one 
most widely supported by industry players137. However, implementation of this option would 
require reinforcing the capacity of the regulator to supervis e the remote-managed fund as 
explained above. This would most probably requi re additional reporting and other obligations 
on the side of the concerned fund's management  company and/or the depositary, which could 
partly offset the passport's expected savings. 
b) Investors : Main benefits for investors will derive from the centralisation of the risk 
management and the specialisa tion gains that the passport s hould encourage. These would 
increase the quality of products and could reduce operational risks. In case of costs savings, 
this could flow on gradually towards inve stors. This outcome depends on sufficient 
competition in fund management leading to savi ngs being reflected in the fees paid by 
investors.  
c) Regulators : National regulators have of ten expressed concerns about the risk that split 
supervision (between th e fund regulator and the MC regulator) would be detrimental to the 
effective protection of investors.  A clear definition of the role s and responsibilities of each 
regulator has repeatedly being mentioned as the 'sine qua non' condition for the acceptance of 
the management company passport138. In order to avoid potential supervisory gaps (or 
overlaps), this clarification shoul d be provided at level 1 (i.e. at the Directiv e level). Both 
authorities should have the means to monitor and enforce rules under their responsibility. It 
will be also necessary to provide for effective information exchanges and other cooperation mechanisms in order to allow both the fund and the MC regulator to properly carry out their 
supervision tasks. Although, some cooperation a nd information obligations already exist in 
the Directive these will need to be reinforced in order to overcome regulators' reluctance to 
the passport. This would clearly imply greater  costs for the regulators. The design of the 
                                                
 
137 Previously expressed fears that the scope for savings would be reduced due to greater costs on the side 
of the depositary (which will have to monitor a management company from another MS) were broadly dismissed by respondents to the exposure draft consultation, which considered that the 'physical 
presence' of the depositary in th e country of the MC was not necessa ry given modern electronic means. 
138 The fact that the depositary remains in the fund's domicile should also provide comfort to regulators. 
 
EN 115   EN relevant provisions appears also a difficult task  considering the current lack of consensus of 
national regulators on this issue. 
Another important issue to be taken into acc ount is the following. C ontrary to corporate 
funds, contractual funds lack legal personality . In their case, the MC is the entity that 
represents legally the fund. (In fact, some se e the contractual UCITS and its MC as an 
indivisible whole139.) The problem is therefore that th e fund and its MC can not be easily 
distinguished for legal or supervisory/enforcement purposes. 
This presents the following problems from  the perspective of the MC passport: 
1) the fundamental difficulty of identifying a fund domicile which is  different from that of the 
MC (given that the fund is part of the same legal personality as the MC and that location 
generally is defined by reference to the count ry where the MC's head office is based) 
2) if a solution to 1) can be  found, the fund supervisor may not have a legally accountable 
entity in its jurisdiction to whom it can ad dress questions regardi ng compliance or pursue 
enforcement actions in the event of a breach of the law140. 
Despite a careful analysis of these problems, e xpert groups and detailed research have not 
identified effective solutions.  
During the exposure draft consulta tion, some respondents raised an issue that dese rves also to 
be considered. This is the potential tax implicat ions of the passport. A number (even if small) 
of respondents considered that the passport would lead to a double taxation of the fund that 
would cancel out the savings achieved by the pass port. If this is so, efforts to fix the 
management company passport would be vain.  
The rationale behind this is the following141: since the effective mana gement of the fund takes 
place in the country of the MC (e.g. country A) it could be considered that the fund which it 
manages is also a tax resident in  that country. If this  scenario materialises , the fund could then 
be subject to income and operating tax both in  its country of domic ile (country B) and the 
country of its MC (country A); thus, cancelling out  all or part of the benefits of the MC 
passport. While some respondents to the exposure draft considered  the risk of double taxation 
small, this eventuality cannot be ignored. 
Option 3: A working MC passport for corporate funds 
Impacts from the point of view of : 
a) Industry : This will still be a step forward for th e industry that would be able to make 
effective use of the business possibilities that the 2001 UCITS changes were supposed to 
bring about. However, the savings risk being sens ibly smaller than the expected gains outlined 
above. Recent data provided by CESR shows that  in 13 MS corporate UC ITS do not exist. In 
those MS that have both corporate and cont ractual funds, the number of contractual funds 
                                                 
139 See for example the Finnish Ministry of Finance's response to the exposure draft consultation. 
140 In the case of corporate funds, even if the MC woul d be abroad, there would remain another responsible 
body in the fund domicile. This is the Board of directors which is accountable to the fund's regulator. 
141 Please see the Association of the Luxembourg Fund Industry (ALFI) response to the exposure draft 
consultation. 
 
EN 116   EN often exceeds that of corporate ones142. Again, as explained in option 2, additional reporting 
and other obligations on industry's players woul d compensate part of the passport's expected 
savings. 
b) Investors : The effect on investors would be sim ilar to the one explained in option 2. 
However, given the lower number of funds concer ned, the advantage for the investor risks to 
be limited.  
c) Regulators : As explained above, concerns regardi ng split supervision could be overcome 
by establishing an appropriate clarification of responsibilities and an efficient cooperation 
mechanism. However, the impact in terms of additional burden for regulators should not be neglected considering that to overcome those concerns a rein forcement of the cooperation 
provisions in the Directive would be needed. 
Other effects 
 
SMEs: introduction of a working passport co uld have a positive impact on smaller asset 
management groups. These would be able to ba se fund ranges in a greater number of MS 
which were until now closed to them due to the costs associated to the required establishment 
of a fully fledged management company.  
Summary table  
 Specific Objectives Overall 
Objective 
 Efficiency 
 Investor 
protection administrative 
burden sector 
efficiency Pro Single 
Market? Feasibility 
Do 
nothing +/- 
(some 
operational 
risks) ≈ 
(status quo)  - 
(untapped 
savings) no 
(barrier entry to 
service host market)  Not applicable 
Passport 
for all 
funds -- 
(concerns re. 
split supervision 
and contractual 
funds)  -- 
(burdensome 
procedure)  ++ 
(lower costs; 
specialisation 
gains)  yes 
(will foster market 
integration)  Difficult 
(particularly re. 
contractual 
funds) 
Passport 
only for 
corporate 
funds - 
(split 
supervision 
concerns)  -- 
(burdensome 
procedure)  + 
(some cost 
savings/ 
specialis. gains)yes 
(will facilitate 
market integration)  Doubtful  
Preferred option  
In line with the conclusions of the WPIA, the first option (i.e. do nothing) remains 
unsatisfactory. As summarised in  the above table, this option is disappointing from all points 
                                                 
142 It needs however to be noted that in some important fund jurisdictions (in terms of assets under 
management) such as France, Luxembourg, Ireland or Spain both fund forms are extensively used. 
 
EN 117   EN of view (investor protection, singl e market and efficiency). Howe ver, the analysis carried out 
has not succeeded in proving the superiority of the other two options. In order to overcome 
supervision related concerns, a considerable reinforcement of the Directive's supervision 
mechanisms is necessary. This would enta il, among others, additional obligations on 
industry's players and would inevitably lead to greater compliance costs. The possible form of 
those additional supervision safeguards have been st udied in parallel to the preparation of this 
impact assessment. Despite efforts to simplif y and limit any additional burden on the industry, 
this objective has not been pos sible to conciliate with the need to properly address split 
supervision concerns. As a resu lt, the expected savings stem ming from both options 2 and 3 
risk being fairly inexistent (if any). In additi on, given the substantial concerns expressed by 
supervisors since the management company passport debate was la unched by the Green 
Paper, the task of developing a framework res ponding to all those concer ns appears, at this 
stage, difficult. The current lack of consensus among regulators on this issue also renders this 
undertaking particularly challengi ng. Accordingly, a 'feasibility' column has been added to the 
above summary table. This column reflects our doubts regarding the possibility to give effect 
to the passport; either for corporate funds (opti on 3) or for both types of funds (option 2). In 
this last case, the technical difficulty of designi ng a solution that would be appropriate also for 
funds not having a legal personali ty distinct of that of thei r MC (contractual funds) renders 
this option even less feasible.  
While this conclusion is  disappointing (particula rly given the efforts de ployed since the Green 
Paper in order to find a solution), it does not me an that no further work should be pursued in 
this area. Since regulators ar e the better placed to assess the potential risks and supervisory 
gaps of the passport and to id entify optimal cooperation mechanisms, continued dialogue with 
them will be needed. Considering that a number of CESR members believe that obstacles to 
efficient cooperation are not insurmountable, it should be possible to identify solutions that 
give full effectiveness to the MC P without jeopardising either i nvestor protection or expected 
cost savings. (The intention to introduce in the legislative proposal provisions aiming to 
enhance supervisors' powers and cooperation shoul d also encourage the finding of an optimal 
solution.) 
Finally, it appears necessary to assess the impact of this recommendation on the other 
proposed measures. In particul ar, whether this risks unbalan cing the effectiveness of the 
resulting legislative package. The answer is ne gative. Part of the rati onalisation efforts aimed 
at by the MCP could be achieved by other means.  First of all, a streamlined notification 
procedure will increase markets' openness and t hus reduce the need to launch parallel fund 
ranges in different MS. A single fund range based in a single country (and therefore with a 
single MC) will be able to easily access investor s in all MS. (This would particularly benefit 
smaller asset management groups.) Secondly, th e possibility to merger funds across borders 
will reinforce this MC rationalisation process. By allowing the merger (and liquidation) of a fund established in country A into a fund in c ountry B, industry player s will be able to 
concentrate their fund ranges in the most  efficient fund domiciles thus allowing the 
dismantling of MC in the less efficient ones. 
On the negative side, the impossibility for feed er and master to have the same MC when 
domiciled in different jurisdictions will limit th e expected savings of cross-border master-
feeder structures. However, gi ven the size of the expected ec onomies of scale (compared to 
the MCP identified opportunity costs), the net impact of the introduction of a master-feeder 
framework remains clearly positive (even in the absence of a MCP). 
 
EN 118   EN Impact table  
Option Affected 
parties Effect 
Direct: D 
Indirect: I Impacts 
Positive: + 
Strongly positive: ++ 
Negative: - 
Strongly negative: -- 
Neutral/marginal: ≈ Impact 
Timing 
One-off 
Short-term 
Medium-term 
Long-term 
On-going Impact 
Nature 
 
Dynamic 
Static Impact 
Likelihood
Certain 
High 
Medium 
Low 
-  
(less organisational 
flexibility) Industry D 
-- 
(higher costs) on-going dynamic certain 
D/I +/-  
(greater protection but 
operational risks) medium  
 Investors 
D -  
(higher costs) on-going  dynamic 
high Do nothing 
Regulators D ≈  
(no significant impact) on-going static high 
+ + 
(highest organisational 
flexibility) on-going certain 
 
Industry D ≈ 
(highest savings but 
risk that cancelled out 
by administ. costs) medium-term dynamic 
high 
D 
 --  
(lower protection) on-going  static medium 
Investors 
I +  
(lower costs) long-term dynamic medium Passport 
for all 
funds 
Regulators D -- 
(supervisory concerns) on-going static high 
D + 
(organisational 
flexibility) on-going certain 
Industry 
D - 
(lower cost savings but 
risk that outweighed 
by administ. costs) medium-term dynamic 
high  
D -  
(lower protection) on-going  static low 
Investors 
I ?  
(lower costs) long-term dynamic low Passport 
only for 
corporate 
funds 
Regulators D -  
(lower supervisory 
concerns) on-going static high 
 
EN 119   EN Simplified Prospectus/Key investor information  
Problem description  
Taking into consideration info rmation asymmetry concerns, th e original UCITS Directive 
introduced a series of disclosures obligations  in 1985. This included th e obligation to publish 
a prospectus. This would contain "the informati on necessary for investors to be able to make 
an informed judgment of the investment proposed to them"143. However, the prospectus 
contained too much detailed information to be able to effectively fulfil this task. It was 
considered that such information did "not fit well into the needs of the average investor and 
that investor protection can be  achieved more effectively th rough the provision of clear, 
simple and essential information"144. UCITS III amendments145 therefore introduced the 
concept of simplified prospectus.  
The objective of the simplified prospectus (SP) wa s to provide investors with a really useful 
tool on which to base their inve stment decisions. It  was designed to provide clear and easily 
understandable information about the essentials the investor should know before investing in 
a fund. A schedule annexed to the UCITS Directive listed the key items th at the SP needed to 
contain. The SP was also intended to facili tate the cross-border marketing of UCITS by 
constituting a single (and therefore comparab le) marketing tool throughout the Community. 
UCITS were required to offer it to investors free of charge before the conclusion of the 
subscription contract. In order to clarify the contents and th e presentation of some of the 
required information items, the Comm ission's adopted a Recommendation146 in 2004.  
However, the SP exercise turned out to be disa ppointing for both indust ry and investors. An 
inconsistent implementation of the Recommenda tion has undermined the comparability of the 
SP across MS. Changes to the SP required by host MS regulators during the notification 
procedure have created new barriers to the cross-border offering of UCITS; limiting thus the choice available to investors. Adapting the SP to  those required changes has also considerably 
increased the costs for the industry that has to  prepare tailor-made na tional versions. Finally, 
uncertainties about the liability  attached to the SP have dr iven the industry to include 
additional information and legal disclaimer s creating long and el aborate documents.  
As a result, investors are mo st often provided with a comp lex set of incomprehensible 
information that is of little use to them. The fund industry is  burdened with inconsistent 
requirements and unnecessary costs. A respo ndent to the exposure draft consultation 
estimated at € 1 million its annual expense fo r the translation and printing of investor 
disclosures
147. Dutch data regarding the obligation to produce disclosures shows that the 
annual cost for the industry is more than € 4 million. Considering that Dutch funds represent a 
                                                 
143 "Toward an European market for UCITS", Commentary on the provisions of Council Directive 
85/611/ECC, European Commission (also called Vandamme report) 
144 Explanatory memorandum of the "Proposal for a European Parliament and Council directive amending 
the UCITS Directive" of 17th July 1998, COM (1998) 451 final. 
145 Directive 2001/107/EC of the Euro pean Parliament and of the Counc il amending the UCITS Directive. 
146 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; hereafter 
referred to as "the recommendation". 
147 Please see BlackRock response to the exposure draft consultation. 
 
EN 120   EN small fraction of the total number of European investment funds148, the costs for the whole 
European industry are not negligible. 
These costs are eventually passed on to invest ors. This hinders the ability of UCITS to 
compete with other comparable investment products. Most often these competing products 
(e.g. certificates, unit-linked in surance contracts) are subject to less restrictive information 
requirements and are, therefore, cheaper to produce and easier to place in the market.  
In order to push forward the debate on the SP and to identify ways to improve it, the 
Commission organised in 2006 two workshops w ith representatives of  all stakeholders 
(regulators, investors and indus try). The box below summarises their main conclusions.  
Simplified Prospectus Workshop's conclusions 
♦ Target public: the SP should be addressed to retail investors. 
♦ Structure/ format: the SP should be a short document in the form of a "fact sheet"; a 
maximum length should be imposed. The use of graphics should be further considered. 
♦ Content: the SP should provide key information to the reta il investor, enabling it to make 
an informed investment decision. 
♦ Translation requirements: the SP should be available in the nati onal language(s).  
♦ Role of home/ host state regulator: once filed with the home state regulator, the host MS 
regulator cannot require a ny additional elements to be added to the SP.  
♦ Respective roles of fund promoter and distribu tor: the fund promoter should be responsible 
for all product related disclosures, th e distributor for other disclosures. 
In addition to the above-mentioned drawbacks, the UCITS Directive cu rrent provisions on the 
SP do not take into account practical aspects su ch as a) the different  distribution channels 
through which UCITS are offered to investors;  b) the possibilities  offered by modern 
(electronic) transmission met hods; c) the professional or re tail nature of investors. 
The WPIA considered that changes to the Recommendation would be the quickest way to 
improve the situation. However, given the non -binding character of the Recommendation, it 
concluded that efforts risked being unfruitful. Hence, the WPIA ultimately proposed changing the UCITS Directive itself. 
On that basis, the exposure draft presented a completely new approach to investors' 
disclosures: the key investor in formation (KII) concept. It put forward the idea of a fair, clear 
and not misleading set of information, not neces sarily embodied in a sp ecific document. KII 
would include all the product information relevant for the investor to assist him/her in taking 
an informed investment decision, as well as prac tical information necessary for the investor to 
be able to exercise his/her right s. It suggested that such info rmation could differ according the 
professional or retail nature of the investor . The exposure draft propos ed delivery obligations 
                                                
 
148 Dutch funds represent just 1.3% of the total number of European funds (i.e. UCITS and non-UCITS). 
EFAMA data end 2005 
 
EN 121   EN in line with the different distribution models us ed. It also suggested to limit liability to the 
cases where the KII was misleading, inaccurate or  inconsistent with the full prospectus.  
As recommended by the WPIA, the planned change s to the UCITS Directive (Level 1) would 
concentrate in defining the high-le vel principles of th e KII (purpose and main characteristics). 
The detailed provisions about the content and fo rmat of the KII will be  designed in Level 2 
measures. This will ensure that, once new measures are agreed, they will be implemented consistently by MS, thus avoiding previous failures and achieving finally the objective of 
comparability between funds marketed cross-border. 
Giving consideration to the urgency to remedy the past failures of the SP, the Commission 
deemed it desirable to start straight away some ground wo rk on the detailed provisions 
content and format of the KII. This would ensure  that some of the critical issues could be 
considered at the same time as work is  progressing at Level 1. The Commission has 
accordingly made a request to CESR for assistance
149. A sub-group of the CESR Investment 
Management Expert Group has been formed to consider the detailed content and form of 
KII150. CESR has been requested to provide th e Commission with its recommendations and 
advice in early 2008. CESR advice will be based on extensive dial ogue with stakeholders and 
consultation. 
The Commission has also undertaken to carry out consumer and market testing before KII is 
introduced. The objective is to ensure that KII represents a sufficient improvement to existing 
investor disclosures in order to justify the cost s that firms will incur in replacing the SP. The 
testing will be done on the basi s of examples on the content a nd form of KII developed by the 
CESR KII sub-group, as put forward by CESR in its advice to the Commission. In order to 
undertake this testing, th e Commission is launching a study wh ich is to start in early 2008. 
Responses to the Exposure Draft consultation  
General concept . The proposed approach to replace the current SP by 'key investor 
information' was generally welcomed by stak eholders. KII should be  a short, simple 
document conveying key facts to retail investors in  a clear and understandable manner so as to 
assist them in taking an investment decision. Its ta rget public primarily is the retail investor. It 
should be possible to use KII on a EU-wid e basis without further modification.  
Content . A majority of stakeholders called for th e fullest possible harmonisation of individual 
disclosure items to be included in KII. Many re spondents also insisted that KII should contain 
only product information and no distribution rela ted items. Various respondents stressed the 
need for consumer/market testing to ensure that  the disclosures are relevant and meaningful 
for investors. 
Format . Many stakeholders stated their preference for a single document as opposed to using 
a more flexible approach whereby key invest or information could be included in other 
disclosure/marketing documents depending on the sales channels used. They considered the 
single document to be the most cost-effective solution. A single document would also help 
investors to compare UCITS. So me respondents welcomed a more flexible approach allowing 
                                                 
149 "Request for assistance on detailed content and form of key investor disclosures for UCITS", 11th April 
2007 (published on CESR website). 
150 The sub-group is jointly chaired by the UK FSA and the French AMF and includes representatives of 
eight other MS. 
 
EN 122   EN distributors to include KII in ot her documents. They considered that distributors should retain 
discretion on how to convey key investor information to the end-investor and that MiFID 
imposes stringent requirements on distributors in this regard.  
Other issues.  Most respondents favoured allowing el ectronic delivery of  KII and the use 
hyperlinks. Some respondents consid ered that the content of KII could vary as a function of 
the retail or professional nature  of investors. However, most  respondents saw little advantage 
in such differentiation. As regards to its liab ility, most respondents su pported the envisaged 
limitation of liability attached  for KII. Proposals regarding the language regime were 
welcomed since they were seen as leading to  a considerable reductio n of costs. However, 
some respondents expressed concerns regarding th e fact that other mandatory disclosures (full 
prospectus, annual reports) would not be translated. 
Objectives  
The new provisions on invest ors' disclosures should: 
a) from a single market  perspective: 
• Clearly indicate that host au thorities do not have the power to request changes to 
KII (what would simplify the notification procedure and theref ore facilitate the 
placing into the host mark et of foreign funds) 
• Allow for comparability between funds (what should encourage competition and 
thus put pressure on costs) 
b) from an industry  angle: 
• Create the minimum (administrative) burden 
• Provide some flexibility 
• Clarify industry's (production and deliv ery) obligations and liability issues 
c) from the regulators ' point of view: 
• Allow an adequate supervision 
• Ensure that the interests of i nvestors are adequately protected 
d) as well as, ensure that investors : 
• Have all the necessary information to take an investment decision 
• Can compare among funds 
Benefits   
The main benefits of the new investor s' disclosures requirements would be: 
 For investors For the industry 
Short-
term Better quality disclosures 
(i.e. enhanced protection) Small cost savings (due 
to adjustment costs) 
Long-
term A share of costs savings  Important cost savings 
 
EN 123   EN Better disclosures will considerably increase the ability of investors to take informed 
investment decisions, enhancing thus investor protection. Over the long-term, particularly if 
improved transparency and compar ability encourages competition, part of the savings will be 
passed on to investors (e.g. in the form of lower fees or higher performances). For the 
industry, savings would also not materialise i mmediately. Adjustment costs will compensate 
in the short-term part of the savings derived from the simplified disclosures. 
Design of a framework for investors' disclosures  
In line with the conclu sions of the simplified prospectus workshops and the responses to the 
exposure draft consultation, the KII shoul d have the following main features: 
• Be clear, short and easy to understand for retail investors 
• Be provided in the official language(s) of the investor's MS 
• Be kept up-to-date.  
However, regarding other aspects of the new disclosures several possibilities exist. The 
following table presents (in bold a nd italics) the preferred choices. 
 
                                                 
151 For instance, BlackRock in its response to the exposure draft consultation considered that many 
hundreds of thousand euros per annum could be saved if they were to provide only electronic KII and 
only to retail investors. 
152 Please see Test-achats response to  the exposure draft consultation. 
153 Please see the Austrian Associati on of Investment Fund Management Companies (VÖIG) response to 
the exposure draft consultation. Relevant 
aspects Possibilities Comments 
Only on paper 
Only by electronic means 
At the choice of the fund 
provider or distributor Delivery 
method 
At the choice of the 
investor Important savings are anticipated if fund providers 
would be allowed to deliver KII only in an electronic 
format151. However, this would most probably not 
provide an adequate level of investor protection. 
Some voices point out that both hard-copy and 
electronic delivery should be required to assure that 
any potential investor gets the information s/he 
needs152 Others defend that the basic delivery form 
should be a physical document and that electronic 
delivery should only be possible on request153. The 
most appropriate solution appears then to allow 
different delivery possibilities but to let the choice to 
the actor most apt to assess the suitability of each 
delivery method: the investor. 
Relevant 
aspects Possibilities Comments 
 
EN 124   EN Impacts analysis  
Support to the KII exposure draft's proposal s during the consultation period was wide. 
Nevertheless, respondents expresse d different views regarding the fact that the proposal did 
not require the KII to be pres ented in a single document. Th e following analysis therefore 
concentrates on the form of the KII. The two options identified are: 
Option 1: Standardised key investor informat ion provided in the form of building blocks 
not necessarily embodied in one single document  
This would imply the possibility of 'slicing' the KII and present different parts of it in different 
documents. 
Option 2: Standardised key investor info rmation provided as a single stand-alone 
document  
The KII would be presented as an indivisi ble set of information embodied in a single 
document.  
                                                 
154 Some respondents even asked for an outright exemption of the KII delivery obligation when UCITS 
were marketed to professional investors. 
155 Some savings could be done however in the case of UCITS marketed exclus ively to professional 
investors (such as certain money market funds). The same for all investors 
KII 
content 
Adapted to the type of the 
investor  The exposure draft launched a debate on whether a 
distinction should be made depending on the retail or 
professional nature of the investor. During the 
consultation, some industry players argued that 
professional investors have different information 
needs than retail investors154. Allowing the contents of 
the KII to be tailored to the nature of the investor 
would provide him/her with more suitable information 
but could increase the administrative burden for the 
industry155. On the other hand, considering that UCITS 
are defined as a retail product under the UCITS 
Directive, introducing the possibility of a different 
treatment for professional investors could introduce 
some legal complexity and uncertainty.  
Full liability 
Liability 
Limited liability Uncertainties about the exact liability attached to the 
SP are one of the reasons why the SP has often 
become a legalistic document full of disclaimers and 
therefore complex and of little use to retail investors. 
Imposing a full liability regime will not improve this 
situation. A clear and limited liability regime, as 
proposed in the exposure draft, seems a more 
proportionate way forward. This has received a wide 
support, including from some investors' 
representatives (e.g. FIN-USE, FAIDER) that consider 
this as a fair compromise.  
 
EN 125   EN Option 1: 'Building block' approach 
Impacts from the point of view of : 
a) Industry : The building block approach would al low greater flexibility regarding the 
presentation of the information. It would be possi ble to better adapt disc losures to the type of 
investor and/or to the distribution channels a nd methods used. (In fact, it can be argued that 
firms are better placed to deci de how the information is most effectively presented to 
investors156.) This approach would give distributo rs the possibility to add more easily 
commercial or distribution related information. It could also be helpful for distributors 
offering UCITS 'wrapped' in other products  (e.g. fund of funds, unit-linked insurance 
contracts, structured notes…) On the other ha nd, replacing the current simplified prospectus 
by this new approach to disclosu res would entail most possibly important adjustment costs in 
the short-term. On the long run, savings derive d from the fact that the information is 
standardised (and not su bject to changes, as recommende d above) might be compensated by 
the additional costs of producing different (tailor-made) documents157. 
b) Investors : Key information would be spread ove r different documents. It would be 
therefore more difficult for inve stors to have a globa l picture of the investment proposed to 
them and to understand all its implications. Comparing products would be also fairly 
difficult158. On the other hand, the information might be better adapted to his/her concrete 
needs and situation. 
c) Regulators : Some supervision concerns might emer ge with this approach. It would be 
actually more difficult to check that  investors receive all the KII if  this is spread over different 
documents. This approach could also increase  the administrative burde n (for both regulators 
and industry) of the notification procedure159. 
Option 2: Single document 
Impacts from the point of view of : 
a) Industry : Some market players think that it is not the SP that has been a failure but the 
divergent way in which different MS ha ve implemented the Recommendation and the 
relevant Directive provisions. They therefore su pport maintaining the SP/K II in the form of a 
single stand-alone document. So me respondents to the consu ltation recommended using the 
model developed in 2002 by the industry (FEFSI , now EFAMA). They consider it a less 
                                                 
156 On the right for distributors to decide how to disseminate investor information please see the responses 
to the exposure draft consultation of Associazione Bancaria Italiana, European Banking Federation, 
Investment Management Association or the UK authorities. 
157 Please see, for example, the response of the C zech Ministry of Finance to the exposure draft 
consultation.  
158 In fact, the need to ensure comparability between funds was one of the most recurrent recommendations 
stemming from exposure draft consultation. This not only originated from investors' organisations 
responses (such as FIN-USE, Verbraucherzentrale Bundesverband), industry players and associations 
also shared that view (e.g. EFAMA, State Street, Slovenian Investment Fund Association, European 
Association of Cooperative Banks…). 
159 The SP/KII is one of the documents that need to be included in the notification file. If KII is not 
embodied in a specific document this may render the procedure more burdensome.  
 
EN 126   EN costly way forward160. In fact, the adjustment costs linke d to this option w ould probably be 
less important since it would imply a less radi cal change vis-à-vis the current situation161. It is 
also believed that there will be a lower risk of regulatory interfer ence (in particular in relation 
to the notification procedure), specially if the content of such single document is fully 
harmonised.  
b) Investors : A single document would most probably be simpler to use by investors. It 
would be easier for them to understand and to assess the virtues/drawb acks of the fund if all 
the relevant (or key) informa tion is provided together. Invest ors will be able to compare 
between products and therefore to  chose the one more in line with  their needs. This ability to 
compare should, in the medium term, encourage competition forces and therefore put pressure 
on prices (fees).  
c) Regulators : There would be greater comfort on th e side of regulators that investors 
actually receive all KII. Regulators should then be less reticent to allowing a smooth 
notification procedure. This s hould render the marketing in the national market of foreign 
funds easier. The choice of funds for national investors would thus increase (which should 
enhance competition and put pressure on costs).  
Other effects  
Impact on SMEs: some positive impact on small industry players (including SMEs) is to be 
expected, particularly under the second option. If  the costs of producing disclosures are lower 
and the notification procedure is smoother, they could more easily exploit business 
opportunities in foreign markets where access wa s too costly. On the other hand, they will 
probably endure a more direct competition from the big foreign market players.  
Administrative burden: Although th e form and content of the ne w KII is still being worked 
out, the objective to produce a short and standardised documen t should significantly reduce 
the industry's administrative burden. Currently simplified prospectus' size can range from a 
couple of pages to several tens. The need to ad apt it in line with sometimes quite different 
local requirements oblige fund promoters to produce national ta ilor-made disclosures. The 
possibility to use electronic transmission means should also have an important positive 
impact.  
Environmental impact: both options aiming to re duce the information provi ded to investor to 
'key' items (and allowing electronic delivery),  they should have a positive environmental 
impact (particularly the second op tion). This, however, would be negligible in relation to the 
importance of existing environmental challenges. 
Other (general) considerations  
The close interrelation of the KII with the notification proce dure is clearly shown in the 
analysis above. As expressed by many respondent s to the exposure draft consultation, a fully 
harmonised KII contained in a single document would very much facilitate the notification procedure. However, the KII is al so interlinked with ot her measures analysed  in other parts of 
                                                
 
160 Please see, for example, the respon se of the Association Française de la Gestion to the exposure draft 
consultation. 
161 Additionally, transitional provisions could be included in the legislative proposal in order to spread out 
those adjustment costs over a longer period. 
 
EN 127   EN this IA. For example, as regards to pooling, it is important that the KII be able to explain in 
clear terms the implications of the pooling structure's double inve stment layer. KII would also 
play an important role in fund mergers. A us eful KII would help investors to compare the 
merging funds and more easily understand the impli cations of the merger on their particular 
case. 
Summary table  
 Specific Objectives Overall Objective 
 Efficiency 
 Investor 
protection administrative 
burden sector 
efficiency Pro Single Market? 
Building 
blocks +/- 
(adapted 
disclosures but no 
global view) - 
(risk of higher 
burden)  +/- 
(more flexibility 
but risk of higher 
costs)  no 
(less comparability, could 
act as entry barrier to host 
markets) 
Single 
document + 
(more user-
friendly)  + 
(lower costs and 
administrative 
burden)  + 
(lower costs)  yes 
(comparability will 
encourage market 
integration)  
 
Preferred option  
In view of the above analysis, and as shown in the summary table, the second option, i.e. 
presenting KII in a single sta nd-alone document, appears to be  the option that complies better 
with the objectives of investor protection and efficiency. Since it will allow a greater 
comparison among different MS funds, it should also encourage the integration of the 
European fund market. A more detailed 'i mpact table' is also provided below.  
 
EN 128   EN Impact table  
Option Affected 
parties Effect 
Direct: D 
Indirect: I Impacts 
Positive: + 
Strongly positive: ++ 
Negative: - 
Strongly negative: -- 
Neutral/marginal: ≈ Impact 
Timing 
One-off 
Short-term 
Medium-term 
Long-term 
On-going Impact 
Nature 
 
Dynamic 
Static Impact 
Likelihood
(Un)certain 
High 
Medium 
Low 
+ 
(more flexibility) certain 
Industry D - 
(↑ costs) medium-term dynamic 
medium 
+  
(better adapted 
disclosures) long-term  medium 
Investors D 
+/-  
(↓ protection) medium-term dynamic 
uncertain Building 
blocks 
Regulators D -  
(more difficult 
supervision) on-going dynamic medium 
≈ 
(less flexibility) certain 
+  
(lower costs) short-term 
high Industry D 
+ 
(more business 
opportunities) medium-term dynamic 
medium 
+  
(lower costs) long-term  medium 
Investors D +  
(↑ protection) short-term dynamic 
high Single 
document 
Regulators D +  
(easier supervision) on-going dynamic medium