Undertakings for
Collective Investments in Transferable Securities (UCITS iii)
The
UCITS iii directive consists of two directives that regulate funds
sold across the EEA:
1. Directive 2001/107/EC of the European
Parliament and of the Council of 21 January 2002 amending Council
Directive 85/611/EEC on the coordination of laws, regulations and
administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS)
with a view to
regulating management companies
and simplified prospectuses
2. Directive 2001/108/EC of the European
Parliament and of the Council of 21 January 2002 amending Council
Directive 85/611/EEC on the coordination of laws, regulations and
administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS),
with regard to
investments of UCITS
UCITS rules apply to
funds marketed to retail investors
A UCITS compliant (and registered in its home
state) fund can be freely marketed (passported) to the public in all
30 countries of the European Economic Area (EEA).
A fund
that is NOT UCITS compliant cannot be passported for registration and
sale across the EEA to retail investors.
Important Articles:
Directive 2001/107/EC
Article 5f
1. Each home Member State shall draw up prudential rules which
management companies, with regard to the activity of management of
UCITS authorised according to this Directive, shall observe at all
times.
In particular, the competent authorities of the home
Member State having regard also to the nature of the UCITS managed by
a management company,
shall require that each such company:
(a) has sound
administrative and accounting procedures, control and safeguard
arrangements for electronic data processing and adequate internal
control mechanisms
including, in particular, rules for personal transactions by its
employees or for the holding or management of investments in financial
instruments in order to invest own funds and ensuring, inter alia,
that each transaction involving the fund may be reconstructed
according to its origin, the parties to it, its nature, and the time
and place at which it was effected and that the assets of the unit
trusts/common funds or of the investment companies managed by the
management company are invested according to the fund rules or the
instruments of incorporation and the legal provisions in force;
(b) is
structured and organised in such a way as to minimise the risk
of UCITS' or clients' interests being prejudiced by conflicts of
interest between the company and its clients, between one of its
clients and another, between one of its clients and a UCITS or between
two UCITS.
Nevertheless,
where a branch is set up, the
organisational arrangements may not conflict with the rules of conduct
laid down by the host Member State to cover conflicts of interest.
2. Each management company the authorisation of which also covers
the discretionary portfolio management service mentioned in Article
5(3)(a):
- shall not be permitted to invest all or a part of
the investor's portfolio in units of unit trusts/common funds or of
investment companies it manages, unless it receives prior general
approval from the client
Article 5g
1. If Member States permit management companies to delegate to
third parties for the purpose of a more efficient conduct of the
companies' business to carry out on their behalf one or more of their
own functions the following preconditions have to be complied with:
(a) the competent authority
must be informed in an appropriate
manner;
(b)
the mandate shall
not prevent the effectiveness of supervision over the management
company, and in particular it must not prevent the management company
from acting, or the UCITS from being managed, in the best interests of
its investors;
(c) when the delegation concerns the investment management, the
mandate may only be given to undertakings which are authorised or
registered for the purpose of asset management and subject to
prudential supervision; the delegation must be in accordance with
investment-allocation criteria periodically laid down by the
management companies;
(d) where the mandate concerns the
investment management and is given to a third-country undertaking,
cooperation between
the supervisory authorities concerned must be ensured;
(e) a mandate with regard to the core function of investment
management shall not be given to the depositary or to any other
undertaking whose interests may conflict with those of the management
company or the unit-holders;
(f) measures shall exist which
enable the persons
who conduct the business of the management company to monitor
effectively at any time the activity of the undertaking to which the
mandate is given;
(g) the mandate shall not prevent the persons who conduct the
business of the management company to give at any time further
instructions to the undertaking to which functions are delegated and
to withdraw the mandate with immediate effect when this is in the
interest of investors;
(h) having regard to the nature of the
functions to be delegated,
the undertaking to which functions will be delegated must be
qualified and capable of undertaking the functions in question, and
(i) the UCITS' prospectuses list the functions which the
management company has been permitted to delegate.
2. In no
case shall the management company's and the depositary's liability be
affected by the fact that the management company delegated any
functions to third parties, nor shall the management company delegate
its functions to the extent that it becomes a letter box entity.
Title D - The
right of establishment and the freedom to provide services
Article
6
1. Member
States shall ensure that a management company, authorised in
accordance with this Directive by the competent authorities of another
Member State, may carry on within their territories the activity for
which it has been authorised, either by the establishment of a branch
or under the freedom to provide services.
2. Member States may
not make the establishment of a branch or the provision of the
services subject to any authorisation requirement, to any requirement
to provide endowment capital or to any other measure having equivalent
effect.
Article 6a
1. In addition to meeting the conditions imposed in Articles 5 and 5a,
any management company wishing to establish a branch within the
territory of another Member State shall notify the competent
authorities of its home Member State.
2. Member States shall
require every management company wishing to establish a branch within
the territory of another Member State to provide the following
information and documents, when effecting the notification provided
for in paragraph 1:
(a) the Member State within the territory
of which the management company plans to establish a branch;
(b) a programme of operations setting out the activities and services
according to Article 5(2) and (3) envisaged and the organisational
structure of the branch;
(c) the address in the host Member
State from which documents may be obtained;
(d) the names of
those responsible for the management of the branch.
Article 6b
1. Any management company wishing to carry on business within the
territory of another Member State for the first time under the freedom
to provide services shall communicate the following information to the
competent authorities of its home Member State:
(a) the Member
State within the territory of which the management company intends to
operate;
(b) a programme of operations stating the activities
and services referred to in Article 5(2) and (3) envisaged.
2.
The competent authorities of the
home
Member State shall, within one month of receiving the information
referred to in paragraph 1, forward it to the competent authorities of
the host Member State.
They shall also communicate details of
any applicable compensation scheme intended to protect investors.
Directive
2001/108/EC
Article 21
1. The management or investment company must employ a
risk-management process which enables it to monitor and measure at any
time the risk of the positions and their contribution to the overall
risk profile of the portfolio; it must employ a process for accurate
and independent assessment of the value of OTC derivative instruments.
It must communicate to the competent authorities regularly and
in accordance with the detailed rules they shall define, the types of
derivative instruments, the underlying risks, the quantitative limits
and the methods which are chosen in order to estimate the risks
associated with transactions in derivative instruments regarding each
managed UCITS.
2. The Member States
may authorise UCITS to employ
techniques and instruments relating to transferable securities and
money market instruments under the conditions and within the limits
which they lay down provided that such techniques and instruments are
used for the purpose of efficient portfolio management.
When these
operations concern the use of derivative instruments, these conditions
and limits shall conform to the provisions laid down in this
Directive.
Under no circumstances shall these operations cause
the UCITS to diverge from its investment objectives as laid down in
the UCITS' fund rules, instruments of incorporation or prospectus.
3. A UCITS
shall ensure that its global exposure relating to derivative
instruments does not exceed the total net value of its portfolio.
The exposure is calculated taking into account the current value
of the underlying assets, the counterparty risk, future market
movements and the time available to liquidate the positions. This
shall also apply to the following subparagraphs.
A UCITS may invest, as a
part of its investment policy and within the limit laid down in
Article 22(5), in financial derivative instruments provided that the
exposure to the underlying assets does not exceed in aggregate the
investment limits laid down in Article 22.
The Member States may allow
that, when a UCITS invests in index-based financial derivative
instruments, these investments do not have to be combined to the
limits laid down in Article 22.
When a transferable security or
money market instrument embeds a derivative, the latter must be taken
into account when complying with the requirements of this Article.
Article 22
1. A UCITS may invest no more than 5 % of its assets in
transferable securities or money market instruments issued by the same
body.
A UCITS may not invest more than 20 % of its assets in
deposits made with the same body.
The risk exposure to a
counterparty of the UCITS in an OTC derivative transaction may not
exceed:
- 10 % of its assets when the counterpart is a credit
institution referred to in Article 19(1)(f), or
- 5 % of its
assets, in other cases.
2. Member
States may raise the 5 % limit laid down in the first sentence of
paragraph 1 to a maximum of 10 %.
However,
the total value of the transferable
securities and the money market instruments held by the UCITS in the
issuing bodies in each of which it invests more than 5 % of its assets
must not then exceed 40 % of the value of its assets.
This limitation does not
apply to deposits and OTC derivative transactions made with financial
institutions subject to prudential supervision.
Notwithstanding
the individual limits laid down in paragraph 1, a UCITS may not
combine:
- investments in transferable securities or money market
instruments issued by,
- deposits made with, and/or
-
exposures arising from OTC derivative transactions undertaken with a
single body in excess of 20 % of its assets.
3. The Member States may raise the 5 % limit laid down in the
first sentence of paragraph 1 to a maximum of 35 % if the transferable
securities or money market instruments are issued or guaranteed by a
Member State, by its local authorities, by a non-member State or by
public international bodies to which one or more Member States belong.
4. Member States
may raise the 5 % limit laid down in the first sentence of
paragraph 1 to a maximum of 25 % in the case of certain bonds when
these are issued by a credit institution which has its registered
office in a Member State and is subject by law to special public
supervision designed to protect bond-holders.
In particular, sums
deriving from the issue of these bonds must be invested in conformity
with the law in assets which, during the whole period of validity of
the bonds, are capable of covering claims attaching to the bonds and
which, in the event of failure of the issuer, would be used on a
priority basis for the reimbursement of the principal and payment of
the accrued interest.
When a UCITS invests more than 5 % of its
assets in the bonds referred to in the first subparagraph and issued
by one issuer, the total value of these investments may not exceed 80
% of the value of the assets of the UCITS.
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