EU Council Agrees on Amendment to UCITS Directive

Washington, DC, January 16, 2001 - The Council of Economic Ministers of the European Union (EU) published a proposal that would amend the UCITS Directive to provide UCITS funds with greater flexibility in the types of investments they make. A second proposal, which would provide a "passport" for management companies to operate throughout the EU, is currently being discussed by the Council of Ministers. The Council is expected to complete its discussion of the second proposal by mid-February before the Stockholm European Council meeting in March 2001.

The text agreed to by the Council of Ministers is in many respects consistent with the proposal adopted by the European Commission last year. The Council text does, however, make some changes to the Commission’s proposal.

Fund of Funds
The proposal would permit UCITS funds to invest in UCITS funds and up to 30 percent in non-UCITS funds, subject to certain conditions. For non-UCITS funds to be considered permissible investments (in addition to the requirements proposed by the Commission last year), the Council proposal  would subject non-UCITS funds to asset segregation requirements equivalent to the requirements under the Directive. The Council text also would raise the level of permissible investment by a UCITS fund in any single UCITS or non-UCITS fund from 10 percent of the underlying fund (as provided in the Commission’s May proposal) to 25 percent.

Index Funds
The Council proposal would permit member states to allow index funds to invest up to 20 percent of their assets in the securities of a single issuer, and provide greater flexibility than the Commission’s 2000 proposal by permitting member states to raise the limit to a maximum of 35 percent if justified by "exceptional market conditions" in markets dominated by certain securities. The investment of up to 35 percent of assets would be permitted only for a single issuer.