Pan-European Bill Will Ease Distribution
March 27, 2000
Pending legislation in the European Parliament of Luxembourg would allow mutual funds registered in one European country to automatically qualify for a pan-European "passport" that would allow them to sell throughout the European Union. If the bill passes, funds would no longer be required to register in each country. A vote on the bill is expected by late summer.
The European Parliament, based in Strasbourg, France, approved the bill on Feb. 17. The mutual fund liberalization bill is a revision to the 1985 UCITS Directive (Undertakings in Collective Investments in Transferable Securities). To become law, however, the bill still has to be approved by the European Commission and the Council of Ministers in each of the 15 European Union countries.
The bill would also liberalize the definition of money market funds. It would allow each European nation to use its own definition of a money market fund. In addition, the bill would allow index funds to invest up to 20 percent of their assets in a single stock. This proposal was made because European lawmakers realized that the economies of certain European countries are dominated by a handful of firms. As a result, index funds in these countries are restricted by the current UCITS Directive which only allows 10 percent of an index fund's holdings to be placed in any one stock.
The bill would also:
* allow European funds to invest as much as 30 percent of their assets in over-the-counter derivatives, up from the current 10 percent restriction on such investments.
* protect European investors by requiring mutual fund companies to include risk information in their prospectuses.
* allow European mutual funds to offer simplified prospectuses, for the first time, so investors could readily compare funds.
However, the bill does not address each nation's individual tax differences, said Stephan Matthias, secretary general of the European Federation of Funds and Investment Advisors, based in Brussels.
And, there is little a pan-European law can do about the wide cultural differences among European nations, Matthias said. These cultural differences create a need for different products, advertising, marketing strategies and back-office support in each country, Matthias said.
The bill specifically notes that each member European country may impose its own regulations regarding the sale, accounting and administration of mutual funds, investment advisers and custodians, Matthias said. So, a fund company hoping to do business across Europe may continue to be subject to a jumble of regulations as well as cultural differences, Matthias said.
However, the UCITS liberalization bill's "passport" provision would foster the sale of mutual funds across Europe by making it easier for funds to register, he said.