Undertakings for Collective Investment in Transferable Securities (UCITS)

The UCITS Directive came into effect in 1988 and aimed to offer greater business and investment opportunities for both industry and investors by integrating the EU market for investment funds. The UCITS Directive sets out a harmonised regulatory framework for investment funds that invest in certain classes of assets, providing high levels of investor protection and a basis for the cross-border sale of these funds.

The UCITS Directive has been key to the development of the European investment fund industry. UCITS investments are well-regarded internationally for giving consumers access to high-quality, consistent investments. UCITS are widely perceived as being regulated to a high standard, and their status as a global “brand” has continued to boost net sales of cross-border funds outside Europe.

The UK has now fully implemented the UCITS IV Directive through changes to UK legislation and FSA rules which came into force on 1 July 2011.

These changes followed a joint consultation with the FSA, on the transposition of the UCITS IV Directive in December 2010.

The Government will also implement an authorised regime for tax-transparent funds to complement these changes. This will improve the UK’s competitiveness as a domicile for UCITS funds. Please see below for further details.

The Commission has indicated that, in order to maintain the UCITS brands’ strong reputation for investor protection, it will begin work on UCITS V in 2011. This will focus on the role and liability of UCITS depositaries and the remuneration of UCITS fund managers. A proposal from the Commission is expected in early 2012.

Tax transparent funds

Background

Budget 2011 announced that the Government will legislate to introduce a Tax Transparent Fund vehicle (TTF) from 2012, with consultation in June 2011 on the regulatory and tax aspects of the regime.

Since the Budget the Government has been working with interested parties to establish the areas for consideration and examine the legislative changes that may be required.

Following initial work the Government is clear that the legislation to introduce TTFs should be principally a separate set of regulations to establish the appropriate regulatory status of the TTF, rather than Finance Bill 2012. Using this approach will allow for an extended period for consideration with industry.

The Government will engage with industry over the coming months on the design of the TTF and will consult formally on draft regulations in late 2011

Legislation will enter into force by Summer 2012, subject to appropriate parliamentary procedure.

Objectives

The Government’s main objective is to ensure that UK funds can benefit from pan-European asset pooling, such as Master Feeder structures under UCITS IV, which will allow for economies of scale, reduce costs and increase returns for investors. In addition, the Government will:

develop an appropriate and proportionate set of regulatory rules for asset pooling structures;
balance any proposals against the need to ensure sound and sustainable public finances; and
seek to ensure that tax does not distort the commercial choices of investors.

Timeline

The Government is grateful for the constructive engagement from industry since the Budget, and recognises the importance of this going forward. In its approach the Government is seeking to allow for detailed work with industry on the proposals. With a view to implementing the legislation for the TTF in Summer 2012, subject to Parliamentary process, the Government will:

Engage with the industry working group to develop proposals in various workstreams; and

Issue a formal consultation on the draft regulations in late 2011.

Areas for consideration

In preparation of the draft regulations for consultation, the Government will continue to work with interested parties to inform the design of the regime. This will be achieved through four workstreams:

Structure
Tax
Technical legal consideration
Commercial Design/Promotion

Working groups for these areas are formed from different parts of the Asset Management industry, the FSA and other Government departments. The Government will engage proactively with stakeholders on the areas set out above, through roundtable meetings, seminars and workshops.

In light of the approach outlined above, to register an interest in the development of the proposals please contact: taxtransparentfund@hmtreasury.gsi.gov.uk

The Government will consider meeting a wide range of stakeholders bi-laterally on the introduction of the Tax Transparent Fund. The timing, format and venue for these meetings will be informed by stakeholder interest.