EC White Paper Proposes Reform of Mutual Fund Regulation

A European Commission white paper proposes a barrier-free market for investment funds that will ensure investors receive cost and performance discl+osures when they select funds. The white paper sets forth targeted reforms to the current EU framework for investment funds embodied in the UCITS Directive. It builds on a green paper issued in 2005 and reports from expert groups issued this year.

In addition to improving fund disclosures, the reforms would create a framework for the cross-border merger of funds, as well as for asset pooling. The proposals would also enable fund managers to manage funds domiciled in other member states. Further, the reforms would strengthen regulatory cooperation to monitor and reduce the risk of cross-border investor abuse. More broadly, the white paper sets out options for creating a private placement regime allowing financial institutions to offer investments to qualified investors across the EU.

The white paper embodies investor protection in a number of significant ways. For example, it commits the Commission to implement regulations ensuring that fund distributors put the interests of the end investor first when recommending or selling investment funds. The EC believes that fund selection should not be influenced by the level of commissions paid by fund managers to distributors.