UCITS, which stands for Undertaking for Collective Investment in Transferable Securities, are a type of European investment vehicle. Thanks to their strong regulatory framework, UCITS enjoy a very good reputation among retail and institutional investors, both in Europe and abroad.
Following a number of revisions to this framework, especially the UCITS IV revision in 2009, UCITS are now open to a very broad range of investments and strategies and this has raised new policy concerns, for example on the use of derivatives or the interaction with shadow banking. The Commission’s consultation focuses on these and other questions.
In its consultation response, Finance Watch expresses the view that some of the more sophisticated investment practices now permitted under UCITS can make it difficult, if not impossible, for investors to understand the risks they are taking.
We therefore broadly welcome the Commission’s initiative to reopen the discussion about which assets should be eligible for UCITS treatment, about the use of derivatives, and about the use of the so-called “efficient portfolio management techniques”. At the same time, we are hoping that future regulation will prohibit the access to non-eligible assets and that it will oppose the introduction of new asset classes in the UCITS framework.
We also provide our view on how to introduce a long-term investment approach within the UCITS framework, and on changes needed in the area of Money Market Funds, which proved particularly vulnerable during the financial crisis.