These recommendations will help Member States' regulators interpret in the same way the rules on how UCITS may invest in financial derivatives, and on how fund managers should present the main elements of their funds to retail investors in the simplified prospectus.

Commenting on the first recommendation, Frits Bolkestein, the European commissioner in charge of the internal market said that «a common approach to risk-management to ensure a level playing field and to protect retail investors» was needed, while underlining that it had now become common for fund managers to invest in financial derivatives.

The first recommendation adopted by the EC contains clear rules and principles to set the stage for robust risk-management standards for derivatives such as options, futures or swaps. Those standards aim to protect investors by ensuring that UCITS will at any time be able to meet liabilities incurred through dealing in derivatives. The EC requires that the funds be calibrated to the real risk-profile of an individual UCITS' investments in derivatives.

Comparisons eased

The Commission also recommends the introduction of standardised ratios to make sure that retail investors can compare information on funds' operating costs through the Total Expense Ratio (TER) and get in every case a figure for a fund's volume of transactions through the portfolio turnover rate.

Furthermore, it is also expected that the industry's own standard-setters will further develop their own detailed guidebooks for fund managers, based on the Commission's recommendation, which seeks to improve the readability of the mandatory simplified prospectus attached to the fund. The simplified prospectus contains the basic information about the fund, such as the type of investment objectives and policy, and the fund's risk profile.

"We also need to make sure that funds can be marketed transparently, fairly and competitively across borders. That means giving investors comprehensive information, in a form which allows them to compare different funds from different EU countries", stated Frits Bolkestein.

European Union Member States are expected to inform the Commission by the end of September 2004, of the implementing measures taken further to each of the recommendations. The Commission expects to receive their feedback on the early impact of that implementation by the end of February 2005. Based on such feedback, the Commission indicates that supplementary measures to consolidate pan-European standards could eventually be implemented.

This e-mail address is being protected from spam bots, you need JavaScript enabled to view it