Since its report ‘Towards a Single European Market in Asset Management' in 2003, the IMA has been calling for reform of the UCITS Directive in order to make it more efficient for fund management firms to do business cross-border and to allow funds to compete against substitute products," commented Jarkko Syyrilä, director of international relations at the IMA, following the vote.

"The new Directive will simplify the regulatory environment; create cost savings through economies of scale; give greater choice of investment funds to investors; and increase investor protection by making sure that retail investors receive clear, easily understandable and relevant information when investing in UCITS funds," she added.

"We call on the European Commission and CESR (the Committee of European Securities Regulators) to work out swiftly the implementing measures of the Directive to ensure that these crucial improvements can be implemented without further delay by July 2011," Syyrilä said.

The resolution was adopted by the European Parliament with 589 votes in favour, 28 against and 38 abstentions. MEPs also inserted provisions for a 'management company passport' which will allow funds authorised in one member state to be managed remotely by a management company established in another, and authorised by that member state's regulator.

The text of the legislation has already been agreed with the Council, so this vote effectively completes the legislative procedure, according to the Parliament.

UCITS (undertakings for collective investment in transferable securities) are investment funds sold across the EU and elsewhere under a common set of EU rules for investor protection, cost transparency and meeting basic requirements on organisation, management and oversight of funds.

The investment fund can invest in shares, bonds, other investment funds, bank account or index tracking funds, for instance. They enable individuals to invest in a diversified portfolio without having to manage all the details themselves or to have a large amount of money available to start with.

The EU framework for these investment funds, originally set up in 1985 and updated several times since then, was intended to allow a real single market in investment funds to develop.

At the end of 2006 they accounted for over EUR6.4 trillion of assets in total which is equivalent to half of the European Union's GDP and represents 11.5% of European household financial assets.

However, different national interpretations of the rules have impeded cross-border sales of UCITS products, and the European Commission is proposing to: remove administrative barriers to cross-border distribution of UCITS funds; create a framework for mergers between UCITS funds and allow the use of 'master-feeder' structures; replace the 'Simplified Prospectus' with a short 'Key Investor Information' document; and improve cooperation mechanisms between national supervisors.

The directive still needs to be approved by the European Council, but the informal agreement already reached means this is now a formality. Member states will need to enact national legislation to apply the main changes by July 1, 2011.