8.2.2 Comparison with other Directives

Second, the standards have been compared with the requirements for investment firms and AIFMs.

The main difference between the AIFM Directive and the UCITS Directive is that all the provisions in the AIFM Directive are directed at the management company, while some of those in the UCITS Directive are directed at the UCITS. The choice in the UCITS Directive concerning this is an unfortunate one. If a UCITS does not comply with the obligations of the UCITS regulations, it seems more appropriate to be able to call the management company to account than the UCITS itself. If a UCITS is subject to an obligation, it may well be that the UCITS or the board of directors of the UCITS itself is held responsible for ensuring that the obligation is met. This applies both to the regulator, who can address the UCITS itself instead of the management company, and to the unitholder. Of course, this depends on the civil law in a member state.

Liability for failure to comply with the obligations of the UCITS regula­tions should lie with the management company and not the UCITS. If the liability lies with the UCITS, there is a risk that the UCITS, and thus its uni­tholders, will pay for the damage despite the fact that a professional party, i.e. the management company, has been hired to meet the obligations.

A clear example of the relevance of this difference emerged in US case law. Investors in the US claimed that they had suffered a loss as a result of misleading statements in a prospectus. Although the prospectus had been drawn up by the investment advisor (a role similar to that of the ma­nagement company), the prospectus had to be drawn up and filed with the US Securities and Exchange Commission (SEC) by the investment company itself. Therefore, the investment company itself had to be seen as the drafter of the prospectus and the investment advisor could not be held liable for it.

Imposing all obligations on the management company reduces the chance of this unfortunate outcome. The management company, if appointed, should therefore be the standard addressee of all the obligations under the UCITS Directive. This would also ensure consistency with the AIFM Directive.

The provisions that the management company must comply with have, for the most part, been copied from MiFID I. This applies to the requirements regarding the conduct of business and prudential provisions. These requirements are similar to those for AIFMs. The requirements for AIFMs, investment firms and UCITS management companies are thus consistent in these areas. For some topics, such as commission and best execution, copying the MiFID I requirements has had few logical consequences. Due to the wording used, the scope of the commission rules is limited. Hardly any payments are covered by these rules, as payments from UCITS to the management company and payments to distributors are excluded. A management company must also inform unitholders about the best execution policy and any material changes that are made to it. The way in which orders are executed and the policy on this obviously have an impact on the results of the UCITS. However, in the context of all the processes relevant to the UCITS management company, this is only a small aspect. Therefore, there is no explanation as to why it is subject to such detailed disclosure requirements, other than that the requirements were also included in MiFID I.

In some areas, the requirements are not consistent. A management company and an investment firm may provide the same investment services, such as investment advice and individual portfolio management. The capital requirements for management companies are different from those for investment firms even if they provide the same investment services. This is because management companies are excluded from the scope of CRD IV and CRR. This will not change with IFR and IFD. Similarly, while the cost transparency and product governance requirements of MiFID II do not apply to management companies, they do apply to investment firms that provide investment services. As a result, management companies that distribute units issued by UCITS that they manage are subject to fewer requirements than investment firms that distribute the same units. In my view, this difference is inexplicable.

The requirements in the AIFM Directive and in MiFID II regarding senior management are also stricter than those arising from the UCITS Directive. The obligations in this respect are not yet uniform and there is no clear explanation as to why the respective differences should be so.

With the entry into force of MiFID II, some of these provisions for investment firms were replaced by stricter requirements. However, these have yet to be incorporated in the UCITS regulations, so there is some catching up to be done in that respect.