EUROPE - The EU's directorate general on the internal market and services suggests that measures to facilitate virtual pooling not be included in any changes to the UCITS directive at this stage. It called instead for the focus to remain on traditional master-feeder structures.

In an exposure draft on adjustments to the UCITS directive published today, the directorate general said that "savings appear to be less straightforward than for other pooling techniques, such as master-feeder structures" and that "important cross-liability and other investor protection concerns exist".

Further, the directorate general stated that judging from initial industry reactions to the UCITS III White Paper it issued last year, "A clear preference for master-feeder over virtual pooling techniques" could be seen. It also pointed out that virtual pooling was so far only used in a few member states.

As for cross-border virtual asset pooling, the directorate general stated that no experience with this instrument had been identified. It suggested an analysis of the "issues blocking the cross-border development of virtual pooling" in such forums as the CESR before pursuing it any further.

However, the directorate general said that one of the changes proposed in the White Paper might have "a positive impact on the use of cross-border virtual pooling", referring to the planned delegation of custodial functions by depositaries which "should encourage the possibility to delegate cross-border the safekeeping of assets and therefore facilitate virtual pooling of assets".

The directorate general also stressed that, "nothing in the directive impedes the use of [virtual] pooling. Changes to the directive would just help to facilitate its use".

It reiterated that asset pooling is an important vehicle and that it focused on traditional master-feeder structures.

It said it had also looked into the possibility of a feeder investing in several masters but rejected it because there was "limited practical experience with and demand for that approach". In addition, "supervision would become more complex and the prevention of operational risks or possible investment policy breaches more difficult".

An open hearing on the Commission's view on possible amendments to the UCITS directive will be held on April 26 in Brussels.

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