6 oktober 2010 -- Proposals for a European pre-funded compensation scheme for Ucits investors to complement existing national regulations still need to be approved by the European Parliament and the Council of Ministers, but the asset management industry is making its voice heard.

EFAMA Director general Peter De Proft claims it is "absurd" that Ucits providers will have to put up 0.5 per cent of their assets to fund the scheme.

Everything is already in place to protect those who invest in Ucits funds, Mr De Proft insists, adding that only four of Europe's 37,000 regulated funds defaulted during the financial crisis.

The Efama boss says the additional costs - which would probably be passed on to investors - would be "entirely disproportionate" to the benefits of the protection. In addition, creating pre-funded compensation vehicles for Ucits funds would damage the brand and reduce investors' confidence, he warns. The intention is good, but the 0.5 per cent funding level smacks of being "an arbitrary figure".

At the end of March 2010, Ucits funds had €5.6 trillion of assets under management. That means the industry will have to find up to €28bn to finance the new compensation scheme - more than four times the total profit of western Europe's fund industry last year!

The European Commission wants to increase the maximum compensation for fund investors from €20,000 to €50,000 to account for inflation and to mirror similar rises in bank deposit payouts. It is keen to crack down in the wake of the Madoff scandal.

Regulation aiming at extending the ICSD to UCITS unit holders, should be very carefully examined. A compensation scheme can not be simply copy-pasted from discretionary portfolio management to collective portfolio management products. Most asset managers involved in the fund industry, for example, hardly know their clients. This complicates the discussion who should be given the right to claim. As there is no contractual link between the depositary and the unit holder, it should be the UCITS who should be given the right to claim. This does entail other difficult and unintended consequences, but it is a better workable solution than giving the right to claim to the end investor.