BRUSSELS, March 22: European Union countries would have emergency powers to bar a mutual fund based in another member state from operating on their own territory under a draft measure published by the bloc's executive on Thursday.

EU Internal Market Commissioner Charlie McCreevy published his preferences for an overhaul of UCITS, EU-regulated mutual funds, to boost choice for investors by making it easier for such entities to operate across borders.

UCITS, or undertakings in collective investments in transferable securities, are seen as the gold standard of open-ended mutual funds.

In return for a “passport” to operate anywhere in the EU, they are tightly regulated to protect investors.

“The directive would be modified to confer on host authorities the power to intervene and suspend the marketing of a UCITS under certain circumstances,” the Commission's consultation document said.

“The use of these emergency powers would be subject to necessary checks and balances and review by the European Commission,” the document said.

The aim would be to speed up UCITS registration outside a home state as the host state would know it could intervene later if need be.

The current framework makes it difficult for UCITS to merge, pool assets or obtain approval to be offered to customers outside their home market due to national practices.

Only about 15 per cent of such funds operate in three or more countries even though most mutual funds are UCITS, a sector that represents 5.5 trillion euros ($7.4 trillion) of assets.

Industry officials welcomed the proposal. “We must have a clearer set of rules on how national authorities work together,” said Steffen Matthias, secretary-general of the European Fund and Asset Management Association.

“In the past, collaboration did not always work as it hoped and we welcome the Commission's intention to set clearer rules,” Matthias said.

The document also puts forward “clear and common requirements and procedures for funds wishing to merge”.

McCreevy is concerned that European funds are too small, with just over half managing assets worth less than 50 million euros, making the average fund less than a fifth the size of its US equivalent.

Larger funds could benefit from economies of scale to cut costs for investors.—Reuters