The Directive 2009/65/EC of the European Parliament and Council of 2009 (‘the Directive’) on the coordination of laws, regulations and administrative provisions relating to Undertakings for Collective Investment in Transferable Securities (‘UCITS’) sets out the regulatory framework for UCITS funds. Collective Investment Schemes (‘CISs’) which satisfy the legal and regulatory requisites established in the Directive may market themselves through the European Union. This is achieved by means of a European passport which allows UCITS funds established in the EU to be marketed throughout the European Economic Area (‘EEA’) without the need of acquiring additional licenses from each member state.
A UCITS fund, which is an open-ended fund, may appoint a Maltese or European management company to oversee the discretionary investment management of the assets of the scheme .
Setting up and structuring a UCITS Fund
As established in the Directive, a UCITS Fund must be set up in an EU member state and is considered an undertaking whose sole objective is that of a collective investment in transferable securities or in other liquid financial assets (as defined by Art. 50 (1) of the Directive) of capital raised from the public while operating according to the principle of risk-spreading. A UCITS is further defined as an undertaking with units which are, at the holder’s request, repurchased or redeemed, whether indirectly or directly, out of the undertaking’s assets itself.
In turn, ‘transferable securities’ within the ambit of European policy, are primarily defined as being shares in companies and other securities equivalent to shares in companies. They can also be bonds and other forms of scrutinised debt (debt securities), as well as any other negotiable securities which carry the right to acquire any such transferable securities, either by subscription or exchange.
Legal Vehicles for UCITS funds
A UCITS may be structured in various legal forms, however it will need to appoint a UCITS management company unless it is a self-managed scheme. Schemes can be structured as a/an:
- Limited Partnership;
- Investment Company;
- Self-Managed Scheme which has not appointed a Maltese or European Management Company as its investment manager;
- Umbrella Fund;
- Incorporated Cell Company with Incorporated Cells;
- Fund of Funds;
- Feeder UCITS or Master UCITS;
- Money Market Fund.
UCITS Management Company
The UCITS Directive defines a management company as a company, the regular business of which is the management of UCITS in the form of common funds or of investment companies (collective portfolio management of UCITS).
A Malta-based UCITS Management Company is a management company which is licensed by the Malta Financial Services Authority (MFSA) with its head office and registered office is registered in Malta and, whereby its day-to-day business functions are related to the management of the UCITS.
The MFSA which is the sole regulator for Financial Services in Malta has the discretion to vary or revoke any License Condition, or to impose any new conditions from time to time following advance notification being given to the Scheme. The MFSA must also ensure that the management company still has the essential expertise needed to carry out its daily administrative functions. Should the management company wish to outsource its work, it requires prior consent from the MFSA.
A UCITS Management Company will fulfil the following functions:
- Investment management;
- Administration which includes: legal and fund management accounting services, customer inquiries, valuation and pricing (including tax returns), regulatory compliance monitoring; maintenance of unit-holder register, distribution of income, unit issues and redemptions, contract settlements (including certificate dispatch) and record keeping; and
- Marketing.
Upon being granted a licence, the licence holder is not allowed to engage in any activities not related to the management of the UCITS. However, there exists an exception in the case where the licence holder may additionally manage other schemes which are not UCITS, but whose units cannot be advertised or marketed in other EU member states or EEA states. In such cases, the License Holder will be subject to the MFSA’s prudential supervision.
Moreover, apart from the management of the UCITS, the MFSA has the discretion to authorise the License Holder to manage portfolios of investments, including those owned by pension funds, as well as to give investment advice and to safeguard and administer the units subject to collective investment undertakings.
Other Service Providers
Fund Administrator
The scheme or the manager, depending on whether the scheme is self-managed or not, may appoint a fund administrator that is to be approved by the MFSA to perform administrative functions. Where no administrator has been appointed, the manager will need to fulfil the functions of the administrator.
Investment Advisor
An investment advisor may be appointed by the scheme or the manager. It must be proven to the satisfaction of the MFSA that the investment advisor is suitable for the scheme and has sufficient financial resources and liquidity to conduct businesses effectively and meet its obligations.
Compulsary Service Providers
Custodian
A custodian must be appointed and shall be entrusted with the safekeeping of the scheme’s assets. The custodian is also required to monitor the extent to which the UCITS fund manager is abiding by the fund’s investment and borrowing powers.
Others include:
- Auditor;
- Compliance officer (to prepare a report every 6 months);
- Money laundering Reporting Officer.
Our Funds Practice
Our funds practice focuses on the structuring and setting-up of funds and the provision of on-going advisory services at post-licensing stage. We assist our clients with the drafting of all regulatory documentation, including offering memoranda and ancillary agreements. We also manage relations with regulatory authorities. From a practical perspective, we connect clients to high quality personnel and service providers in the jurisdiction and generally act as primary reference point for all aspects of the project. Our firm has a particular focus on the creation of funds which follow unorthodox investment strategies or which use unconventional structures. Every client benefits from a dedicated team of lawyers and other professionals who provide advice which is not staid and legalistic and which instead centres around the practical, real-world needs of the applicant.
Should you wish to inquire on how setting up a fund in Malta could benefit you, kindly contact us on fsu@cclex.com and we will get back to you shortly.
