The Undertakings for Collective Investment in Transferable Securities Directive (UCITS
2009/65/EC
is a consolidated

EU directive The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...

that allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one

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. EU member states are entitled to have additional regulatory requirements for the benefit of investors.

Evolution

The objective of Directive 85/611/EEC, adopted in 1985, was to allow for open-ended funds investing in transferable

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

to be subject to the same regulation in every

Member State A member state is a state that is a member of an international organization or of a federation or confederation. Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign state ...

. It was hoped that once such legislative uniformity was established throughout Europe, funds authorised in one Member State could be sold to the public in each Member State without further authorisation, thereby furthering the EU's goal of a single market for financial services in Europe. The reality differed somewhat from the expectation due primarily to individual marketing rules in each Member State that created obstacles to

cross-border Borders are usually defined as geographical boundaries, imposed either by features such as oceans and terrain, or by political entities such as governments, sovereign states, federated states, and other subnational entities. Political borders ...

marketing of UCITS. In addition, the limited definition of permitted investments for UCITS weakened the marketing possibilities of a UCITS. Accordingly, in the early 1990s proposals were developed to amend the 1985 Directive and more successfully harmonise laws throughout Europe. These discussions, although leading to a draft UCITS II directive, were subsequently abandoned as being too ambitious when the

Council of Ministers A council is a group of people who come together to consult, deliberate, or make decisions. A council may function as a legislature, especially at a town, city or county/ shire level, but most legislative bodies at the state/provincial or nati ...

could not reach a common position. In July 1998 the

EU Commission The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...

published a new proposal which was drafted in two parts (a product proposal and a service provider proposal), which sought to amend the 1985 Directive. These proposals were finally adopted in December 2001, and are known as "UCITS III.

Management Directive

Directive 2001/107/EC seeks to give management companies a "European passport" to operate throughout the EU, and widens the activities which they are allowed to undertake. It also introduces the concept of a simplified prospectus, which is intended to provide more accessible and comprehensive information in a simplified format to assist the cross-border marketing of UCITS throughout Europe.

Product Directive

The primary aim of Directive 2001/108/EC is to remove barriers to the cross-border marketing of units of collective investment funds by allowing funds to invest in a wider range of financial instruments (including

derivative In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. ...

s), which subject the same regulation in every Member state. All UCITS funds must comply with the same investment limits. A collective investment fund may apply for UCITS status in order to allow EU-wide marketing. The concept is to create a single funds market across the EU. The aim is that with a larger market the

economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...

will reduce costs for investment managers which can be passed on to consumers. Throughout Europe approximately €6.8

trillion ''Trillion'' is a number with two distinct definitions: * 1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English. * 1,000,000,000,0 ...

are invested in

collective investment An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...

s. Of these funds about 76% are UCITS.

UCITS IV

The proposal of UCITS IV Directive was approved by the

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on 13 January 2009 and also by the

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as Directive 2009/65/EC, to be implemented on 1 July 2011. This updated the UCITS III Directives by introducing the following changes, *Notification Procedure *Key Investor Information Document *Adapted Framework for Mergers * Master-feeder Structures *Cooperation between Member State Supervisory Authorities *Management Company Passport

UCITS V

On 23 July 2014 the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...

adopted Directive 2014/91/EU ("UCITS V") on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities as regards depositary functions, remuneration policies and sanctions. UCITS V can be compared with the

Alternative Investment Fund Managers Directive Directive 2011/61/EU is a legal act of the European Union on the financial regulation of hedge funds, private equity, real estate funds, and other "Alternative Investment Fund Managers" (AIFMs) in the European Union. The Directive requires all c ...

(" AIFMD") (European Union Directive 2011/61/EU), which is a parallel regulation for hedge funds and alternative investments. UCITS V introduces new rules on UCITS depositaries, such as the entities eligible to assume this role, their tasks, delegation arrangements and the depositaries’ liability as well as general remuneration principles that apply to fund managers. The depositary as a specific function under UCITS legislation (rather as it does under AIFMD). The depositary may delegate its safekeeping functions (but not other depositary functions to a third party custodian. UCITS V directive requires a Key Investor Information Document or KIID is produced for investors. Luxembourg transposed the UCITS V directive with the law of 10 May 2016 applied since 1 June 2016. This law of 10 May 2016 amended the Luxembourg law of 17 December 2010 on undertakings for collective investment, as amended (the "2010 Law"), in particular, Parts I, IV and V of the 2010 Law.

UCITS VI

The proposals concern areas other than those addressed by UCITS V. In summary, these are the topics raised: 1. eligible assets and the use of derivatives – whether it is necessary to limit the scope of eligible derivatives of those traded on multilateral platforms and cleared by a central counterparty; 2. efficient portfolio management techniques – whether the current criteria (on eligibility, liquidity and diversification for example) requires amendment; 3. over-the-counter derivatives ('OTC') – how OTC derivative transactions should be dealt with when assessing UCITS limits on counterparty 4. extraordinary liquidity management rules – whether there is a need for a common framework for dealing with liquidity bottlenecks in exceptional cases or otherwise; 5. depositary passport – whether a depositary passport should be introduced and how this would work in practice; 6. money market funds1 – whether they present a source of systemic risk and/or do they need harmonised regulation at EU level; 7. long-term investments – (a) how access can be afforded to retail investors and how this could be implemented and regulated; (b) what proportion of a fund's portfolio should be dedicated to such assets; and (c) whether diversification rules are necessary to secure adequate liquidity; 8. improvements to the UCITS IV framework – for example Article 64(1) of the UCITS Directive requires UCITS to provide information to investors in the following two cases: (i) where an ordinary UCITS converts into a feeder UCITS; and (ii) where a master UCITS changes. As it stands, this does not cover a third possible scenario, namely where a feeder UCITS converts into an ordinary UCITS. Such conversions may lead to a significant change in the investment strategy.

*Ch I, Subject matter, scope and definitions *Ch II, Authorisation of UCITS *Ch III, Obligations regarding management companies **Sect 1, Conditions for taking up business; Sect 2, Relations with third countries; Sect 3, Operating conditions; Sect 4, Freedom of establishment and freedom to provide services *Ch IV, Obligations regarding the depositary *Ch V, Obligations regarding investment companies **Sect 1, Conditions for taking up business; Sect 2, Operating conditions; Sect 3, Obligations regarding the depositary *Ch VI, Mergers of UCITS **Sect 1, Principle, authorisation and approval; Sect 2, Third party control, information of unit-holders and other rights of unit-holders; Sect 3, Costs and entry into effect *Ch VII, Obligations concerning the investment policies of UCITS *Ch VIII, Master-Feeder Structures **Sect 1, Scope and approval; Sect 2, Common provisions for feeder UCITS and master UCITS; Sect 3 Depositaries and auditors; Sect 4, Compulsory information and marketing communications by the feeder UCITS; Sect 5, Conversion of existing UCITS into feeder UCITS and change of master UCITS; Sect 6, Obligations and competent authorities *Ch IX, Obligations concerning information to be provided to investors **Sect 1, Publication of a prospectus and periodical reports; Sect 2, Publication of other information; Sect 3, Key investor information *Ch X, General obligations of UCITS *Ch XI Special provisions applicable to UCITS which market their units in other member states *Ch XII, Provisions concerning the authorities responsible for authorisation and supervision *Ch XIII, Delegated acts and powers of execution *Ch XI, Derogations, transitional and final provisions

Asset allocation

As of 2019, the 5/10/40 rule states that funds can only invest up to 10% in a single issuer, and that concentrated investments in excess of 5% must not exceed 40% of the total portfolio, with some exceptions. UCITS III in 2003 allowed funds to invest up to 10% their funds in illiquid investments.

Notes

References

"EUROPEAN COMMUNITIES (UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES) REGULATIONS 2003 (SI 211 OF 2003)(AS AMENDED)""CESR’s guidelines concerning eligible assets for investment," July 2007"UCITS IV good news for the industry but lack of passport a serious concern," April 2008

"UCITS IV directive", February 2009
*UCIT
2001/107/EC
*UCIT
2001/108/EC
{{DEFAULTSORT:Directive 2009/65/EC European Union directives Investment