UCITS - undertakings for collective investment in transferable securities

An Undertaking for Collective Investment in Transferable Securities (UCITS) is an investment fund that meets the criteria laid down by Directive 85/611/EEC, as amended, and benefits from a passport which enables it to be sold cross-border into any of the 27 EU Member States.

 

Investors

UCITS funds can be sold to all types of investors.

 

Promoter

The promoter of a UCITS must be a regulated entity with sufficient financial resources.

 

Legal framework

EU: Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)

Luxembourg: Part I of the Law of 20 December 2002 relating to undertakings for collective investment (English version)
IML Circular n° 91/75 clarifying certain aspects of the UCI legal framework
 
 
Eligible assets and risk diversification requirements
 
The Law of 2002 contains the basic investment rules for UCITS (transferable securities, money market instruments, bank deposits, UCITS funds, other UCIs, financial derivative instruments, ancillary liquid assets). Uncovered short sales and borrowings are not permitted.
 
The definition of eligible assets has been further clarified by:
  • EU Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions
  • Committee of European Securities Regulators (CESR) guidelines concerning eligible assets for investment by UCITS (March 2007, updated September 2008)
  • Luxembourg Grand-Ducal Regulation of 8 February 2008 relating to certain definitions of the amended law of 20 December 2002 on undertakings for collective investment and implementing Commission Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertaking for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions.
  • CSSF Circular n° 08/339: Guidelines of the Committee of European Securities Regulators (CESR) concerning eligible assets for investment by UCITS (as amended by CSSF Circular n° 08/380).

Circulars issued by the CSSF complement the regulatory framework by clarifying the implementation different legal provisions governing supervised entities. Moreover, the CSSF publishes prudential rules relating to specific activities and gives recommendations regarding financial activities.

Detailed risk diversification is required pursuant to articles 42 to 52 of the Law of 2002. The risk management function is regulated based on CSSF Circular n° 07/308.

 

Legal form

A UCITS may take the legal form of a common fund (FCP – fonds commun de placement) or may be constituted as an investment company (SICAV – Société d’investissement à capital variable or SICAF – Société d’investissement à capital fixe). The FCP has no legal personality and thus must be managed by a management company. The SICAV/SICAF can either appoint a management company or designate itself as “self-managed”.
 
These different entities may be set up as a single fund or as an umbrella fund consisting of multiple compartments, each with a different investment policy. The fund and compartments respectively may have an unlimited number of share classes, depending on the needs of the investors to whom the fund is distributed.
 
All three entities must be open-ended.
 
 
Capital requirements
 
The net assets of an FCP may not be less than EUR 1,250,000. This minimum must be reached within a period of six months following its authorisation.
 
The minimum capital of a self-managed SICAV/SICAF may not be less than EUR 300,000 at the date of authorisation. The capital of any SICAV/SICAF must reach EUR 1,250,000 within a period of six months following its authorisation.
 
Authorisation and supervision
 
A UCITS fund must be authorised by the CSSF before it can start its activities. To this end, the fund has to submit the following documents and information to the Luxembourg supervisory authority: 
  • articles or management regulations, full and simplified prospectus and main agreements with service providers;
  • directors of the fund or managers of the management company;
  • choice of depositary bank and auditor;
  • promoter’s experience and financial soundness.

UCITS are supervised by the CSSF and must fulfil detailed reporting requirements.

 

Distribution

Investment funds governed by the UCITS Directive benefit from a European passport, whereby a UCITS fund authorised in one Member State may be marketed in the other EU Member States subject to notification to the host Member State authorities.
 
 
Taxation
 
Investment funds created under the 2002 Law generally pay an annual subscription tax (taxe d’abonnement) of 0.05% of their net asset value on the last day of every calendar quarter. This rate is reduced to 0.01% in the case of money market cash funds and institutional funds, as defined by the Luxembourg tax administration.
 
Investments in special institutional money market cash funds, special pension funds and funds investing in other funds which are already subject to subscription tax are exempt from subscription tax. The same will apply to microfinance investment vehicles.
 
A fixed capital duty which was payable by the investment fund on incorporation was abolished as from 1 January 2009.
 
Investment funds incorporated as investment companies are subject to a registration duty of 75 euros at incorporation, in case of modification of the articles of incorporation, as well as transfer of the effective place of management or registered office in Luxembourg. Investment funds set up as FCPs are not subject to this registration duty.
 
 
Service providers
 

  • Management company:

A common fund has no legal personality and thus must be managed by a management company. An investment company can either appoint a management company or designate itself as “self-managed”. The Law of 2002 distinguishes between:
  • management companies that can manage UCITS and other UCIs;
  • all other management companies.
The individuals who effectively conduct the business of a management company must be of good repute and be sufficiently experienced in relation to the type of UCITS managed. The management company must have an initial capital of at least EUR 125,000.
 

  • Depositary bank:

Luxembourg UCITS must appoint a credit institution as depositary bank, which is responsible for both the safekeeping of assets and the supervision of the fund (and its management company in the case of an FCP).
 
The individuals who represent the depositary bank must be of good repute and have sufficient experience in relation to the type of UCITS concerned.
 

  • Central administration:

The central administration of a UCITS must be in Luxembourg, but can be performed by a third party. This concerns the accounting, NAV calculation, keeping of the register of shareholders/unit holders, handling of subscriptions and redemptions, communication with investors and preparation of financial statements.
 

  • External auditor:

The fund (SICAV) or its management company (FCP) prepares an annual and semi-annual report. The annual report is audited by an authorised external auditor with appropriate professional experience.
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