A Collective Investment Scheme (‘CIS’) can be licensed as an Undertaking for Collective Investment in Transferable Securities (‘UCITS’) scheme. UCITS Schemes are open-ended schemes.

UCITS funds are regulated by Directive 2009/65/EC of the European Parliament and Council of 2009 on the coordination of laws, regulations and administrative provisions relating to UCITS (hereinafter referred to as the ‘Directive’). Collective Investment Schemes that satisfy the legal and regulatory requirements set out in the Directive may market themselves throughout the European Union. By virtue of the European passport, UCITS funds benefit from a larger market for the sale of their units in the European Economic Area (‘EEA’) and in any other EU member state without having to obtain a license in each member state.

As set out in the Directive, the UCITS Fund has to be set up in a European Union member state. For the purposes of the Directive, a UCITS is an undertaking with the sole object of collective investment in transferable securities or in other liquid financial assets (referred to in article 50[1]) of capital raised from the public and which operate on the principle of risk-spreading. In addition to this, a UCITS in terms of the Directive is an undertaking with units which are, at the request of holders, repurchased or redeemed, directly or indirectly, out of the undertaking’s assets. Member states must prohibit UCITS subject to the Directive from being transformed into Collective Investment Undertakings that are not covered by the Directive.

The Directive defines ‘transferable securities’ as:

  1. Shares in companies and other securities equivalent to shares in companies (shares);
  2. Bonds and other forms of securitized debt (debt securities);
  3. Any other negotiable securities which carry the right to acquire any such transferable securities by subscription or exchange;


The following undertakings are not subject to the Directive:

  1. Collective investment undertakings of the closed-ended type;
  2. Collective investment undertakings which raise capital without promoting the sale of their units to the public within the Community or any part of it;
  3. Collective investment undertakings the units of which, under the fund rules or the instruments of incorporation of the investment company, may be sold only to the public in third countries;
  4. Categories of collective investment undertakings prescribed by the regulations of the Member States in which such collective investment undertakings are established, for which the rules laid down in Chapter VII and Article 83 are inappropriate in view of their investment and borrowing policies.


The Malta Financial Services Authority (‘MFSA’), which is the competent authority in Malta, issued Investment Services rules for Retail Collective Investment Schemes (the ‘Rules’). Part B(II) of the rules set out the standard license conditions for Malta Based UCITS Collective Investment Schemes.

The Rules outline the forms the schemes may take up. Schemes can be in the form of a/an:

  1. Limited Partnership;
  2. Investment Company;
  3. Self-Managed Scheme which has not appointed a Maltese or European Management Company as its investment manager;
  4. Umbrella Fund;
  5. Incorporated Cell Company with Incorporated Cells;
  6. Fund of Funds;
  7. Feeder UCITS or Master UCITS;
  8. Money Market Fund.


The MFSA has the right (from time to time, and following advance notification to the Scheme) to vary or revoke any Licence Condition or to impose any new conditions.

Service Providers

The scheme may appoint a Maltese or European management company to act as its manager, responsible for the discretionary investment management of the assets of the scheme. The MFSA has a wide range of rights and powers over the manager, as it must constantly ensure that the chosen management company has the necessary expertise required to carry out its functions. The MFSA must give prior consent if the management company is to outsource its work.

The scheme or the manager, depending on the form of the scheme, may appoint an Administrator to perform administration functions. The MFSA must approve the chosen administrator. If an administrator is not appointed, the manager will be responsible for such functions relating to the administration.

The scheme or the manager may appoint an Investment Adviser. The adviser must have sufficient financial resources and liquidity at its disposal to enable it to conduct its business effectively and to meet its liabilities. The MFSA must be satisfied that the investment adviser is suitable for the scheme, and any agreement with the adviser must be agreed to by the MFSA.

The assets of the scheme are entrusted to a Custodian for safekeeping. The custodian is also responsible for monitor the extent to which the manager is abiding by the investment and borrowing powers. The custodian is to have an established place of business in Malta and shall be either a credit institution licensed under the laws of Malta, or such other body corporate, unincorporated body or association accepted by the MFSA to provide the services of a custodian.

The scheme must appoint an Auditor approved by the MFSA. The appointment and replacement of the auditor must be approved by the MFSA.

The scheme must have a Compliance Officer at all times. The compliance officer is to prepare a compliance report every six months. The report should indicate any breaches to the Investment and Borrowing Restrictions, complaints from unit-holders in the scheme, material valuation errors, and material compliance issues.

The scheme must also have a Money Laundering Reporting Officer at all times. This officer is to provide the compliance officer with a confirmation that all the local Prevention of Money Laundering requirements have been satisfied. The confirmation is to be included in the compliance report.

Exercise of Passport Rights by the Scheme

The scheme must inform the MFSA of its intention to market its units in another EU Member State or EEA State other than Malta, by sending a written notification letter. The scheme can commence marketing of its units in another member state once the MFSA notifies it that all the documents and information have been transmitted.

ESMA’s Discussion Paper on Share Classes of UCITS

On the 23rd of December 2014 the European Securities and Markets Authority (ESMA) published a discussion paper on share classes of UCITS. This is an initiative to develop a common understanding at EU level of what constitutes a share class of UCITS and the differences between said classes. While the UCITS Directive acknowledges that UCITS can offer different share classes to investors, it does not outline how share classes within a UCITS fund can differ. Given that the share classes can vary from country to country, ESMA intends to establish a common understanding across the EU.

ESMA is requesting feedback and responses on the discussion paper. The authority will be considered all comments received by the 27th of March 2015.

ESMA has proposed the following three Share Class Principles to assess the legality of different share classes:

  • Share classes of the same sub-fund should have the same investment strategy.
  • Features that are specific to one share class should not have a potential or actual adverse impact on other share classes of the same sub-fund.
  • Differences between share classes of the same sub-fund should be disclosed to investors when they have a choice between to or more classes.


ESMA holds that UCITS management companies that offer different investment strategies to investors should create a separate sub-fund for each strategy.

The following is a non-exhaustive list of types of share class differences ESMA considers to be compatible with the aforementioned share class principles:

  • Differing according to the maximum or minimum investment amounts, or values of holdings allowed to be retained;
  • Share classes that differ in terms of the type of investor;
  • Differing according to the types of charges and fees that may be levied, and their amount;
  • Share classes that differ according to the currency in which they are denominated;
  • Differing according to the allocation of revenues to investors;
  • Share classes that differ according to their characteristics;
  • Difference in terms of voting rights; and
  • Share classes that provide currency hedging when share classes are denominated in different currencies from the base currency.


UCITS Management Companies

A UCITS Management Company is a management company licensed by the Malta Financial Services Authority (hereinafter referred to as “MFSA”) with its head office and registered office situated in Malta and the regular business of which is the management of UCITS. Once a licence is granted, the Licence Holder shall not engage in activities other than the management of UCITS, with the exception of the additional management of other Schemes which are not UCITS, but the units of which cannot be marketed in other Member States or EEA States and for which the Licence Holder is subject to the MFSA’s prudential supervision.

The activity of management of a UCITS includes the following functions:

  1. Investment management;
  2. 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;
  3. Marketing.


In addition to the management of UCITS, the MFSA may authorise the Licence Holder to provide the following services:

  • Management of portfolios of investments including those owned by pension funds;
  • Investment advice;
  • Safekeeping and administration in relation to units of collective investment undertakings.


Administrative Procedures, Internal Control Mechanisms and Functions

The Licence Holder shall have sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms. These will include rules for personal transactions by its employees or for the holding or management of investments in financial instruments in order to invest own funds. At least, it has to be ensured that each transaction involving the UCITS may be reconstructed according to its origin, the parties to it, its nature, and the time and place at which it was effected. The assets of the UCITS managed by the Licence Holder have to be invested according to the memorandum and articles of association, the prospectus and the legal provisions in force.

The Licence Holder has to be structured and organised in such a way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflicts of interest between it and its clients, between two of its clients, between one of its clients and a UCITS or between two UCITS.

The Licence Holder shall employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them; and has to ensure that the performance of multiple functions by relevant persons does not and is not likely to prevent them from discharging any particular function soundly, honestly and professionally.

A permanent and effective compliance function, operating independently, has to be established. This function is to be entrusted with ensuring that there is compliance with the obligations pertinent to the prevention of money laundering and financial markets abuse; namely under the Prevention of Money Laundering Act, 1994 and the Prevention of Financial Markets Abuse Act, 2005.

Taking into consideration the nature, scale and complexity of its business, and the nature and range of collective portfolio management activities undertaken, the Licence Holder shall establish and maintain an internal audit function, which is separate and independent. Such function has the responsibility of:

  1. Establishing, implementing and maintaining an audit plan to examine and evaluate the adequacy and effectiveness of the Licence Holder’s systems, internal control mechanisms and arrangements;
  2. To issue recommendations according to the result of such work;
  3. To verify compliance with such recommendations; and
  4. To report in relation to internal audit matters.


The structure of the company has to also include a permanent risk management function. The Licence Holder shall employ a risk management process which enables it to monitor and measure, at any time, the risk of the positions and their contribution to the overall risk profile of the portfolio. Amongst other responsibilities, the permanent risk management function shall implement the risk management policy and procedures and ensure compliance with the UCITS risk limit system.

A risk management policy, which has to be documented, has to be established, implemented and maintained by the Licence Holder. This has to identify the risks that the UCITS it manages are or might be exposed to. Such policy shall include procedures as are necessary to enable the Licence Holder to assess, for each UCITS it manages, the exposure of that UCITS to market, liquidity and counterparty risks and the exposure of the UCITS to all other risks, which include operational risks that may be material for each UCITS it manages.

The Application Process

The application process is three-fold, encapsulating three different phases

Phase One – Preparatory
  1. Submission of preliminary outline of proposal by the promoters to the MFSA;
  2. Preliminary meeting with the MFSA to describe the proposal;
  3. Submission of a draft Application Form, together with supporting documentation;
  4. At this stage, the MFSA may ask for more information and make further enquiries;
  5. To this effect,  ‘fit and proper’ checks are carried out by the MFSA;
  6. On the basis of the analysis carried out on the proposed activity and the type of investors and markets targeted, the MFSA will decide on the applicable ‘Licence Conditions’.


Phase Two – Pre-Licensing
  1. The MFSA will issue its ‘in principle’ approval for the issue of a licence;
  2. Applicant will be required to finalise any outstanding matters;
  3. Resolution of any issues raised during the application process;
  4. A licence will be issued as soon as all pre-licensing issues are resolved.


Phase Three – Post-Licensing / Pre-Commencement of Business

At this stage, the applicant may be required to satisfy a number of post-licensing matters prior to formal commencement of business.

The Licence Holder is to commence its Investment Services business within 12 months of the date of issue of the Investment Services Licence. If, for any reason, the Licence Holder cannot comply with this condition, the MFSA shall be notified in writing with reasons for such a delay, together with an updated business plan indicating the proposed date of commencement of business.