Undertakings for Collective Investments in Transferable Securities, or ‘UCITS’, are a category of collective investment schemes (CIS), which may be attractive to security token issuers and crypto fund managers domiciled in Malta, but looking to passport their fund throughout Europe.
UCITS may be incorporated as an open-ended SICAV company, limited partnership, or unit trust, like their counterpart Professional Investment Funds (PIF) and Alternative Investment Funds (AIFs). However, by extension of the EU single market, UCITS may be passported throughout the European Union on the basis of their regulatory authorisation in Malta; providing access to investors who are residents of other EU/EEA member states.
UCITS are a pan-European investment scheme, regarded as one of the most well regulated and respected fund structures; subsequently representing over 70% of fund assets in Europe, particularly popular with retail investors. There are currently 115 UCITS domiciled in Malta alone.
Key Features of UCITS
- Pan-European Access – The ability to passport crypto funds and security token offerings within the EU/EEA under the UCITS licencing structure is by far it’s most attractive feature for crypto fund managers and security token issuers. The passporting procedure for Malta-domiciled UCITS who wish to market their fund outside of Malta is well provisioned for and operated entirely regulator-to-regulator. Crypto UCITS who wish to market their funds outside of Malta must inform the MFSA of their intention to passport funds, and receive confirmation that the host jurisdictions regulators are aware of and satisfied with the offering.
- Trusted Regulation – UCITS are renowned for the safety of their regulation, hence their attraction amongst retail investors. Security token offering regulation for crypto fund managers establishing their fund as a UCITS in Malta must conform to the regulatory requirements defined within the pan-European UCITS Directive. As UCITS have a strong degree of consumer protection and trust, crypto fund managers may find it easier to onboard new investors under this licencing structure.
- Wider Investor Base – For reasons outlined above, UCITS, unlike PIFS and AIFs, are permitted to offer their crypto fund to the general public in Malta and likewise retail investors in the EU/EEA pending host regulator approval. Retail investors must prove they have satisfactory financial resources and relevant experience before participating, though UCITS are not subject to marketing their fund exclusively to qualifying, experienced and professional investors.
- Management Company Passporting – Prior to the UCITS IV Directive, management companies of UCITS licenced funds were required to be incorporated within the same country as the UCITS licence issuance. However, since the implementation of UCITS IV by the MFSA, management company passport (MCP) provisioning has been implemented; whereby all UCITS domiciled in Malta may be managed by a management company based in another EU/EEA member state, offering greater flexibility for crypto fund managers and security token issuers.
Whilst UCITS have the benefit of access to retail investors within the EU/EEA, this has somewhat increased the regulatory requirements of UCITS licences. Therefore, crypto fund managers and security token issuers who do not wish to passport their funds within Europe or attract retail investors, may find the regulatory flexibility of a PIF licence more attractive.
UCITS Licencing Requirements
Like other crypto fund schemes, UCITS are subject to security token offering regulations, in addition to qualifying requirements. Subsequently, crypto fund managers and security token issuers are required to undergo the following conditions before a UCITS licence is issued:
- The UCITS crypto fund and/or security token offering must hedge against risk by maintaining appropriate risk spreading and implementation of robust risk management procedures. Fund managers must also make assurances that there are safeguards against conflicts of interest. The MFSA will additionally ensure that crypto fund managers and directors consistently meet the ‘fit and proper test’ of integrity, competence and solvency.
- The crypto fund and/or security token offering must conform to the pan-European harmonised UCITS directive; therefore those funds which raise capital without promoting the sale of their fund to the public, or funds incorporated as a closed-ended (INVCO) companies, are excluded from obtaining a UCITS licence.
- Like PIFs and AIFs, the MFSA requires UCITS applicants to meet the Investment Services Act (1994) requirements before obtaining a UCITS licence. Likewise, UCITS licences for crypto funds and/or security token offerings must fulfil the requirements of the Investment Services rules for Retail Collective Investment Schemes issued by the MFSA.
Obtaining a UCITS licence from the MFSA follows the same procedure as other CIS after the above conditions have been filled.
ICO Launch Malta will help you determine if a UCITS fund is the correct licencing structure for you and assist your crypto fund or security token offering during the UCITS licencing process.
We are experts in Maltese security token offering regulation, crypto fund consultation and establishment, and guiding our clients through CIS licencing processes. Contact us to discuss your individual crypto funds requirements.