UCITS IV management company passport – general overview

Under Ucits IV, a company authorised in its home member state to manage Ucits funds may manage funds domiciled in any EU member state. This means that for the first time the regulator of a Ucits fund may be different from that of the fund’s management company. The Ucits IV rules for management companies apply whether or not they make use of the passport for managing funds in other EU countries.
The management company is required by its home regulator to have sound controls and procedures appropriate to the management of the specific Ucits fund(s) it manages, which means the regulator must have must have knowledge of both the management company and its funds. The management company must also comply with its home country rules on delegation of functions, risk management and prudential supervision. However, the regulation and functioning of Ucits funds is subject to the law of the country where the fund, not the manager, is domiciled.
If the management company wants to delegate one or more functions to a third party, whether in the same country or elsewhere, it must seek permission from its home regulator, which must inform the regulator of the fund domicile. Any delegation must leave the management company with “substance” and it retains liability for acts and functions it has delegated. It must also put in place arrangements to provide any information sought by the regulator of the fund domicile.
The management company must comply with the rules of the fund domicile in areas including establishment and authorisation of Ucits funds; issuance and redemption of units or shares; investment policies and limits, including the calculation of total exposure and leverage; restrictions on borrowing, lending and uncovered sales; valuation of assets and the fund’s accounting; calculation of the issue and/or redemption price; rules regarding errors in NAV calculation and related investor compensation; and distribution or reinvestment of income.
The manager must also conform with the fund domicile’s rules on disclosure and reporting requirements, marketing arrangements, merging and restructuring of Ucits, licensing and supervision fees, and investors’ voting rights.
The depositary must be established in the Ucits fund’s domicile and have an agreement in place with the management company regulating information flows, including guaranteed access to the fund’s books and records wherever they may be held, to enable the depositary to verify continued compliance with the fund’s risk profile and regulatory requirements.