Does it still make sense, from the EU perspective, to distinguish between UCITS and non-UCITS schemes?

Abstract

This article aims to discuss the usefulness of the distinction between the categories of Undertakings for Collective Investment in Transferable Securities (UCITS) 1 and non-UCITS schemes, 2 within the regulation of asset management. 3 The purpose is to understand whether this distinction still makes sense after the adoption and the implementation of the Alternative Investment Fund Managers Directive 4 (AIFMD) among the Member States, from the European Union (EU) 5 and UK 6 regulation perspectives. 7 UCITSs are open-ended retail investor funds established according to the provisions of the UCITSD. 8 This Directive represents one of the first initiatives of the EU legislature to create a single market for financial products. In this regard, the Directive harmonized the EU Member States’ internal regulations on the funds and the management companies. In particular, the Directive regulates the working structure of these funds. Accordingly, UCITSs must have a depositary who holds the fund’s assets in order to grant more protection to the investors and a separate management company. The Directive also sets forth some relevant limits of investment and in borrowing in order to protect the retail investors, given that these funds have been created in order to satisfy particularly the needs of these investors. This harmonization represents the legal basis of the European passport regime. The passport is a legal instrument of great importance because it allows the managers of UCITSs to market freely their funds to every kind of investor within the EU territory. This means that these funds may be marketed on a cross-border basis in every EU Member State in the same way as domestic retail funds.