UCITS stands for ‘Undertakings for Collective Investment in Transferable Securities’.  UCITS is a regulatory framework that creates a harmonised regime for managing and marketing investment funds across Europe. UCITS offers investors greater transparency and protection. For instance, it should facilitate the cross-border marketing of investment funds to retail investors. 

All funds domiciled in the European Union must comply with UCITS. If a fund does not meet the guidelines, it may not be traded. 

External fund custodian and Key Investors Document 

The introduction of UCITS has ensured that all investment funds traded within the European Union are protected in the same way. 

UCITS states that funds are required to have an external fund custodian, also known as a depositary. This fund custodian must be from the fund’s country of domicile. Appointing a fund custodian minimises the risk of fraud by controlling all cash flows. The fund custodian is also liable for the return of investments in the fund. 

In addition, funds must prepare a Key Investors Document (KID), through which they inform belegees about issues surrounding the fund. This makes the fund more transparent, and investors have more insight into what happens to their investment. 

The development of the UCITS directive 

The first UCITS/ UCITS directive was adopted on 20 December 1985. Over the years, the guidelines have been amended and refined several times. 

Proposals to amend the directive were made in the early 1990s. However, these were never fully adopted. In 2002, two new directives were adopted, together known as UCITS III. This new directive widened the investment spectrum of UCITS funds and relaxed some restrictions on index funds. 


UCITS IV followed in July 2011. This meant a number of significant changes, including: 

  • The creation and distribution of compound investment funds (master feerder structures, including ETFs) allowing pooling of assets and cost reductions. 
  • A European passport for UCITS/ UCITS managers, called the management company passport 
  • A ‘key investor information’ document (also referred to as KID) to inform retail investors about the fund 
  • Rules to facilitate cross-border mergers without UCITS funds and thus allow funds to grow (‘economy of scale’). 


Finally, UCITS V entered into force in March 2016. This latest UCITS directive can best be seen as an amending document to UCITS IV. Most of the issues included in UCITS IV remain untouched under UCITS V. In particular, UCITS V ensured that: 

  • The duties, responsibilities and remuneration requirements of fund custodians and fund managers are in line with the Alternative Investment Fund Managers Directive (AIFMD). This is a similar directive aimed at collective investment schemes that do not qualify as UCITS/ UCITS, such as hedge funds and real estate funds. 
  • The sanctioning powers available to national regulators have been strengthened. 

Want to know more? 

Do you need help with interpretation and compliance with the UCITS Directive? Or would you like to apply for an AFM licence as a UCITS/UCITS manager? Our consultants will be happy to help you. Read more about our services around licence applications or regulatory compliance. You can also contact us directly for a no-obligation consultation.