Avalon Abela
The EU’s latest update to its flagship retail funds regime − popularly dubbed UCITS VI − arrives through Directive (EU) 2024/927, which amends the UCITS Directive to align more closely with AIFMD in areas such as delegation, liquidity management, supervisory reporting and depositary oversight.
Most provisions must be transposed by early 2026, with the new reporting framework applying from the first quarter of 2027. For existing UCITS and their investors, the package is evolutionary rather than revolutionary, but it will reshape governance, liquidity practices, disclosures and, potentially, portfolio construction.
A central thrust of UCITS VI is governance and substance. Management companies must be able to objectively justify their entire delegation structure, documenting who does what, where and with what resources − mirroring long-standing AIFMD expectations.
In addition, UCITS VI puts on a legislative footing the requirement that at least two EU-domiciled full-time employees effectively conduct the business and directs firms to detail human and technical infrastructure in their programmes of activity, including how they comply with SFDR obligations.
These elements had already been embedded in several national regimes, notably Luxembourg and Ireland, but are now harmonised at EU level. For existing UCITS, this means more formalisation and potential operating cost uplift; for investors, it reduces operational and oversight risk by curbing “letter-box” models.
From 2027, UCITS management companies will need to submit standardised reporting covering instruments traded, market memberships, exposures and assets, liquidity management arrangements and tools selected, current risk profile, stress-testing outcomes and details of delegation. This is designed to create parity with AIFMs and to improve supervisory convergence across the EU. Existing UCITS should expect upgraded data architecture and controls; investors benefit indirectly from stronger oversight and richer disclosures that typically accompany such reporting regimes.
If there is one area where the reforms will touch day-to-day fund operations most visibly, it is liquidity risk management. UCITS must select at least two appropriate liquidity management tools from a harmonised menu and set detailed activation/deactivation procedures.
Some jurisdictions that previously required prior regulator consent to limit redemptions will shift to a regime where UCITS managers can act more swiftly in extraordinary conditions, while still notifying authorities.
For investors, this improves the fund’s ability to protect remaining investors during stress events, but it also means investors should carefully read fund documentation to understand which liquidity management tools may be used and under what circumstances.
“UCITS VI strengthens the plumbing of Europe’s most successful retail fund regime”
Although not yet binding law, ESMA’s technical advice on the UCITS Eligible Assets Directive (EAD) proposes applying a look-through to at least 90% of a UCITS portfolio, ensuring exposures are ultimately backed by UCITS-eligible assets. A revised ‘trash bucket’ would still allow up to 10% indirect exposure to non-eligible assets, subject to stringent liquidity and valuation tests. If adopted, this could require meaningful portfolio re-engineering for UCITS with structured or index-based strategies.
UCITS VI also tightens depositary and custody expectations and further harmonises them with AIFMD, reinforcing liability for safekeeping failures and sharpening oversight obligations.
In parallel, structures such as white-label “fund hotels” will face more granular conflict-of-interest frameworks and scrutiny to ensure the appointed manager is not a de facto letter-box entity.
Finally, UCITS fund names are explicitly treated as pre-contractual information, and must be fair, clear and not misleading − an area where ESMA is expected to issue guidance, dovetailing with broader EU efforts on product fairness and ESG claims. For investors, these measures should reduce mis-selling risks.
The amending directive entered into force in March 2024, and member states have roughly two years to transpose, targeting April 2026 for most changes, with reporting live from the first quarter of 2027. Cross-border and EEA/EFTA contexts may see uneven pacing, so companies managing funds across jurisdictions will need careful sequencing.
For investors in existing UCITS, one should expect prospectus and KID updates, re-papered delegation and liquidity policies, possible tweaks to fee structures reflecting new operational burdens and, in some strategies, measured portfolio rotations to accommodate any eventual eligible asset changes.
UCITS VI strengthens the plumbing of Europe’s most successful retail fund regime. The near-term effects include heavier compliance lifts and documentation refreshes, along with clearer and more agile liquidity playbooks. The medium-term prize is greater resilience, transparency and investor protection. If ESMA’s EAD proposals advance, some UCITS will recalibrate exposures to remain firmly within the spirit of eligible asset rules. Investors, in turn, should gain from improved clarity on what they own, how their fund can respond in stress, and who is truly accountable for managing their savings.
Avalon Abela is the lead compliance manager at BOV Asset Management Ltd. The author and the company have obtained the information contained in this article from sources they believe to be reliable, but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The author and the company make no guarantees, representations or warranties, and accept no responsibility or liability as to the accuracy or completeness of the information contained in this article. The author and the company have no obligation to update, modify or amend the article or to otherwise notify readers thereof if any matter stated therein, or any opinion, projection, forecast, or estimate set for the herein changes or subsequently becomes inaccurate. The value of investments may go down as well as up. If one invests in a product, they may potentially lose some or all of the money they invest. BOV Asset Management Ltd is licensed to conduct investment services in Malta under the Investment Services Act by the Malta Financial Services Authority.
