Preparing For UCITS VI

There has been much discussion of the changes being made to AIFMD¹ following the publication of the amending directive, so called AIFMD 2.0². Our OnPoint summarizing the key changes introduced by AIFMD 2.0, which takes effect on 16 April, 2026, is available here. However, what is often overlooked is the fact that the amending directive also makes notable changes to the UCITS Directive³.

With the exception of certain reporting requirements that will only apply from April 2027, UCITS and their management companies have less than one year to take the necessary steps to comply with the new requirements.

This OnPoint summarizes the key changes for UCITS and their management companies under what is generally designated as UCITS VI and highlights some other initiatives that may result in further change to UCITS regime in the future.

Widening the scope of information to be provided by management companies for their authorization⁴

To further harmonize regulatory practices across the European Union (EU) and to align with what is required for alternative investment fund managers (AIFMs), UCITS VI provides clarifications and widens the scope of the content of the program of activity that a management company files with the relevant competent national authority as part of its approval process.

UCITS VI puts on a legislative footing the requirement to have at least two EU domiciled people employed by the management company on a full-time basis. This requirement was initially introduced by ESMA in its opinion on supervisory convergence in 2017⁵, and was already embedded in some national regulations, for instance, in Luxembourg by CSSF circular 18/698⁶.

Furthermore, the program of activity that accompanies the application for authorization made by a management company must specify the details of the human and technical infrastructure used to conduct the business of the management company, as well as information about the people effectively conducting the management company's business. This includes a description of those people's role, title, seniority, reporting lines, responsibilities in and outside of the management company and the time allocation to their functions. In Luxembourg and Ireland, the CSSF⁷ and the CBI⁸ respectively already required this information to be provided as part of the program of activities.

UCITS VI also inserts the requirement that the program of activities includes information on how the management company intends to comply with its obligations under SFDR⁹. This generally formulated obligation implies having a policy and a process for complying with their obligations under SFDR as applicable.

The management company must also provide information on arrangements made for the delegation and sub-delegation to third parties of portfolio management, administration and distribution of UCITS as well as of investment management services and non-core activities under article 6(3) of the UCITS Directive (commonly designated as 'MiFID top-up services')¹⁰. This includes the identification of the delegate, its location and its competent supervisory authority, as well as a description of the human and technical resources employed by the management company to perform day-to-day portfolio management or risk management tasks and to monitor the delegation. A description of the periodic due diligence measures that are carried out by the management company on its delegates will also be part of the information to be provided to the competent supervisory authority of the management company. Although this is nothing new for Luxembourg and Ireland, it is expected that the CSSF and the CBI will increase their focus on this information, and it is possible management companies may see more questions raised on their delegation arrangements.

If a management company plans to make material changes to its program of activities, it must notify the competent supervisory authority before making the changes. No specific guidance is provided, however, on what is material.

Management companies should check whether their program of activities and their policies and processes need to be updated considering the widening of its scope under UCITS VI.

Requirements for delegation arrangements¹¹

UCITS VI clarifies that delegation requirements apply to all services provided under Annex II of the UCITS Directive, i.e., portfolio management, administration and distribution as well as investment management services on financial instruments and non-core services under article 6(3) of the UCITS Directive.

To align with AIFMD, it is explicitly stated that a management company must be able to objectively justify its entire delegation structure to the competent supervisory authorities. The European Commission (the Commission) will adopt delegated acts specifying the conditions for fulfilling the requirements for delegation including specifying the conditions for fulfilling the objective reasons and for not failing the letter box test¹². As of the date of this OnPoint, the consultation phase has not yet been launched.

With regard to the marketing of UCITS, UCITS VI recognizes that this activity is not always conducted by the management company directly but by one or several distributors either on behalf of the management company or on their own behalf. UCITS VI acknowledges the diversity of distribution arrangements and distinguishes between, (i) arrangements whereby a distributor acts on behalf of the management company, which should be considered to be delegation arrangements, and, (ii) arrangements whereby a distributor acts on its own behalf when it markets the UCITS under MiFID¹³ or through life-insurance based investment products in accordance with the Insurance Distribution Directive¹⁴, in which case the provisions of the UCITS Directive regarding delegation should not apply, irrespective of any distribution agreement between the management company and the distributor. However, where the management company appoints a distributor to market UCITS (including the frequent cases where a global distributor is appointed), the appointment of the distributor would be in scope of the delegation requirements.

Management companies should review their delegation arrangements in light of UCITS VI.

Rules of conduct, conflicts of interest and undue costs¹⁵

Management companies must act with due skill, care and diligence in the best interests of UCITS and its investors.

UCITS VI requires a management company managing or intending to manage UCITS at the initiative of a third party to consider conflicts of interest arising in this context. This includes the cases where the UCITS is using the name of the third-party initiator or where the management company delegates portfolio management or other services to the third-party initiator. The management company must submit to its home state competent authority detailed explanations and evidence on how it is avoiding conflicts of interest and, when they cannot be avoided, how it ensures that the interest of the UCITS and its investors are not adversely affected.

The so-called third-party or white label management company industry is particularly important in Luxembourg and Ireland. Contrary to the previous UCITS Directives, which did not make any differentiate in respect of third-party management companies, UCITS VI is imposing additional requirements in relation to conflicts of interest for third party management companies.

Acting honestly and fairly encompasses avoiding undue costs. However, there is no clear definition of undue costs, and there are divergent market and supervisory practices between EU member states. The EU's retail investment strategy (RIS)¹⁶, intends to tackle the issue of undue costs by requiring fund managers to establish a sound pricing process, which should comprise the identification, analysis and review of costs charged, directly or indirectly, to investment funds or their unitholders, and by introducing a requirement to compensate investors where undue costs have been charged. While the RIS is making its way through the legislative process, UCITS VI notes that national competent authorities should collect cost data and share it with provide ESMA¹⁷. Linked to this, ESMA is to submit a report to the European Parliament, the European Council and the Commission by 16 October, 2025 assessing and explaining the differences in costs and fees charged to UCITS. The proposed amendments to the UCITS Directive in the context of the RIS, intends to tackle the issue of undue costs by requiring management companies to establish a sound pricing process which includes the identification, analysis and review of costs charged, directly or indirectly, to investment funds or their unit-holders, and also introduces a requirement to compensate investors where undue costs have been charged¹⁸.

Extension of services that can be provided by management companies¹⁹

With regards to activities that are included as part of the management of UCITS, member states can authorize management companies to provide services in addition to management of UCITS. UCITS VI expands the list of non-core functions to include reception and transmission of orders in relation to financial instruments.

The administration of benchmarks in accordance with the Benchmark Regulation²⁰ is introduced as another non-core service for management companies.

UCITS VI finally clarifies that any other function or activity that is already provided by the management company as a non-core service can be authorized, provided that any potential conflict of interest created by the provision of that function or activity to other parties is approximately managed.

As was already previously the case, UCITS VI makes clear that non-core services cannot be provided without providing portfolio management services.

New regulatory reporting²¹

UCITS VI introduces the requirement that a management company is to regularly report to the competent authority of the UCITS home member state on the markets and instruments in which it trades on behalf of UCITS it manages. This includes information on arrangements for managing the liquidity of the UCITS, the risk profile of the UCITS, the results of the stress tests performed for the UCITS, information regarding delegation arrangements concerning portfolio management or risk management function as well as the list of member states in which the units of the UCITS are marketed.

UCITS VI mandates ESMA to submit to the Commission at the latest by 16 April, 2027 draft regulatory technical standards (RTS) specifying the details of the information to be reported, the appropriate level of standardization of the information to be reported and the reporting frequency and timing. As the RTS do not need to be submitted to the Commission until 12 months after the provisions of UCITS VI 'go-live', it remains to be seen what the expectations will be from the Commission during the 12-month period when the new rules are in force if there are no technical standards specifying when those reports need to be made and what information is to be reported.

Liquidity management tools (LMTs) for managing UCITS

To enable UCITS to deal with redemption pressures under stressed market conditions, the management company must select and include in the prospectus and, where legally necessary, in the articles of incorporation, at least two out of a list of LMTs mentioned in the table below, excluding items 1) suspension of subscriptions, repurchases and redemptions and 9) side pockets that can only be reserved for exceptional situations. By way of derogation, a UCITS that is authorized as a money market fund in accordance with the Money Market Funds Regulation²² only needs to select one LMT from that list. There is no special treatment for UCITS that are exchange traded funds (ETF) even though the use of LMTs is less relevant because the liquidity of an ETF is primarily assessed in light of the liquidity of the secondary market where the ETF is traded.

In its Final Report on its Guidelines on LMTs released on 15 April, 2025 (the Guidelines)²³, ESMA requires management companies to consider at least one quantitative-based LMT and at least one anti-dilution LMT, taking into consideration the investment strategy, the redemption policy and the liquidity profile and the market conditions under which the LMT could be activated. UCITS VI requires management companies to have a liquidity management system that minimizes liquidity mismatches and ensures the fair treatment of investors. Anti-dilution LMTs help to avoid the first-mover benefit that is not addressed by quantitative LMTs and consequently contributes to the fair treatment obligation. By adopting this approach, ESMA is following the recommendations of the International Organization of Securities Commission (IOSCO)²⁴ and the Financial Stability Board (FSB)²⁵.

The Guidelines clarify that for UCITS ETFs, the redemption in kind by market makers and authorized participants to align the net asset value with the price of the secondary market is not considered as the activation of an LMT.

The Guidelines will apply when the draft Regulatory Technical Standards (RTS) supplementing the UCITS Directive²⁶ have been adopted.

The table below lists and describes the LMTs available to UCITS and summarizes the conditions to be fulfilled for their activation. While UCITS are already familiar with some of the LMTs, other LMTs have so far rarely been used for UCITS.

UCITS and their management companies should review the LMTs that are currently in place to see if they comply with the requirements of the draft RTS or if amendments are needed before April 2026 and to confirm whether an anti-dilution LMT is currently one of the available LMTs.

LMT	Explanation under the new Annex IIA of UCITS Directive	Qualification	Requirements under the draft RTS	Observation
1) Suspension of subscriptions, repurchases and redemptions	Temporarily disallowing the subscription, repurchase and redemption of the units or shares of the UCITS.	NA.	The suspension of subscriptions, repurchases and redemptions shall apply simultaneously for the same period to all classes and all investors of the UCITS.	Since the first UCITS Directive, competent supervisory authorities have had the suspension power to protect the public and the investors. Granting the suspension right to the managers is new but limited to exceptional cases. Albeit not explicitly mentioned, we assume that it can be applied on a compartment-by- compartment basis.
2) Redemption gate	Temporary and partial restriction of the right of the investors to redeem their units or shares, so that investors can only redeem a certain portion of their units or shares.	Quantitative LMT	The redemption gate shall include an activation threshold below which the redemption gate shall not be activated and shall apply to all investors. The activation threshold shall be based on the total net or gross redemption orders received for a given dealing date and shall be expressed in proportion to the net asset value (NAV) of the UCITS or the compartment.	Most UCITS documents already provide for a redemption gate of 10% of the NAV.
3) Extension of notice period	Extending the period of notice that investors must give to the management company, beyond a minimum period which is appropriate to the UCITS, when redeeming their units or shares.	Quantitative LMT	The extension of the notice period shall not have an impact on the redemption frequency of the UCITS, the relevant compartment or class.	For most UCITS, the notice period is short, and no extension right is given to the managers. This LMT which may generally be easy to implement, will be new for many UCITS and can be applied on a class-by-class.
4) Swing pricing	Pre-determined mechanism by which the NAV of the units or shares of the UCITS is adjusted by the application of a factor (swing factor) that reflects the cost of liquidity.	Anti-dilution LMT	The swing factor shall include the estimated explicit and implicit costs of subscriptions or redemptions, including any estimated significant market impact of asset purchases or sales to meet those subscriptions or redemptions. The swing factor shall be expressed as a percentage of the net asset value. Swing pricing may be applied where there is a difference between the redemption orders and the subscription orders (full swing) or if the difference exceeds a predefined activation threshold (partial swing).	Swing pricing is convenient when invested in underlying assets where information on trading costs (bid/ask) is available and frequently updated. Many UCITS are already using swing pricing.
5) Swing pricing	Pre-determined mechanism by which the NAV of the units or shares of the UCITS is adjusted by the application of a factor (swing factor) that reflects the cost of liquidity.	Anti-dilution LMT	The swing factor shall include the estimated explicit and implicit costs of subscriptions or redemptions, including any estimated significant market impact of asset purchases or sales to meet those subscriptions or redemptions. The swing factor shall be expressed as a percentage of the net asset value. Swing pricing may be applied where there is a difference between the redemption orders and the subscription orders (full swing) or if the difference exceeds a predefined activation threshold (partial swing).	Swing pricing is convenient when invested in underlying assets where information on trading costs (bid/ask) is available and frequently updated. Many UCITS are already using swing pricing.
6) Dual pricing	Pre-determined mechanism by which the subscription, repurchase and redemption prices of the units or shares of the UCITS are set by adjusting the NAV per unit or share by a factor that reflects the cost of liquidity.	Anti-dilution LMT	UCITS has either (a) two NAVs with one NAV for subscribing investors calculated using the ask prices of the assets and one NAV for redeeming investors calculated using the bid prices of assets or (b) has one NAV for subscribing and redeeming investors.	Dual pricing is rarely used for UCITS. Dual pricing is suitable for funds that invest in assets whose liquidity costs are mainly comprised of the bid-ask spread which is generally considered as de minimis for public securities.
7) Anti-dilution levy	Charging a fee that is paid to the UCITS by the investor at the time of a subscription, repurchase or redemption of units or shares, that compensates the UCITS for the cost of liquidity incurred because of the size of that transaction, and that ensures that other investors are not unfairly disadvantaged.	Anti-dilution LMT	Anti-dilution levies shall include the estimated explicit and implicit costs of subscriptions or redemptions, including any estimated significant market impact of asset purchases or sales to meet those subscriptions or redemptions. Anti-dilution levies shall be expressed either as a percentage of the redemption orders or subscription orders or as a monetary value. Anti-dilution levies may be applied where the difference between redemption orders and subscription orders for a given dealing date exceed a predefined activation threshold.	Anti-dilution levy is rarely used for UCITS. The market impact on public securities from subscription and redemption is in most cases de minimis.
8) Redemption in-kind	Transferring assets held by the UCITS instead of cash to meet redemption requests of the investor.	NA.	Redemption in-kind shall prevent the sale of a sizeable block of assets to respond to redemption requests. Redemption in-kind for market-makers and authorized participants in an UCITS ETF is not considered as the activation of an LMT.	For UCITS, the redemption in-kind has a limited impact since it is only allowed for professional investors and the impact on the other investors also needs to be considered.
9) Side pockets	Separating certain assets, whose economic or legal features have changed significantly or become uncertain due to exceptional circumstances, from the other assets of the UCITS.	NA.	The assets allocated to a side pocket must have economic or legal features that have changed significantly or become uncertain due to exceptional circumstances. Investors shall receive shares or units of the side pocket pro rata in relation to their holdings in the UCITS. Side pockets shall be closed-ended, and no subscriptions shall be accepted for them.	The closed-ended nature of side pockets was often considered as not being conciliable with the requirement that UCITS must be open-ended. Since the creation of side pockets is now embedded in a legal text, we expect that this LMT will be more widely used for UCITS.

Future initiatives that may further amend the UCITS framework

Since the publication of the eligible assets directive (EAD)²⁷ in 2007, the number, type and variety of instruments traded on financial markets has increased considerably, leading to uncertainty in determining whether certain categories of financial instruments are eligible for investment by UCITS. The Commission mandated ESMA to undertake a technical review of the EAD, and ESMA started this with the issuance of a call for evidence²⁸ in May 2024 that closed in August 2024. The call for evidence raises questions on the clarification of key concepts – for example, whether a UCITS can take direct or indirect exposures to certain asset classes through delta-one instruments, derivatives and financial indices to the new asset classes including loans, unlisted securities, crypto-assets, commodities and precious metals, real estate and SPACs. ESMA was expected to deliver the technical advice in April 2025, but this has been postponed by three months²⁹.

In parallel, the Commission launched a consultation on the integration of the EU capital markets³⁰ on 15 April, 2025 where multiple questions are raised on the UCITS framework. Amongst others, questions are raised in relation to the effectiveness of the authorization process of UCITS and whether it should be further harmonized and streamlined. Questions are also raised in relation to the investment limits under the UCITS regime. Responses to the online questionnaire are required by 10 June, 2025. In terms of timing, the Commission states that it will propose legislative measures in the fourth quarter of 2025 to strengthen supervisory convergence and to transfer certain supervisory tasks for capital markets to the EU level.

Conclusion

Although not discussed as loudly as AIFMD 2.0, UCITS VI will introduce significant changes for UCITS and their management companies. With less than 12 months until the go-live date of 16 April, 2026, management companies are advised to start reviewing their structures and documentation now to make sure they are able to comply with the new rules.

Footnotes

1. Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers.

2. Directive (EU) 2024/927 of the European Parliament and of the Council of 13 March 2024 amending Directives 2011/61/EU and 2009/65/EC as regards delegation arrangements, liquidity risk management, supervisory reporting, the provision of depositary and custody services and loan origination by alternative investment funds.

3. Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

4. Amended article 7 of the UCITS Directive.

5. ESMA34-45-344 from 13 July 2017.

6. CSSF circular 18/698 on the authorization and organization of investment fund managers incorporated under Luxembourg law and specific provisions on the fight against money laundering and terrorist financing applicable to investment fund managers and entities carrying out the activity of registrar agent.

7. Commission de Surveillance du Secteur Financier, the supervisory authority for the financial sector in Luxembourg.

8. Central Bank of Ireland, the supervisory authority for the financial sector in Ireland.

9. Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector.

10. Currently, non-core activities are investment advice and safekeeping and administration in relation to shares or units of collective investment undertakings.

11. Revised article 13 of the UCITS Directive.

12. A management company is deemed a letter-box entity if it has delegated its functions to a third party to such an extent that, in essence, it can no longer be considered to be the manager of the UCITS or the provider of the services referred to in Article 6(3).

13. Directive 2014/65/EU.

14. Directive (EU) 2016/97.

15. Revised article 14 of the UCITS Directive.

16. Materials relating to the RIS, including the legislative proposals, FAQs, a factsheet and impact assessment are available on the Commission's dedicated RIS package webpage.

17. European Securities Market Authority.

18. The same applies to AIFMs when managing AIFs invested by retail investors.

19. Revised article 6(4) of the UCITS Directive.

20. Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014.

21. New article 20a of the UCITS Directive.

22. Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds.

23. Final Report, Guidelines on LMTs of UCITS and open-ended AIFs (ESMA34-1985693317-1160). For the consultation paper on which the Guidelines are based, Our OnPoint summarizing the consultation paper on LMTs and the Guidelines is available here.

24. International Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes, December 2023.

25. Revised Policy Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds, December 2023.

26. Final Report, Draft Regulatory Technical Standards on Liquidity Management Tools under the AIFMD and UCITS Directive (ESMA34-1985693317-1259).

27. Commission Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities as regards the clarification of certain definitions.

28. The Call for Evidence on the review of the EAD is available here.

29. ESMA's letter notifying the Commission of postponement of certain deliverables is available here.

30. The Commission's Targeted consultation on integration of EU capital markets is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.