How is a UCITS management company authorised and capitalised, and how can it be replaced?

A UCITS management company is a limited company with shares, with its registered office and head office (central administration) in Cyprus, whose main business is managing UCITS. Its CySEC licence is valid throughout the EU. Managing a UCITS covers investment management, administration and marketing; administration ranges from fund accounting, valuation and pricing to compliance monitoring, the unitholder register, distributions, unit dealing and record keeping. With CySEC's permission it may also manage other supervised funds, without a passport for their units.

With authorisation and a basis in its articles, it may also manage individual clients' portfolios on a discretionary basis, pension funds included, and, as non-core services, give investment advice and keep and administer units of collective investment undertakings. It cannot be licensed for these services alone, or for the non-core ones without portfolio management, and the Investment Services Law applies to them. It may put a client's portfolio into its own funds only with the client's prior written consent. The exam material ties Investor Compensation Fund membership to that case; the Law has required membership since 2012 whenever the company provides any of these additional services.

Initial capital is at least €125,000, fully paid in cash, and own funds may never fall below that level; a company offering the additional services must also meet the Investment Services Law thresholds. Once the portfolios it manages exceed €250 million, it adds own funds equal to 0.02% of the excess. The count includes common funds it manages, even if it has delegated their management, investment companies that have designated it and other funds it manages, but not portfolios it manages as someone else's delegate. The Cyprus Law caps this increase at €10 million; the Directive's own wording caps initial capital and the additional amount together at €10 million. CySEC may let a bank guarantee cover up to 50% of the additional amount. The exam material names only a credit institution operating in Cyprus or another Member State as guarantor. Since 16 June 2015, Law 88(I)/2015 has also allowed one in a third country whose prudential rules CySEC treats as equivalent.

Own funds may also never be less than the fixed overheads requirement in Article 13 of Regulation (EU) 2019/2033: one quarter of the previous year's fixed overheads, or of projected fixed overheads in the first year. The exam material speaks of 25% of the previous year's overheads. The Law has referred to fixed overheads since 2012. Since 18 October 2021, Law 134(I)/2021 has required the amount to be calculated under Article 13 of that Regulation instead of the Law's own formula. For fund managers of alternative funds, see How is an AIFM authorised, and how much capital must it hold?

CySEC grants a licence if the company has the initial capital and suitable shareholders. It must also have adequate organisation, staff and financial and technical means, and managers of good repute and experience. At least two persons must effectively direct the business. The application includes a programme of activity and the organisational structure, and the registered office and head office must be in Cyprus. The exam material speaks of a minimum of two directors; since 2012 the Law has required at least two persons who effectively direct the business, whatever their title. CySEC decides within 6 months of a complete application, giving reasons for a refusal, and the company may start once the licence is notified.

Once licensed, it keeps sound administrative and accounting procedures, controls over electronic data processing that since 21 February 2025 expressly include network and information systems under the Digital Operational Resilience Act (DORA), and internal controls such as personal dealing rules and records that let each transaction be traced. It is organised to keep conflicts to a minimum and runs a website. It files an audited annual report with CySEC within 4 months and a semi-annual report, which need not be audited, within 2 months. CySEC's code of conduct requires it to act honestly and lawfully, with due care and diligence, in the interest of its funds and of market integrity, to have and use adequate resources and procedures, to prevent and manage conflicts, treating its funds fairly, and to meet all its obligations. Investors may complain in an official language of their Member State, and the company is liable to unitholders for any negligence.

A management company may resign only with the permission of CySEC, or of the UCITS home authority where relevant, and only once another management company has fully taken over; CySEC weighs the unitholders' interests. Replacement may be requested by the depositary, which proposes the new manager, or, for a VCIC, by its board; unitholders have no right to request it. Until the handover is complete the outgoing company remains jointly and severally liable with its successor, the fund rules or instruments of incorporation are amended, and CySEC may impose whatever measures protect unitholders.