When can a UCITS management company delegate its functions, and when must CySEC revoke its licence?

A management company may delegate one or more of its functions only if every condition is met. The delegate is qualified and capable of the work. A written contract lets the company's managers supervise the delegate effectively at any time, and the company can give instructions and withdraw the mandate with immediate effect. CySEC is informed, and passes the information to the UCITS home authority where relevant. The arrangement does not hamper supervision or stop the company acting in the unitholders' interests, and the prospectus and KIID list the delegated functions. Above all, the company may not delegate so much that it becomes a letter-box entity with no substantive activity of its own. Investment firms follow similar rules, described in What rules apply when an investment firm outsources critical or important functions?

Portfolio management may be delegated only to firms authorised for collective portfolio management and supervised to UCITS standards, or to firms authorised for portfolio management under MiFID or equivalent rules, which needs CySEC's prior approval. A delegate in a third country also needs cooperation between CySEC and its supervisor. The delegate follows the company's allocation criteria, and the task may never go to the depositary or to anyone whose interests may conflict with those of the company, the UCITS or its unitholders. Delegation leaves the liability of both the management company and the depositary unchanged.

CySEC must revoke the licence if the company has not used it within 12 months of notification, has expressly renounced it or has stopped the licensed activity for more than 6 months. It must also revoke it if the licence was obtained by false statements or other irregular means, if the company no longer meets the licence conditions, or if the company asks in writing. Serious and/or repeated breaches of the Law give CySEC a choice. The exam material lists them among the grounds on which revocation is compulsory; the Law has made them discretionary since 2012.

If own funds fall below the capital requirement, or below capital adequacy rules where individual portfolio management is licensed, CySEC may give the company a period to put this right. If that period ends without a fix, CySEC must revoke. Revocation may also be partial, covering only the management of non-UCITS funds or particular additional services, provided UCITS management continues. For the equivalent regime for investment firms, see When can CySEC suspend or withdraw a CIF's authorisation, and what happens to clients?

CySEC notifies the company, the Registrar of Companies and host-state authorities, and publishes the revocation on its website. The company stops the revoked activities immediately on notification and settles all its obligations within 3 months. After a full revocation it goes into liquidation, and CySEC may ask the court to appoint a liquidator. CySEC also makes sure the funds it managed are not disrupted: it appoints a new management company under the replacement rules or, if that is not possible, revokes the fund's licence. If a common fund loses its licence, CySEC appoints a liquidator other than the failed company. For a VCIC, CySEC applies to court for liquidation.