A Maltese study on the UCITS framework and investor protection

Abstract

The UCITS provisions build upon the 1985 EU Directive 85/611/EEC. New provisions always seek to improve the UCITS framework for it to comply with the dynamic trends and needs of the market. Its initial goal was to foster competition in the European fund industry; unify the market and provide high retail investor protection. The objectives of this study are to provide the reader with a comprehensible understanding of the above framework, and gather an insight of how Maltese management companies feel about the latest UCITS V. The concern is whether the UCITS Directive, following all the amendments that have come into effect along the years, has kept in line with its main purposes. The study investigates the concept of investor protection within the financial industry and seeks possible ways to improve investors' trust and confidence. Furthermore, the study also highlights Malta's competitive strengths and weaknesses and considers the possibility of UCITS VI. This analysis is done through the use of an online survey addressed to local management companies. The results of this study mainly highlight that UCITS are of a golden standard and that they have kept following their initial goals. Furthermore, it identifies the lack of knowledge amongst investors and the fact that investors have their reservations when it comes to trusting the financial market. Another discovery was that management companies have unequal perceptions over UCITS V. It was also found that Malta’s strongest competitive advantages are its sound reputation and decent fees, and lacks behind when it comes to its infrastructure and limited depositaries. The findings of the study suggest the need to increase investor trust, by possibly enhancing investor education (example through public seminars) and reinforce communication channels between investors and financial institutions. The study also implies that since UCITS V did not manage to fix all the deficiencies of the previous directives, these are expected to be addressed in UCITS VI. Lastly, it is suggested that potential reforms should, in addition to what is already proposed, cover the SRRI within the KIID, taxation implications and European custodians. Investment funds are growing within the European financial system, and the need for an efficient and stable regulatory framework is continuously increasing in importance. It is vital that the UCITS framework continues to be revised and that Malta, including its investors, stays alert.