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UCITS V in a nutshell

UCITS V timeline

The European Commission has been considering a review of the UCITS regulation (UCITS V) since December 2010, at the time by launching a consultation on proposed changes to the depositary function and to UCITS managers’ remuneration. An additional and rather new topic added to UCITS V following an ESMA study in 2011, is a harmonised sanctions regime.

UCITS V timeline

Depository regime

Duties, delegation, eligibility and liability

  • Single depository appointed by a written contract
  • Uniform list of oversight duties incumbent on both legal forms of UCITS (i.e. FCP and SICAV) – increased responsibilities
  • Detailed provision on cash monitoring whereas the Depository needs to have a view on all assets of the fund, including cash
  • Distinction between (1) custody duties on financial instruments that can be held under custody (2) monitoring duties on other assets (i.e. verify ownership of these assets)
  • Conditions and requirements on safekeeping delegation to a third party aligned to AIFMD
    • Demonstrate objective reason for delegation
    • Exercise due skill, care and diligence in the selection and on-going review of the delegates
    • ESMA expected to give further guidance
  • Depository shall be a credit institution or an investment firm subject to extensive conditions
  • Obligation to return financial instruments (i.e. identical type or corresponding amount) in case of loss of financial assets held under Custody
  • No discharge of liability, except if depository can prove loss is due to “external event beyond reasonable control”
  • Liability is not affected by delegation of custody tasks
  • Liability goes beyond AIFMD as liability cannot be contractually discharged

Rules governing remuneration

Policy of remuneration of senior management, risk takers and control functions

  • Financial crisis considered to focus remuneration on short-term returns incentivising risk-taking and myopic decision making
  • Ensure remuneration is consistent with risk management and profile

Sanctions regime

Sanctions policies in the financial sector  - publication of sanctions and management authorisation

  • Harmonised sanctions regime will be developed in ESMA level 2 requirements
  • Member states to compile a list of minimum penalties for three types of offences i.e. breaking (1) fund authorisation (2) fund operational (3) reporting rules
  • The penalties will range from a public warning to a temporary suspension and will also include fines
  • Countries may go beyond the minimum penalties if they wish

Contacts

  • Vincent Gouverneur
    Partner - EMEA Investment Management Leader
  • Johnny Yip
    Partner - Investment Funds & Hedge Funds Leader
  • Lou Kiesch
    Partner - Regulatory Consulting
  • Benjamin Collette
    Partner - Strategy & Corporate Finance Leader
  • Simon Ramos
    Partner - Regulatory Consulting

Focus on

  • The changing role of custodian banks
    There has been much public debate around initiatives aimed at reforming the European internal market and the global arrangements in the wake of the financial crisis.
  • EMEA Centre for Regulatory Strategy - European Commission proposals on a Revision of the UCITS V
    European Commission proposals on a revision of the Undertaking for Collective Investment in Transferable Securities. Key changes and impact on firms.

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