The Council of the EU formally adopted the UCITS V Directive on 23 July 2014.

UCITS V will introduce new rules in relation to fund manager’s remuneration, depositary eligibility, depositary liability and the duties of depositaries; in addition to rules aimed at harmonising administrative sanctions for UCITS that fail to comply with national UCITS authorisation and reporting rules.

Key features:

  • UCITS fund managers will have to introduce new remuneration policies and practices, with a view to discouraging excessive risk taking and increasing transparency. The wording of the remuneration-related recitals to the new Directive, which were the subject of heavy negotiation, provide that the new policies and practices “…should apply, in a proportionate manner, to any third party [that] takes investment decisions that affect the risk profile of the UCITS because of functions [that] have been delegated”.
  • Those affected by the new remuneration rules will see 50% of their variable remuneration paid in fund units and 40% of bonus payments deferred for at least three years (60% in the case of large bonuses).
  • Only national central banks, credit institutions and regulated firms with sufficient capital and adequate infrastructure will be eligible to act as a UCITS depositary.
  • The liability of UCITS depositaries is to be strengthened, with depositaries now liable for any loss of assets held in custody. Investors will also have a right of redress directly against the depositary and will not have to rely on the UCITS manager in this regard.

UCITS V also introduces whistleblowing procedures aimed at encouraging employees of UCITS management companies to report breaches of relevant rules to the relevant regulatory authorities.

Next Steps

The new Directive will be published in the Official Journal and will enter into force 20 days thereafter. Member States will then have 18 months to transpose the new rules into national legislation (i.e. likely to be Q1 2016). In the meantime, ESMA is to prepare further guidance as to the persons to whom the remuneration policies and practices are to apply and as to the proportionate application of same. Such guidelines are, where appropriate and to the extent possible, to be aligned with those applying to funds regulated under AIFMD.