On 4 December 2013, the Permanent Representatives Committee agreed on behalf of the Council its own position on the proposal directive of the European Parliament and of the Council amending the UCITS IV Directive1. Wildgen, Partners in Law, had published a short article UCITS V Proposal Directive in that respect on 17 January 2014.
Recently, on 15 April 2014, the European Parliament adopted in plenary session an amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”) as regards depositary functions, remuneration policies and sanctions (the so-called “UCITS V Directive”).
The new rules considerably increase the protection of investors vis-à-vis managers of UCITS funds and their depositaries.
Key elements of the UCITS V Directive are as follow:
- The strengthening of the rules on eligible entities that can act as a depositary. Only national central banks, credit institutions and regulated firms with sufficient capital and adequate infrastructure are eligible as UCITS depositaries. In addition, the depositary retains for safekeeping of the assets in which a UCITS invests and thus maintains the UCITS’ and its investors’ property interests and also performs certain oversight functions. The UCITS assets are protected in the event of insolvency of the depositary through clear segregation rules and safeguards provided by the respective insolvency laws of the Member States. The depositary's liability is thus strengthened.
- Remuneration policies for all risk takers involved in managing UCITS funds are introduced so that remuneration practices do not encourage excessive risk-taking and instead promote sound and effective risk management. The transparency of the remuneration practices is enhanced. The remuneration policies are in line with those in the Alternative Investment Fund Managers Directive2. At least 50% of any variable remuneration must consist of units of the UCITS concerned, or equivalent, unless the management of UCITS accounts for less than 50% of the total portfolio managed by the management company, in which case the minimum of 50% does not apply.
- The UCITS V Directive amends the existing regime to ensure effective and harmonised administrative sanctions. The use of criminal sanctions is framed so as to ensure the cooperation between authorities and the transparency of sanctions. The financial crisis revealed discrepancies in the approach of supervisors to the sanctioning of breaches of the UCITS rules. The amendments introduce minimum administrative sanctioning powers that must be available to supervisors. Administrative sanctions include (i) issuing a public statement identifying the person responsible and the nature of the breach, (ii) an order to cease the conduct, (iii) pecuniary sanctions on legal and natural persons, (iv) suspension or withdrawal of the authorisation of the management company of the UCITS and (v) temporary or permanent ban against a member of the management company’s or investment company’s management body.
The adoption of the UCITS V Directive is still subject to the formal approval by the Council. However, such approval is awaited for very soon, so that the publication of the new rules in the European Union Official Journal is foreseen already for the second quarter of 2014. Member States, including Luxembourg, will then have 18 months to transpose the provisions into their respective national laws and regulations. For Luxembourg this would be the amendment of the current law of 17 December 2010 on undertakings for collective investment, as amended.