The European Commission published the first official draft of the UCITS V level 2 Regulation. The UCITS V level 2 regulation will implement UCITS V which will come into force on 18 March 2016.

The draft Regulation sets out more detailed requirements on the UCITS V amendments affecting depositaries. Regulators, UCITS managers and depositaries have been waiting for this Regulation so as to understand how the detailed requirements can be implemented into relevant processes and procedures within the tight timescales envisaged. Sensibly, the current draft provides that the Regulation shall apply from a date which is six months after it comes into force (although this is still draft and so liable to change).

The draft Regulation covers

  • Definitions (Article 1);
  • Detail of what must be included in the written contract for the appointment of the depositary (Article 2);
  • Oversight duties- general requirements (Article 3);
  • Duties regarding subscription and redemptions (Article 4);
  • Duties regarding the valuation of units (Article 5);
  • Duties regarding the carrying out of the UCITS’ instructions (Article 6);
  • Duties regarding the timely settlement of transactions (Article 7);
  • Duties related to the UCITS’ income calculation and distribution (Article 8);
  • Cash monitoring- general requirements, monitoring of UCITS' cash flows and duties regarding payments upon subscriptions (Articles 9 to 11);
  • Conditions for performing the depositary functions (Articles 12 to 14);
  • Due diligence duties (Article 15);
  • Segregation obligation (Article 16);
  • Insolvency protection of UCITS assets when delegating custody functions (Article 17);
  • Loss of financial instruments and liability discharge (Chapter 3); and
  • Independence requirement (Chapter 4).

The delegated regulation is now be subject to scrutiny by co-legislators prior to publication in the Official Journal and will come into force 20 days after that date.