As flagged in our Front Page newsalert the European Securities and Markets Authority (ESMA) published a new Q&A document on the application of the UCITS Directive, as most recently revised by UCITS V.
The Q&A includes the following new Q&A on the documentation updates which UCITS funds need to provide to meet the remuneration and depositary requirements of UCITS V. Key points are;
- On remuneration disclosures in KIIDs and Prospectus. UCITS may update their KIIDS (on or after 18 March 2016) when the KIID is next revised or replaced for another purpose (if the information is then available) and in any event no later than its next annual update (19 February 2017). Similarly, UCITS may update their prospectus when it is next revised for another purpose (if the information is then available) and in any event by 18 March 2017. In the meantime, the additional information on remuneration arrangements should be made available (on or after 18 March 2016) on a relevant website as soon as it becomes available.
- On remuneration disclosures in annual reports. It is not necessary to include the remuneration-related information in annual reports for periods ending before 18 March 2016. For annual reports relating to periods ending on or after 18 March 2016, but before the UCITS management company has completed its first annual performance period, the remuneration-related information should be included on a best efforts basis and to the extent possible, explaining the basis for any omission.
- On timing of updates of depositary contracts. UCITS depositary contracts should be revised promptly in accordance with any transitional arrangements outlined in the delegated acts. As reported in our December Front Page, the European Commission published the first official draft of the UCITS V level 2 Regulation in December and we await its publication in the Official Journal. It will come into force 20 days after that date and (based on that draft) it will apply from a date 6 months after the entry into force of the Regulation. However ESMA note that any provisions in existing contracts concerning depositary liability which conflict with the UCITS V depositary liability provisions will be void with effect from 18 March 2016 and the UCITS V depositary liability provisions will apply instead. ESMA point out that the liability provisions in existing depositary contracts should be amended to reflect the UCITS V depositary liability provisions when those depositary contracts are revised to comply with the delegated acts as detailed above. We expect that many UCITS funds and depositaries will wish to update the depositary contracts by 18 March 2016so as to ensure that the depositary contract correctly reflects the legal position.
The new Q&A also repeals and replaces four Q&A's on UCITS that ESMA has previously issued:
- The key investor information document (KIID) for UCITS.
- Q&A on ESMA's guidelines on exchange traded funds (ETFs) and other UCITS issues.
- Notification of UCITS and exchange of information between competent authorities.
- Risk measurement and calculation of global exposure and counterparty risk for UCITS.