1 June, 2016 marks the entry into force in Luxembourg, of the law of 10 May 2016 (the "2016 Law") which implements UCITS V[i] by amending the law of 17 December 2010 on undertakings for collective investment (the "2010 Law").

In a nutshell, the 2016 Law transposes UCITS V into national law by implementing (i) the revised depositary regime; (ii) the new remuneration rules; and (iii) the upgraded sanctions framework on undertakings for collective investment in transferable securities ("UCITS").

In addition to the foregoing, the 2016 Law in fact  goes a step further by (a) extending the application of the new depositary regime to the entirety of undertakings for collective investment subject to the 2010 Law including those authorised under Part II ("UCIs"); (b) introducing additional infringement provisions applicable to both UCITS and UCIs; and (c) amending the AIFM Law[ii] by introducing the requirement for Luxembourg-authorised AIFMs[iii] to designate an approved statutory auditor as well as the possibility for them to passport certain MiFID[iv] investment services on a cross-border basis, subject to relevant authorisation by the Commission de Surveillance du Secteur Financier ("CSSF").

As a result of the provisions outlined above, a set of new obligations for depositaries of UCITS/UCIs ("Depositary(ies)") and management companies of UCITS/UCIs ("ManCo(s)") (or the governing bodies of self-managed UCITS/UCIs) is established and the aforementioned entities should in turn anticipate a consequential impact on their existing fund documentation for UCITS and UCIs.

he effective date for complying with the new Depositary liability regime, with respect to UCITS, and the remuneration-related provisions under the 2016 Law is set retroactively on 18 March 2016. For all other provisions, the effective date for compliance is 1 June 2016. From a fund documentation viewpoint, the CSSF has already clarified[v] that it will generally apply the timelines outlined in the ESMA Q&A on the application of UCITS V[vi], as further described under points 1 and 2 below. The new Depositary rules under the 2016 Law should be considered together with the provisions of the Level 2 Depositary Regulation[vii] that will applyas from 13 October 2016 and the provisions of CSSF Circular 14/587[viii] (which is expected to be updated by October 2016[ix]before the Level 2 Depositary Regulation comes into force).

The new obligations applicable under the 2016 Law are shaped as follows:  

  1. UCITS ManCos*: new rules on remuneration 

UCITS ManCos must establish a remuneration policy and implement related practices that abide by the following key principles that:

  • are consistent with, and promote, sound and effective risk management of the UCITS concerned;
  • do not encourage risk-taking incompatible with the risk profiles and the rules governing the relevant UCITS;
  • are aligned with the business strategy, objectives, values and interests of the UCITS ManCo and of the UCITS that it manages and their investors, and include measures to avoid conflicts of interest;
  • do not impair compliance with the UCITS ManCo's duty to act in the UCITS' best interest.

This policy shall apply to the so-called identified staff of the UCITS ManCo ("Identified Staff") and extend to the delegates of the latter, provided that such persons undertake activities having a material impact on the risk profiles of the UCITS ManCo or of the UCITS concerned.

The remuneration provisions under UCITS V are very detailed on variable remuneration and broadly replicate the corresponding provisions applicable to AIFMs under the AIFMD[x]. The rules on remuneration under the 2016 Law will need to be considered alongside ESMA's final Guidelines on Sound Remuneration Policies under UCITS V[xi], which will apply from 1 January 2017.  

Specific quantitative and qualitative criteria for granting variable remuneration to Identified Staff will need to be incorporated and complied with in view of the AuM volume, nature, structure and complexity of the UCITS ManCo's business, on the basis of the principle of proportionality.

Certain transparency requirements are also introduced by the 2016 Law, pursuant to which  information related to remuneration policies and practices must be disclosed in the key investor information documents (“KIID”), the prospectus ("Prospectus") and the annual reports ("Annual Report") of the relevant UCITS, as follows:

  • The KIID must include a statement indicating that the specifics of the up-to-date remuneration policy are made available on a given website and also in hard copy free of charge upon investors' request, it being understood that said update should be disclosed in the next standard annual update of the KIID after 18 March 2016, or at the first available occasion once the information becomes known[xii].  
  • The Prospectus may disclose either: (i) detailed information on the remuneration policy and practices (which should, at least, include, the description of the calculation methods for remuneration and benefits as well as the identity of the persons responsible for the allocation including the composition of the remuneration committee, as the case may be); or (ii) a summarised version thereof along with a statement equivalent to that made in the KIID. The Prospectus should, accordingly, be updated by 18 March 2017 at the latest, it being understood that the remuneration -related information must be incorporated on the next available occasion when the Prospectus is revised for another purpose[xiii].  
  • The Annual Report relating to a financial year ending on or after 18 March 2016 must contain quantitative remuneration-related information, notably the number of beneficiaries and the total remuneration paid to Identified Staff, including a breakdown based on fixed and variable components per category of Identified Staff. The relevant updates must be made after 18 March 2016 on a best efforts basis and/or, to the extent possible, explaining the basis for any omission or delay[xiv].

* The above section applies to governing bodies of self-managed UCITS (with the necessary adaptions).

  1. Depositaries: revised regime of duties and liability

For each UCITS and UCI, a single depositary must be designated by means of a written contract[xv], and be entrusted with all of the UCITS' and/or UCI's assets, respectively. By deviating from UCITS V and for the purpose of protecting the interest of retail investors, the 2016 Law abstained from revising the eligibility criteria for being a Depositary. The existing regime which exclusively allows credit institutions authorised under the law on the financial sector of 5 April 1993, as amended (the "1993 Law"), to act as Depositaries, is preserved.

As anticipated, the rules applicable to Depositaries vis-à-vis cash-flow monitoring obligations, safekeeping duties and oversight functions, as well as the conditions for delegation of tasks are, pursuant to the 2016 Law, aligned with the corresponding rules under the AIFMD.

With respect to safe-keeping, the revised provisions of the 2010 Law make a distinction between financial instruments capable of being held in custody and other assets, for which the Depositary's duties are limited to record-keeping and ownership verification, as opposed to the full range of custodial obligations in relation to assets held in custody. The 2016 Law shall prevail [xvi] in case of any discrepancy between its provisions and the provisions applicable to Depositaries of UCITS pursuant to the CSSF Circular 14/587[xvii] e.g. with respect to the notion of "safe-keeping" under point 46 of said circular. In order to avoid the existence of overlapping rules, the CSSF has committed[xviii]to adapt said circular by October 2016 including removal of any aspects governed by the 2016 Law and clarification of its applicability to UCIs.  However, as said circular applies already since 18 March 2016, UCITS Depositaries must meet the requirement to produce an independent auditor's annual report on the adequacy of the Depositary's organisation, it being understood that the first applicable financial year is that starting after 18 March 2016.

Moreover, a strict liability regime in case of loss of UCITS’ and/or UCI's assets held in custody is imposed. However, a notable key difference between the Depositary regime pursuant to UCITS V as compared to the AIFMD, is that, in case of delegation of the Depositary's safekeeping tasks to any sub-custodian(s): under UCITS V, the Depositary's liability cannot be contractually excluded or transferred to the sub-custodian and thus in the case of loss of financial instruments held in custody, the Depositary, notwithstanding any delegation, remains obligated to return equivalent financial instruments (unless it proves that the loss arose as a result of an external event beyond its reasonable control, the consequences of which would have been inevitable despite all reasonable efforts to the contrary).

Besides, the Depositary is required to, inter alia, include in the Prospectus a description of any safekeeping functions delegated, and the list of relevant sub-custodian(s), as well as the conflicts of interest that might arise in relation thereto.  

Finally, a right to invoke the liability of the depositary, either directly or indirectly through the UCITS/UCI, is granted by the 2016 Law to the relevant share/unit-holders, provided that this does not lead to duplication of redress or unequal treatment of the relevant investors of the UCITS and/or UCI. 

  1. Requirements related to the system of sanctions and whistleblowing measures

While the enforcement of the vast majority of the provisions relevant to sanctions is entrusted to the CSSF, the governing bodies of UCITS and UCIs, their management companies and Depositaries as well as any undertaking contributing towards the activities of the UCITS/UCI which is subject to the supervision of the CSSF, are now required to put in place appropriate organizational measures for the purpose of enabling timely and efficient reporting by their employees of infringements internally, via a specific, independent and autonomous channel. In addition, the 2016 Law supplements the provisions of the 2010 Law with a range of general infringements, inspired by the AIFM Law and the 1993 Law, which apply both to UCITS and UCIs, and their Depositaries and management companies, as the case may be.

Next steps for ensuring compliance under the 2016 Law:

  • If you are a self-managed UCITS/UCI, you should now:

make sure that you put in place an updated remuneration policy and practices, as described above under point 1; 

anticipate amendments, where applicable, to the relevant contractual and fund documentation, as further described under points 1 and 2 above;  

ensure compliance with the new reporting requirements under the administrative sanctions regime, as described under point 3 above.  

  • If you are a ManCo, you should now:

make sure that you put in place an updated remuneration policy and practices, as described above under point 1; 

identify the UCITS/UCIs under management and anticipate amendments, where applicable, to the relevant contractual and fund documentation, as further described under points 1 and 2 above;  

ensure compliance with the new reporting requirements under the administrative sanctions regime, as described under point 3 above.

  • If you are a Depositary, you should now:

ensure the necessary revisions and upgrades are implemented in your set of standard contracts and existing contracts with UCITS/UCIs, in accordance with the new requirements as described under point 2 above, and seek independent legal advice on bankruptcy and asset segregation (for more information about Baker & McKenzie - Global Custody & Securities Lending, please click here);  

ensure compliance with the new reporting requirements under the administrative sanctions regime, as described under point 3 above.

  • If you are an undertaking, subject to CSSF supervision and contribute towards the activities of a UCITS/UCI, you should now also ensure compliance with the new reporting requirements under the administrative sanctions regime, as described under point 3 above.
  • If you are an AIFM: you should appoint an approved statutory auditor by 15 September 2016.


The stated aim of UCITS V is to effectively bring the UCITS regime into line with AIFMD and introduce a range of corresponding measures that, in a UCITS context, had previously been regulated in less prescriptive terms. The 2016 Law, in faithfully transposing  the provisions under UCITS V  and  furthermore extending the new depositary regime to "Part II UCIs" (which were previously subject to the less stringent rules under either the AIFM Law or CSSF Circular 91/75) goes a long way towards achieving the stated aim. Moreover, in amending the AIFM Law concerning the provision by AIFMs of non-core services and the appointment of a statutory auditor, the Luxembourg legislature has taken the opportunity to make certain timely clarifications which had previously been omitted.