With UCITS IV still fresh in the minds of the funds industry, a draft of the UCITS V Directive has recently been unofficially released. UCITS IV was initiated before the financial crisis erupted in 2008 and the perception was that it did not adequately reflect the shift in regulatory mindset sweeping through the financial services industry the best example of which is the Alternative Investment Fund Managers Directive (the AIFMD). UCITS V is an attempt to align the UCITS product with the changes being implemented under the AIFMD.

The focus of the UCITS V changes to the UCITS product will be to clarify the role, eligibility, responsibility and liability of depositories (or Custodians as they are familiarly referred to in Ireland). It is proposed that UCITS V will also deal with management company remuneration and attempt to broaden the scope of regulatory sanction available to competent authorities in each Member State.


One of the most fundamental changes proposed under the draft UCITS V Directive will be a requirement that a UCITS appoint a single custodian to be entrusted with the safekeeping of all the assets of a UCITS. It is also proposed to create an exhaustive list of entities that may act as custodian. The draft Directive provides that only EU authorised credit institutions and investment firms authorised under the Markets in Financial Instruments Directive (MiFID) may act as custodian to a UCITS.

The draft UCITS V Directive also contains provisions regulating the delegation of the safekeeping function to third parties. The draft Directive provides that the prospectus for a UCITS must contain a detailed description of any delegation of the safekeeping function.

The draft UCITS V Directive provides that a custodian will be liable for any loss suffered by the UCITS or its investors unless it can prove that the loss was caused by "an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary". This particular provision is still the subject of much debate between industry members and the EU legislators.

Management Company Remuneration

UCITS V, if introduced in its draft format, will apply new rules on remuneration for management companies consistent with those under the AIFMD and the Capital Requirements Directive. The suggestion is that remuneration policies should be in line with effective risk management and designed to protect investor interests. Such policies will apply primarily to senior management and those in the same pay bracket as senior management.

Regulatory Sanctions

The draft Directive also creates a requirement that all Member States give wide ranging investigative powers and administrative sanction capabilities to their competent authorities, expanding on the broad principles contained in UCITS IV. The provisions are also broadly in line with those of the AIFMD.

Next Steps

The draft UCITS V Directive is expected to be formally published in the latter half of 2012. It is envisioned that implementation could be required by mid-2014.