On 3 July 2012, the European Commission (the “Commission”) issued its legislative proposals for a revised Directive on undertakings for collective investment in transferable securities (“UCITS V”).  

In drawing up the legislative proposals, the Commission engaged in an impact assessment focusing on five main areas, namely:

  • eligibility to act as a depositary;
  • delegation of depositary functions;
  • liability of depositaries;
  • remuneration; and
  • sanctions.  

Eligibility to act as a depositary

Currently, Member States enjoy considerable discretion in choosing the types of institutions deemed eligible to act as UCITS depositaries. Provided the entities are subject to prudential regulation and on-going supervision, Member States are free to deem any institutions eligible to so act.  

In an effort to ensure legal certainty and to ensure a level playing field for investors, the Commission has determined that only credit institutions and regulated investment firms provide the appropriate guarantees for the purposes of being appointed as depositaries. In carrying out its impact assessment, the Commission concluded that given that most depositaries are already credit institutions or regulated investment firms, only a minority would be affected by the new requirement under UCITS V.  

Delegation of depositary functions

UCITS V aims to rectify the inconsistent approach adopted when determining the liability of a depositary when sub-custodians are appointed. The Commission deems that current UCITS rules fail to prescribe in appropriate detail the conditions under which the delegation of depositary functions can take place and the conditions that should apply when proposed sub-custodians do not meet the requisite prudential and supervisory standards.  

In drawing up the legislative proposals, the Commission determined that high standards should be adopted when selecting and engaging in on-going monitoring of sub-custodians. In instances where delegation is proposed to a non-compliant sub-custodian in a third country, it has been suggested that, provided local custody is mandated by law and investors are aware of any such requirements, such delegation is acceptable.  

Liability of custodians

The existing UCITS directive provides that a custodian is only liable for the “improper performance” of the depositary functions or “an unjustifiable failure to perform obligations” has occurred. This has led to a number of differing interpretations by Member States regarding the level of liability to be attributed to custodians in such instances.  

Following its impact assessment, the Commission has determined that a strict liability standard should be applied. Such strict liability will apply irrespective of fault or negligence.  


As the remuneration of UCITS managers can be linked to the performance of the funds they manage, this can lead to an increase in the levels of risk in the portfolio of the fund.  

The Commission proposes introducing a requirement for UCITS management companies to implement sound remuneration policies that match the risk management policies of the funds they represent. It is also proposed that they will be required to disclose their total remuneration for the financial year in the financial statements of the UCITS fund. This is to ensure that UCITS managers are held accountable to the investors they represent and reflects similar provisions in the AIFMD.  


In analysing the implementation of sanctions by Member States, the Commission noted:

  • differences in the amounts of pecuniary sanctions;
  • differences in the criterion used to determine the amount of administrative sanctions; and
  • variations in the level of the use of sanctions.  

In order to ensure the harmonisation of the use of sanctions across the Member States, the Commission proposes introducing:

  • a minimum catalogue of administrative sanctions and measures;
  • a minimum list of sanctioning criteria; and
  • whistle-blowing mechanisms.  

The Commission envisages UCITS V being applied by the end of 2014.  


On 26 July 2012 the European Commission (the “Commission”) published a consultation paper (the “Consultation”) on the introduction of a new directive in respect of undertakings for collective investment in transferable securities (“UCITS VI”). The Consultation covers topics separate from the UCITS V proposals issued by the Commission on 3 July 2012. The Consultation focuses on eight key areas:

  1. Eligible Assets.
  2. Efficient Portfolio Management.
  3. Over the Counter Derivatives.
  4. Extraordinary Liquidity Management Tools.
  5. Depositary Passport.
  6. Money Market Funds.
  7. Long-Term Investments.
  8. UCITS IV Improvements.  

The Commission invites responses to the Consultation and will use the information gathered in the formulation of future policies in the field of asset management. Respondents must have their contributions filed with the Commission by 18 October 2012.