The Cyprus EU Council Presidency has published (16 November 2012) a compromise text on the Commission proposal for a directive on the coordination of laws, regulations and administrative provisions relating to UCITS as regards depositary functions, remuneration policies and sanctions (UCITS V).
The text contains new provisions on:
- The reuse of financial instruments held in custody
- The carrying out of depositary activities by a legal entity which is not an investment or credit firm
- The obligation for Member States to lay down rules on administrative sanctions for non-compliance by firms with the implemented UCITS V Directive
A new Annex is also included for the purposes of efficient transposition monitoring, which provides that Member States shall prepare transition tables clearly identifying which provisions of the UCITS V rules are implemented in which legal act(s) at national level.
Reuse of financial instruments held in custody
The compromise text provides that financial instruments held in custody by a depository may not be reused by the depository for its own account or by any third party to whom custody has been delegated. “Reuse” is stated to include transferring, pledging, selling and/or lending. This goes beyond similar provisions under AIFMD which state that assets held in custody may not be reused without the prior consent of the AIF or AIFM acting on behalf of the AIF.
Eligibility to act as a UCITS depository
Supporting EFAMA’s earlier stated position on the same point, the compromise text also provides for a third category of eligibility to act as a UCITS depository, namely, legal entities that are specifically authorised under the laws of their home Member State to carry on depository activities and which are subject to minimum capital requirements and on-going conduct of business and prudential requirements and supervision. This should permit all non-credit institutions, non-MiFID type institutions which are currently authorised to act as depositories to continue to do so provided they meet the minimum capital requirements and are subject to prudential regulation.
The amendments suggested by the compromise text to the administrative sanctions provisions of UCITS V increase the scope for competent authorities to take into account factors such as conditions and sanctions already laid down in national law, proportionality as regards the publication of personal data relating to natural persons who have been sanctioned and determinative considerations beyond what is explicitly laid down in the legislation when applying or making decisions pursuant to the administrative sanction procedures set down under UCITS V.