On March 24, 2016, Commission Delegated Regulation with regard to obligations of depositaries was published in the Official Journal of the European Union. The Undertakings for Collective Investment in Transferable Securities (UCITS V) Directive outlines requirements regarding depositaries’ duties, delegation arrangements and the liability regime for UCITS assets under custody. The Regulation supplements the obligations set out in UCITS V. It specifies definitions and details of written contracts for the appointment of a depositary including, amongst other things, that the written contract should comprise all necessary details for the appropriate safekeeping of all UCITS assets by the depositary or a third party delegated with safekeeping functions and for the depositary to properly fulfill its oversight and control functions. The written contract must also provide sufficient detail on the categories of financial instruments in which the UCITS may invest and cover the geographical regions in which the UCITS plans to invest.
The Regulation details general duties associated with depositary oversight, subscription and redemptions, valuation functions, the timely settlement of transactions, monitoring of UCITS cash flows, payment upon subscription, safekeeping duties for assets held in custody, segregation obligations and the obligation of depositaries to monitor third parties performing safekeeping functions and insolvency protection of UCITS assets when delegating custody functions. It also outlines the obligations on depositaries following the loss of a financial instrument held in custody and the circumstances in which a depositary can discharge liability.
The Regulation provides for independence requirements to mitigate risks associated with common management between the management company or investment company and the depositary. It requires the establishment of procedures for the appointment of a depositary and the delegation of safekeeping, procedures to identify and avoid any conflicts of interest between parties and the minimum requirements for independent board members of the management company and management body of the depositary where a conflict of interest exits. The Regulation will enter into force on April 13, 2016, and will apply, subject to certain exceptions, directly across the EU from October 13, 2016.
The Delegated Regulation is available at: http://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=uriserv:OJ.L_.2016.078.01.0011.01.ENG&toc=OJ:L:2016:078:TOC.