ESMA Consults On Depositary Requirements Under UCITS V

The European Securities and Markets Authority has issued a consultation paper seeking feedback from asset management industry members on its draft advice to the European Commission regarding depositary requirements under the forthcoming UCITS V directive.

The paper has been drawn up in response to a provisional request from the Commission on July 3 seeking technical advice on the content of two delegated acts on depositaries that the Commission is called on to issue to complement the primary UCITS V legislative text.

The new depositary requirements are designed to broadly align the provisions of the UCITS regime with those of the Alternative Investment Fund Managers Directive regarding the rules on depositaries' duties, delegation, eligibility to act as custodian, and liability.

The requirement for delegated acts on depositaries from the Commission under UCITS V are broadly in line with that applicable to the AIFMD, for which ESMA provided technical advice to the Commission in 2011.

However, UCITS V includes two further stipulations relating to the insolvency protection of UCITS fund assets when the depositary delegates safekeeping duties to a third party, and the requirement for the management company and depositary to act independently of each other.

UCITS V provides that in the event of delegation of custody by the depositary, the third-party custodian should take all necessary steps to ensure that in the event of its insolvency, the UCITS assets it holds are not liable to be distributed to or realised for the benefit of the custodian's creditors.

The Commission is empowered to adopt delegated acts specifying the steps to be taken by the custodian in this regard. The...