UCITS V Directive Adopted By The European Parliament

On 4 December 2013, the Permanent Representatives Committee agreed on behalf of the Council its own position on the proposal directive of the European Parliament and of the Council amending the UCITS IV Directive1. Wildgen, Partners in Law, had published a short article UCITS v Proposal Directive in that respect on 17 January 2014.

Recently, on 15 April 2014, the European Parliament adopted in plenary session an amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities ("UCITS") as regards depositary functions, remuneration policies and sanctions (the so-called "UCITS V Directive").

The new rules considerably increase the protection of investors vis-à-vis managers of UCITS funds and their depositaries.

Key elements of the UCITS V Directive are as follow:

The strengthening of the rules on eligible entities that can act as a depositary. Only national central banks, credit institutions and regulated firms with sufficient capital and adequate infrastructure are eligible as UCITS depositaries. In addition, the depositary retains for safekeeping of the assets in which a UCITS invests and thus maintains the UCITS' and its investors' property interests and also performs certain oversight functions. The UCITS assets are protected in the event of insolvency of the depositary through clear segregation rules and safeguards provided by the respective insolvency laws of the Member States. The depositary's liability is thus strengthened. Remuneration policies for all risk takers involved in managing UCITS funds are introduced so that remuneration practices do not encourage excessive risk-taking and instead promote sound and effective risk management. The transparency of the remuneration practices is enhanced. The remuneration policies are in line with those in the Alternative Investment Fund Managers Directive2. At least 50% of any variable remuneration must consist of units of the UCITS concerned, or equivalent, unless the management of UCITS accounts for less than 50% of the total portfolio managed by the management company, in which case the minimum of 50% does not apply. The UCITS V Directive amends the existing regime to ensure effective and harmonised administrative sanctions...