On 3 July 2012 the European Commission published a “Proposal for a Directive of the European Parliament and of the Council amending the UCITS IV Directive” (the “UCITS V Proposal Directive”). Wildgen, Partners in Law, published a short article “UCITS V - Proposal for a Directive” on the same date. Such UCITS V Proposal Directive was issued after the implementation by the member states of the so-called UCITS IV Directive1. Further amendments to the UCITS V Proposal Directive were adopted by the European Parliament on 3 July 2013.
Recently on 4 December 2013, the Permanent Representatives Committee agreed on behalf of the Council its own position on the UCITS V Proposal Directive.
According to the current regime, all assets of a UCITS fund must be entrusted to a depositary. The depositary is liable for losses suffered as a result of a failure to perform its duties, even though the precise scope of those duties is defined by the laws of the member states.
The proposed amendments to the existing UCITS regime aim to address lessons learned from the financial crises, most notably in connection with the Madoff incident which highlighted a number of issues relating to inconsistency between member states of the EU in applying the provisions of the UCITS directive. The European Commission tends to align the UCITS framework with the Alternative Investment Fund Managers Directive2 (“AIFMD”) which was implemented in Luxembourg by the law of 12 July 2013. The proposed new regime shall introduce specific provisions on the depositary's safekeeping and oversight duties, and define the conditions in which safekeeping duties can be delegated to a sub-custodian. It sets out a list of entities that are eligible to act as UCITS depositaries, and clarifies the depositary's liability in the event of the loss of a financial instrument held in custody. As far as remuneration is concerned, it introduces a requirement for the UCITS management company to implement a remuneration policy that is consistent with sound risk management and discourage disproportionate risk-taking. It also lays down the administrative sanctions and measures that the authorities should be empowered to apply.
Negotiations between the European Parliament and the Council and Commission shall begin shortly. Once a final text will be adopted and published, the member states, thus also Luxembourg, will have two years to transpose the directive into national law.
1 Directive 2009/65/EC of the European Parliament and of the Council of July 13, 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities which has been implemented by the Luxembourg law of December 17, 2010 concerning undertakings for collective investment.
2 Directive 2011/61 EC of the European Parliament and of the Council of May 27, 2011 on alternative investment fund managers.