UCITS V in a nutshell

The European Commission has been considering a review of the UCITS regulation (UCITS V) since December 2010, by launching a consultation on proposed changes to the depositary function and to UCITS managers’ remuneration. An additional topic added to UCITS V is a harmonised sanctions regime.

Depository regime

Duties, delegation, eligibility and liability

  • Single depository appointed by a written contract
  • Uniform list of oversight duties incumbent on both legal forms of UCITS (i.e. FCP and SICAV) – increased responsibilities
  • Detailed provision on cash monitoring whereas the Depository needs to have a view on all assets of the fund, including cash
  • Distinction between (1) custody duties on financial instruments that can be held under custody (2) monitoring duties on other assets (i.e. verify ownership of these assets)
  • Conditions and requirements on safekeeping delegation to a third party aligned to AIFMD ◦Demonstrate objective reason for delegation

◦ Exercise due skill, care and diligence in the selection and on-going review of the delegates

◦ ESMA expected to give further guidance

  • Depository shall be a credit institution or an investment firm subject to extensive conditions
  • Obligation to return financial instruments (i.e. identical type or corresponding amount) in case of loss of financial assets held under Custody
  • No discharge of liability, except if depository can prove loss is due to “external event beyond reasonable control”
  • Liability is not affected by delegation of custody tasks
  • Liability goes beyond AIFMD as liability cannot be contractually discharged

Rules governing remuneration

Policy of remuneration of senior management, risk takers and control functions

  • Financial crisis considered to focus remuneration on short-term returns incentivising risk-taking and myopic decision making
  • Ensure remuneration is consistent with risk management and profile

Sanctions regime

Sanctions policies in the financial sector - publication of sanctions and management authorisation

  • Harmonised sanctions regime will be developed in ESMA level 2 requirements
  • Member states to compile a list of minimum penalties for three types of offences i.e. breaking (1) fund authorisation (2) fund operational (3) reporting rules
  • The penalties will range from a public warning to a temporary suspension and will also include fines
  • Countries may go beyond the minimum penalties if they wish

UCITS V timeline


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