On February 25th, 2014, the European Parliament and the Council supported the European Commission’s proposal to strengthen the rules for Undertakings for Collective Investment in Transferable Securities (UCITS), increasing the level of protection for investors as well as creating confidence during a period of an EU-wide financial crisis.
Michel Barnier, European commissioner responsible for overseeing financial services, announced: “This agreement on the so-called UCITS V will bring significant improvements to the protection of UCITS investors when it comes to the safe-keeping of UCITS assets by the depositary. We must always remember that the UCITS framework is widely viewed as a gold standard for fund regulation globally, and it is important to maintain this. I would like to congratulate all parties who have worked tirelessly on this important consumer protection file. This is an important achievement and will benefit consumers throughout Europe.”
In July 2012 the Commission adopted a proposal for a directive amending the UCITS Directive (2009/65/EC) in the areas of depositary functions, remuneration policies and sanctions with the aim of strengthening the protection of investors.
Key components of the new agreement include:
- UCITS V strengthens 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 will be eligible as UCITS depositaries and will hold for safe-keeping all UCITS assets.
- UCITS assets will be protected in the event of insolvency of the depositary through clear segregation rules and safeguards provided by the insolvency law of the Member States.
- The depositary will be liable for any loss of UCITS assets held in custody; the UCITS investors will always have the right of retrieving directly against the depositary and will not have to rely on the management company’s ability to accomplish this task.
- Remuneration policies for all risk takers involved in managing UCITS funds have been introduced so that remuneration practices promote safe and effective risk management; the remuneration policies are in line with those in the Alternative Investment Fund Managers Directive (2011/61/EC).
- The agreement strengthens the existing regime to ensure effective and harmonised administrative sanctions as well as strengthened cooperation between authorities and the transparency of sanctions improving the detection of disrupted UCITS rules.