Reference document: Directive 2014/91/EU of 23 July 2014 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.
On 3 July 2012, the EC published a legislative package aimed at improving consumer protection in financial services. This package consists of three legislative proposals: a proposal for a key information regulation concerning packaged retail investment products (PRIIPs), a revision of the Insurance Mediation Directive (IMD) and a proposal for a Directive revising the UCITS IV Directive by integrating provisions on depositaries, manager remuneration and sanctions (UCITS V).
With regards to the provisions relating to depositaries in UCITS V, the following is to be noted: Except for a few divergences (listed below), this proposal is a word-for-word copy of level 1 of the AIFM*** Directive. This practically identical reproduction of the alternative funds Directive confirms the EC's wish to harmonize, in a broad and precise way, the functions of depositaries in Europe.
Alignment with the AIFM Directive:
- Appointment of the depositary.
- Depositary’s duties functions: cash monitoring, custody/recordkeeping, oversight duties.
- Delegation rules (see divergences below).
- Liability regime (see divergences below).
Divergence with the AIFM Directive:
- Liability of the depository for improper performance of its oversight duties in case of loss (or loss of value) if for example the depositary fails to act on investments that are not compliant with fund rules.
- Delegation of custody to entities acting as CSDs.
- Reuse: Ban of reuse of assets held in custody by the depository or by any third party to whom custody has been delegated for their own account.
- European harmonisation of insolvency law effects on assets held in custody: Each Member State must ensure that its insolvency law protects assets under custody in the event of bankruptcy of the depositary with whom the assets are in custody or its sub-custodian located in the EU.
- Delegation conditions (level 2): The depositary has to ensure that its sub-custodian has taken all necessary steps to ensure that in the event of insolvency of the third party, assets of a UCITS held by the third party in custody are unavailable for distribution among or realisation for the benefit of creditors of the third party.
- Liability regime: No contractual transfer of liability to a sub-custodian.
- Eligible entities to act as depositary + additional 24 month-period granted to existing managers to appoint a depositary complying with the eligibility’s criteria.
- Conditions for fulfilling the independence requirement (level 2).
- Information related to the list of our sub-custodians and their delegates.
** EC = European Commission
*** AIFM: Alternative Investment Fund Managers