On the 30th April 2014, the Malta Financial Services Authority (MFSA) issued a Circular notifying the financial services industry that the European Parliament adopted in plenary session an amended Directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities as regards depositary functions, remuneration policies and sanctions (UCITS V).
The key elements of UCITS V include:
- The strengthening of the rules on eligible entities that can act as a UCITS depositary. Only national central banks, credit institutions and regulated firms with sufficient capital and adequate infrastructure will be eligible to act as such.
- 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.
- Strengthening of the depositary’s liability. The depositary will be liable for any loss of UCITS assets held in custody.
- Introduction of Remuneration policies for all risk takers involved in managing UCITS funds with a view to ensuring that remuneration practices dissuade excessive risk-taking and promote sound and effective risk management. The transparency of the remuneration practices will be enhanced and such policies are in line with those in the Alternative Investment Fund Managers Directive or AIFMD (2011/61/EC).
- Bolstering of existing regime to ensure effective and harmonised administrative sanctions and strengthened cooperation in order to facilitate the effective detection of breaches of UCITS rules.
Accordingly, the new rules will considerably strengthen the protection of investors vis-à-vismanagers and depositaries of UCITS funds and will also ensure that managers who violate the law will be sanctioned appropriately.
Following the vote in plenary, the adoption of UCITS V is subject to formal approval by the European Council. The publication of the new rules in the EU Official Journal is foreseen for the second quarter of 2014.