On the 2^nd July 2014, the Malta Financial Services Authority (MFSA) issued a Circular by way of update to the financial services industry on the UCITS V Directive which is anticipated to be published in the Official Journal of the European Union over the course of this year.

The proposed UCITS V Directive, amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), focuses on three main areas; namely the:

1. duties, delegation, eligibility and liability of the Depositary;
2. remuneration policy of senior management, risk takers and control functions; and
3. harmonisation of the sanction policy regime across European Member States, including the strengthening of cooperation to improve the effective detection of breaches of regulatory requirements.

The MFSA has indicated that it will be initiating the UCITS V implementation process following its publication in the Official Journal of the EU. It is understood that the Directive will be mainly transposed by way of changes to the Investment Services Rulebook and that the MFSA will be consulting the industry in the usual manner.

The key elements of UCITS V

• 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.

Details of the proposed UCITS V Directive can be obtained at