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November2015www.
pwc.
lu/asset-managementUCITSVNewdepositaryrole,newremunerationrulesformanagers,newadministrativesanctionsExecutiveSummaryThisnewDirectivewillalignthedepositary'sdutiesandliabilitiesandthemanagers'remunerationrequirements,withtherequirementsoftheAlternativeInvestmentFundManagersDirective(AIFMD).
However,differenceswillremainthatwillneedtobecloselymonitoredtoensurefullcompliancewiththenewrules.
UCITSVwillalsocreateanewsanctionsregime,thusstrengtheningthefearofsanctionandthereputationalriskforindustryplayers.
ThesechangeshavesignificantimplicationsforUCITSdepositaries,managers,thirdpartyadministrators,investors,auditors,andregulators.
The"go-live"ofUCITSVis18March2016.
Newdepositary'sroleTheMadofffraudandtheLehmanBrothersinsolvencyhavefocusedregulators'attentiononthedepositaryrole.
Inadditiontosafekeepingassets,depositariesarerequiredtoensurethatalltransactions(e.
g.
subscriptions,redemptionsandcancellationsofunits)madebyoronbehalfofUCITSfundsarecarriedoutinaccordancewiththelawandthefunddocumentation.
Crucially,depositariesmustactindependentlyandsolelyintheinterestoftheinvestorstoeffectivelydischargethisrole.
Requirementsfortheappointmentofthedepositary:Underthenewrules,aUCITSwillneedtoappointasingledepositaryamongalistofentitieseligibletoactasUCITSdepositaries,i.
e.
nationalcentralbanks,creditinstitutionsandotherlegalentitieswhich(i)areauthorisedtoprovidedepositaryactivities,(ii)aresubjecttoprudentialsupervisionand(iii)toCRDIVcapitaladequacyrequirements.
Furthermore,UCITSVdoesnotcreatea"depositarypassport".
ThedepositarytobeappointedwillneedtobelocatedinthesameMemberStateastheUCITSone.
Inaddition,theappointmentofthedepositarywillneedtobeevidencedbyawrittencontractentrustingthedepositarywiththesafekeeping,oversightandcashflowmonitoringfunctions.
Depositaryduties:Definitionofsafekeeping:UCITSVdefinestheactivitiesandresponsibilitiesrelatedtosafekeepinginlinewiththeAIFMDdefinition.
Safekeepingfunctions:thenewregimewillintroduceadistinctionbetween(i)custodydutiesrelatingtofinancialinstruments(suchassecurities)thatcanbeheldincustodyand(ii)assetmonitoringdutiesrelatingto"otherassets"(suchasderivativescontracts).
Thedepositary'sdutiesinrespectof"otherassets"willbeconfinedtoownershipverificationandrecordkeepingduties.
Harmonisedoversightfunctions:unliketoday,thenewregimewillintroduceauniformlistofoversightdutiesirrespectiveofthelegalformtakenbytheUCITS(i.
e.
SICAVorFCP).
Thus,thedepositarywillhavetoperformthefollowingdutiesforanytypeofUCITS:controlofissue,repurchase,redemptionandcancellationofshares/units;controloftheNAVcalculation;controlthattheconsiderationtothefund'stransactionsisremittedwithintheusualtimelimits;compliancewiththeinvestmentrestrictions;controlthattheUCITS'incomeisappliedcorrectly.
Cashflowmonitoring:thedepositarywillberesponsibleforthepropermonitoringoftheUCITScashflowsandinparticular,itwill:ensuresubscriptionandmoniesareproperlyreceivedbytheUCITS;ensurethatallcashisproperlybookedinsegregatedaccountsopenedinthenameoftheManagementCompanyortheUCITS.
Delegation:thenewregimewillalsorestrictdelegationofdepositarytaskstosafekeepingduties.
ThedelegationruleswilllargelybealignedwiththeconditionsandrequirementsforsuchdelegationexistingunderAIFMD.
HoweverthetwomaindifferencesbetweentheUCITSVregimeandtheAIFMDregimearethat(i)theliabilityofthedepositarycouldnotbecontractuallyexcludedorlimitedunderUCITSVandthat(ii)UCITS'prospectuseswillneedtocontainadescriptionofanysafekeepingfunctiondelegated,theidentificationofthedelegateandtheidentificationofanyconflictofinterestthatmayarisefromsuchdelegation.
Remunerationstructures:UCITSmanagersremunerationstructureswillberequiredtoinclude:rulesforconductingperformanceassessmentbasedonfinancialandnon-financialcriteria;rulesfordeferral,retentionandpaymentininstrumentsofvariableremuneration;rulesforguaranteedvariableremuneration;rulesforpaymentsrelatedtoterminationofemployment;rulesonpensionbenefits.
Proportionateapplication:UCITSmanagerswillbeabletobenefitfromflexibilityallowingforthesoundapplicationoftheremunerationpoliciesinamannerproportionatetothesize,internalorganisationaswellasthenature,scaleandcomplexityoftheactivitiescarriedoutbythemanagerandthefund.
Thirdpartiesinscope:bydelegation,thesameremunerationrulesshallapply,inaproportionatemannertoanythirdpartywhichtakesinvestmentdecisionsthataffecttheriskprofileoftheUCITSasaresultofdelegation.
NewadministrativesanctionsUCITSVprovidesacatalogueofbreachestobesanctioned.
Thesesanctionswillincludepublicstatements,suspensionorwithdrawaloftheManagementCompanyauthorisationandmaximumadministrativepecuniarysanctions.
Fineswillamounttoatleasttwicetheamountofthebenefitderivingfromthebreachor:forlegalpersonsuptoatleastEUR5,000,000or10%ofitstotalturnover;fornaturalpersonsuptoatleastEUR1,000,000.
EUregulatorswillpublishanyadministrativesanctionontheirofficialwebsiteandwillmaintainsuchpublicationforaperiodofatleastfiveyears.
Furthermore,ESMAwillmaintainacentraldatabaseofallsanctionscommunicatedtoitbynationalcompetentauthorities.
ItwillpublishallsanctionsinanannualreportandwilladdareferencetoanypenaltyorsanctionstothelistofManagementCompaniesavailableonitswebsite.
Finally,UCITSVrequiresMemberStatestoestablishmechanismsencouragingthereportingofpotentialoractualbreachesofthenationalprovisionsimplementingthedirectiveinternallyandexternallytotheregulator,includingsecurecommunicationchannelsforthereportingofsuchbreaches("whistle-blowing").
Depositaryliabilityregime:Liability:asageneralrule,thedepositarywillremainliableforanylosssufferedbytheUCITSand/orbyinvestorsasaresultofanybreachofitsduties.
UCITSVwillalsocreateastrictliabilityregimeincaseUCITS'assetsheldincustodyarelost.
Incaseoflossoffinancialassetsheldincustody,bythedepositaryoritsdelegates,thedepositarywillindeedbeobligedtoreturnidenticalfinancialinstrumentsoracorrespondingamountofassets(wherefungible)totheUCITSwithoutunduedelay.
Last,thedepositarywillbeartheburdenofprooftodemonstratethatithasperformeditsdutiesinaccordancewiththerequiredstandards.
Investors'rightsofactionagainstthedepositaries:thenewruleswillalsogivethesamerightstoallUCITSinvestors,allowingthemtosuedepositaries,eitherdirectlyorindirectlythroughtheManagementCompany,basedonthelegalnatureoftherelationshipbetweenthedepositary,theManagementCompanyandtheinvestors.
NewremunerationrulesformanagersUCITSVwillintroducetherequirementforUCITSManagementCompaniesandself-managedUCITStoputinplaceremunerationpoliciesandproceduresdesignedtopreventconflictsofinterestanddiscouragerisk-takinginconsistentwiththeriskprofileofthemanagedUCITS.
Governance:themanagementbodyoftheManagementCompanywillberequiredtoestablish,maintainandapprovetheremunerationpolicy.
SignificantManagementCompanieswillberequiredtoestablisharemunerationcommitteetoexerciseindependentandcompetentjudgementonremunerationpoliciesandpractices.
MembersoftheremunerationcommitteeshallnotperformanyexecutivefunctionsintheManagementCompany.
Remunerationoftheseniorofficersincontrolfunctionsshallbeoverseenbytheremunerationcommittee.
Also,theimplementationoftheremunerationpolicywillhavetobereviewed,atleastannuallybythecontrolfunctions.
Identifiedstaff:underthenewregime,"identifiedstaff"towhomtheremunerationpolicywillapplywillinclude(i)seniormanagers,(ii)risktakers,(iii)controlfunctions,and(iv)anyemployeereceivingtotalremunerationinthebracketofseniormanagersandrisktakers,whoseactivitieshaveamaterialimpactontheUCITS'riskprofile.
HowwecanhelpWecanperformanimpactanalysisofthenewdepositary,remunerationandsanctionrulesonyourbusiness.
Wecanreviewyourdepositaryagreementsandremunerationpoliciestoperformadiagnosticonthebasisofthenewrules.
Wecankeepyouupdatedthroughour3Wregulatorywatchservices.
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comThispublicationhasbeenpreparedforgeneralguidanceonmattersofinterestonly,anddoesnotconstituteprofessionaladvice.
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