UCITS V is essentially a reaction to Madoff but it addresses what was really a latent problem waiting to come to the fore, and raises questions regarding the role of the depositary and generally how its delegation arrangements should work. UCITS V also takes the opportunity to align provisions on other issues, notably manager remuneration.
The need to review depositary concerns has always been something which has been present and indeed, when the Lehman and Madoff issues became relevant to some UCITS funds, those in the UK thought that the problems just simply would never have arisen for UK domiciled UCITS. As was evident with the FSA's action regarding the Arch Cru funds, depositaries in the UK already have considerable roles and responsibilities, probably in excess of those required for UCITS depositaries in other jurisdictions.
With the implementation now of the Alternative Investment Fund Managers Directive (AIFMD), there is a particular need to achieve some coherent and consistent approach across the range of European funds with the UCITS regime being at least as stringent as that required by AIFMD for AIFs. This is leaving aside the way in which the UCITS and AIFMD regimes should sit alongside each other going forwards – and to where the boundaries should be set between them – with UCITS aimed at UCITS funds provided to retail investors and AIFMD aimed at AIFs promoted to professional investors.
In July 2012, the European Commission issued a Proposal for a Directive amending the UCITS Directive which concerns depositary functions, remuneration policies and sanctions. This proposal is commonly referred to as "UCITS V".
The Commission viewed this proposal as part of a wider legislative package dedicated to rebuilding consumer trust in financial markets - the other parts of the package include changes to the Insurance Mediation Directive and improving transparency in the investment market for retail investors with the Proposal for a Regulation on Key Information Documents for Investment Products (one result of the PRIPs – or now PRIIPs! - initiative) – on which see please our separate Briefing Paper.
The final compromise text was published on 13 March 2014 and it was adopted by the European Parliament in plenary session on 15 April 2014. ESMA is to be charged with developing technical summaries and guidelines. The UCITS V provisions should apply and be implemented in Member States by 18 March 2016 (i.e. eighteen months after it comes into force, on 17 September 2014).