New UCITS Directive Creates Symmetry with AIFMD

By: Mark McLoughlin and Emma Foley

Regulatory Solutions group_opt3

The new Undertakings for the Collective Investment in Transferable Securities V (UCITS V) directive (implemented in Q1 2016) introduces several corresponding measures that have not historically been regulated. The new measures bring the existing UCITS (IV) regime in line with AIFMD. Here’s more about the changes and how they affect you.

UCITS V Tightens Regulations, Aligns with AIFMD

After the 2008 financial crisis AIFMD was implemented to provide further transparency and regulation to alternative investment fund managers. It was also intended to allow regulatory bodies (ultimately the European Securities & Markets Authority [ESMA]) to monitor systemic risk in the European Union. By comparison, UCITS IV, implemented in early 2009, contained policies that did not meet the consequential demands for tightened regulation within financial markets.

UCITS V created regulatory symmetry between UCITS and AIFMD. This ensures professional investor capital is subject to the same regulation and enforcement as the retail sector.

Key changes introduced by UCITS V include:

  • Each individual UCITS must appoint a single depositary; the appointment of multiple depositaries is no longer acceptable.
  • There is a new depositary regime, which includes clarification of depositary responsibilities, liabilities, eligibility, and duties.
  • To increase the level of protection offered to investors, the implementation of remuneration policies is required for each UCITS manager. These are applied to the key members of the UCITS managerial staff and should comply with published remuneration principles, achieve transparency, and be reviewed regularly.
  • There will be a comprehensive list of entities eligible to act as a depositary of UCITS.
  • Member States are required to ensure that assets held in custody by a depositary are protected in the event of insolvency.
  • There is increased enforcement pressure on the depositary to implement safekeeping requirements, including segregation of assets held in custody.
  • The UCITS and competent authorities must establish whistle-blowing policies including protection for whistleblowers who report potential breaches committed by the UCITS.
  • Harmonization of the standard minimum administrative sanctions regime and uniform market conditions across EU member states. EU regulators undertaking supervision of UCITS funds should have a common minimum set of powers available to investigate infringements on national laws relating to UCITS directives as well as any other breaches.
  • The depositary must monitor cash flows to ensure cash is booked in the correct cash account. Delegation of cash monitoring is prohibited.
  • A depositary must be established or have a registered office in the home jurisdiction of the UCITS fund.

SS&C GlobeOp helps asset managers comply with UCITS V efficiently and effectively. To learn more about how we can help you, request a demo or visit our website for a full look at our solutions and services.

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