UCITS V will require the appointment of a single independent authorised depositary to oversee investor payments and act as custodian of the UCITS assets. Depositaries will have to keep UCITS assets segregated from their own assets, and they may not invest UCITS assets into their own accounts.
Depositaries will have strict liability for any loss of UCTIS assets, even if caused by sub-custodians or third party delegates.
UCITS V will require UCITS management companies to establish remuneration policies that are consistent with effective risk management and do not encourage taking risks beyond what is accepted by the UCITS (similar to AIFMD).
Policies will generally apply to (i) senior management; (ii) risk takers; (iii) control functions; and (iv) other employees in the same pay bracket as (i) and (ii).
Policies will need to cover fixed and variable components of remuneration, with at least (i) 50% of variable remuneration consisting of units in the UCITS (unless management of the UCITS accounts for less than half of the total portfolio); and (ii) 40% of variable remuneration being deferred for at least 3 years (where the variable share is particularly high, at least 60% is to be deferred to encourage managers to take a long term view).
UCITS V seeks to harmonise UCITS sanctioning regimes by requiring a minimum list of administrative sanctions, sanctioning criteria and penalties.
Administrative penalties will include issuing a public statement, suspending authorisation and temporary or permanent bans. Companies may also be fined up to 10% of their annual turnover or €5m. Individuals may be fined up to €5m. Alternatively, individuals and companies may be fined up to twice the amount of profits made, even if that exceeds the €5m or 10%.
In addition, member states and ESMA will be required to establish effective whistle blowing mechanisms.
4. Access to Records
The new directive amends UCITS V to ensure authorities are able to require existing telephone and data records to be provided by telecommunication operators, UCITS, management companies, investment companies or depositaries, where a reasonable suspicion exists that such records may be relevant to prove a breach of UCITS IV.
Should you require any advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.