European Parliament and Council Back New Rules for UCITS

The new rules state that depositaries in the EU will be liable for any loss of UCITS assets held in custody.
By Janet Du Chenne(59204)
The European Parliament and the Council reached political agreement on the European Commission’s proposal to strengthen the rules for Undertakings for Collective Investment in Transferable Securities (UCITS).

These new rules, based on the Commission’s 2012 proposals for amending the directive in the areas of depositary functions, remuneration policies and sanctions, aim to strengthen the level of protection for UCITS investors in the wake of the financial crisis.

With these new rules, if the depositary becomes insolvent, UCITS assets will be protected through clear segregation rules and safeguards provided by the insolvency law of the Member States. Depositaries in the EU will be liable for any loss of UCITS assets held in custody. Importantly, UCITS investors will always have the right of redress directly against the depositary and will not have to rely on the management company’s ability to accomplish this task.

The parliament and council declared a technical level deal with the rapporteur Sven Giegold, and the shadow rapporteurs, yesterday. The deal will be put to vote in parliament in April, in order to be formally adopted, before parliamentary elections in May.

If the rules are formally adopted in parliament, they are included in a new directive for member states to transpose into their national regulations.
Internal Market and Services Commissioner Michel Barnier said: “This agreement on the so-called UCITS V will bring significant improvements to the protection of UCITS investors when it comes to the safe-keeping of UCITS assets by the depositary.

“It will ensure that the abuses seen at the time of the Madoff scandal cannot be repeated. We must always remember that the UCITS framework is widely viewed as a gold standard for fund regulation globally, and it is important to maintain this. This is an important achievement and will benefit consumers throughout Europe.”
In addition to this, a new harmonized framework of remuneration policies for all risk-takers involved in managing UCITS funds has been introduced so that remuneration practices do not encourage excessive risk-taking and instead promote sound and effective risk management.

Yesterday’s agreement also strengthens the existing rules on sanctions to ensure effective cooperation between authorities and harmonizes administrative sanctions in order to detect and deter breaches of UCITS provisions. Throughout the EU, UCITS managers and depositaries must be well supervised and, where necessary, properly sanctioned.

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