(i) UCITS V Directive comes into Force

UCITS V, an additional revision to the UCITS regime, aims to align the UCITS regime with the AIFMD and introduce equivalent measures which had thus far been regulated in a less rigid manner. The focus is primarily on explaining the duties, eligibility, responsibility and accountability of depositories.

On 28 August 2014 the text of the UCITS V Directive (2014/91/EU) ("UCITS V") was published in the Official Journal of the European Union (the "OJ"). The Directive came into force on 17 September 2014 (20 days after publication in the OJ). Member States must now transpose UCITS V into national law by 18 March 2016. Member States are also obliged to apply such measures from that date.

The goal of UCITS V is to ultimately increase the levels of investor protection and avoid conflicts of interest that could result in excessive risk taking. The key points of Directive 2014/91/EU include that it:

  • Clarifies the depositary role including the eligibility criteria for depositaries aligning them with corresponding provisions in the AIFMD, aligning the liability of a depositary with the higher standard of liability of a depositary under AIFMD, and clarifying the UCITS depositary functions and delegation;
  • Introduces rules on remuneration policies to be applied to key members of the UCITS managerial staff which must be consistent with and promote sound and effective risk management and discourage disproportionate risk taking by the UCITS; and
  • Harmonises minimum administrative sanctions with maximum penalties of €5 million (or 10% of annual turnover) for a company or €5 million for individuals.

UCITS V requires the European Securities and Markets Authority ("ESMA") to draft guidelines clarifying the specific reach of the UCITS V remuneration requirements and their practical application. Prior to this a public consultation will take place which should occur over the coming months.

UCITS V can be viewed via the following link:


(ii) AIMA Produces a Summary Note on UCITS V

A summary note of Directive 2014/91/EU (the 'UCITS V Directive') has been published by AIMA which compares the UCITS V Directive and the provisions it changes or replaces from the UCITS IV Directive. A full comparison of the text of Directive 2009/65/EC, the UCITS IV Directive, the UCITS V Directive and the AIFMD is provided in the annex to the summary.

The summary note can be viewed via the following link:


(iii) ESMA Consults on Technical Advice on Delegated Acts Required by UCITS V

ESMA published a consultation paper (ESMA/2014/1183) on 26 September 2014 concerning delegated acts required by the UCITS V Directive (2014/91/EU). The consultation paper describes ESMA's technical advice to the European Commission in respect of such delegated acts.

The subject matter of the consultation paper concerns certain delegated acts that the Commission has the power to adopt under Article 26 of UCITS V. These delegated acts relate to the insolvency protection of UCITS assets when the depositary delegates safekeeping duties to a third party and the requirement for the management company and depositary to act independently.

Annex IV to the consultation sets out ESMA's views in respect of the insolvency protection of UCITS assets when delegating safekeeping. Measures, arrangements and tasks for the third party to which custody is delegated as well as measures to be put in place by the depositary are suggested by ESMA. Annex IV also provides advice on the requirement for independence. ESMA recognises two types of link between the management company or investment company and the depositary that may cause a risk to their independence. These are: common management and supervision of the management/investment company and the depositary, and cross-shareholdings between the management/investment company and the depositary.

A provisional request to ESMA was made by the Commission for technical advice on 3 July 2014, asking it to deliver its advice by 15 October 2014.

The deadline for replies to the consultation is 24 October 2014. ESMA proposes to submit the final version of the technical advice to the Commission by the end of November 2014.

The consultation paper can be viewed via the following link:


(iv) ESMA Revised Guidelines on Exchange Traded Funds ("ETFs") and other UCITS Issues

ESMA published a press release on 1 August 2014 to state that it has published the official translations of its final updated guidelines (ESMA/2014/937EN) in respect of ETFs and other UCITS issues. National competent authorities ("NCAs") must report within two months to ESMA with respect to their compliance, or intention to comply, with the updated guidelines.

These revised guidelines can be viewed via the following link:


(v) Central Bank of Ireland (the "Central Bank") Publishes CP84 on the Adoption of ESMA's Revised Guidelines on ETFs and other UCITS Issues

On 28 July 2014, the Central Bank issued a Consultation Paper ("CP 84") in respect of the adoption of ESMA's revised guidelines on ETFs and other UCITS issues (the "ESMA Revised Guidelines").

The ESMA Revised Guidelines make reference to a 20% of net asset value issuer diversification rule with regards to collateral received for the purposes of Efficient Portfolio Management ("EPM") techniques and OTC derivative transactions. On 24 March 2014, ESMA's issued its final report which provides for a derogation from the 20% collateral diversification rule for certain government backed securities. As a point to note, this derogation will be available to all UCITS as opposed to only Money Market Fund ("MMF") UCITS, as was originally intended. The Central Bank, however, has raised concerns in relation to the expansion of the derogation to non-MMF UCITS. The Central Bank has therefore issued CP84, which outlines its proposals to put into effect the derogation from the 20% collateral diversification requirement.

The Central Bank has suggested making the derogation subject to an obligation to ensure that the non-cash collateral received by the UCITS is of "high quality", taking into account various criteria specified in CP84. The Central Bank proposes to implement the ESMA Guidelines as follows:

  • Provide that all UCITS may avail of the derogation from the collateral diversification requirement where the collateral consists of securities issued or guaranteed by a Member State, one or more of its local authorities, a third country or a public international body of which one or more Member States belong;
  • Delete the existing rule in the UCITS Notices which requires that collateral received by UCITS must be "of high quality"; and
  • Replace this with a rule to be added to the UCITS Rulebook, that the UCITS may only accept "'high quality" collateral and that in determining whether collateral is of high quality, the UCITS shall be required to conduct an assessment, prior to accepting the collateral, which takes into account: the credit quality of the instrument; the nature of the asset class represented by the collateral; any operational risk; any other significant related counterparty risk; and the liquidity profile.

Where acceptance of collateral will bring the collateral issuer limits over 20% of the total collateral held by the UCITS, the UCITS will be required to apply additional resources to carry out a more detailed assessment of the credit quality of that collateral. Credit quality of already-accepted collateral must be monitored on an on-going basis. Where there is evidence of deteriorating credit quality of collateral held, the UCITS must implement a remediation plan.

Responses to the consultation are requested by 17 October 2014.

The Central Bank's Consultation Paper on the adoption of ESMA's revised guidelines on ETFs and other UCITS issues can be viewed via the following link:


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