UCITS V – An Update

PUBLISHED: 15th December 2014

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The objective of UCITS V is to enhance investor protection and improve investor confidence in UCITS explains the Financial Services team.


Undertakings for Collective Investment in Transferable Securities (UCITS) are open-ended retail collective investment schemes that can be sold to the public freely throughout the EU on the basis of a single authorisation from one Member State. The rules applicable to UCITS are set out in a number of EU Directives. The UCITS V Directive (UCITS V) was published in the official journal of the European Union on 28 August 2014 and entered into force on 17 September 2014.

The objective of UCITS V is to enhance investor protection and improve investor confidence in UCITS, just as the Alternative Investment Fund Managers Directive (AIFMD) was designed to do for alternative investment funds. Both were drafted in the wake of the global financial crisis, the Lehman Brothers collapse and the Madoff fraud case.

Key amendments introduced under UCITS V relate to the duties and liabilities of depositaries, remuneration policies for management companies and the imposition of administrative sanctions.


UCITS V makes significant changes to the depositary regime and clarifies the eligibility criteria, duties and liabilities of depositaries.

UCITS V requires depositaries to be national central banks, credit institutions or other legal entities authorised under the law of EU Member States to carry out depositary duties under the Directive. UCITS V provides that a single depositary must be appointed for each UCITS.

In an attempt to harmonise depositary duties between EU Member States, UCITS V introduces a uniform list of oversight duties and safekeeping obligations for depositaries. For the safekeeping obligations, a distinction is made between financial instruments that may be held in custody and other assets (to which record keeping and ownership verification requirements apply).

Depositaries will also have an additional cash monitoring role under UCITS V.

There are also restrictions on the circumstances in which a depositary can delegate its custody functions to third parties and oversight obligations are imposed in respect of any delegation.

UCITS V also introduces new rules regarding the liability of a depositary where there has been a loss of a financial instrument that it held in custody for a UCITS. If the financial instrument is lost the depositary will be obliged to replace it with a financial instrument of an identical type or a corresponding amount of assets, unless it can prove that the loss was due to an external event that was beyond its reasonable control. The depositary will be liable to the UCITS and its investors for all losses suffered as a result of the depositary's negligent or intentional failure to properly fulfil its obligations pursuant to UCITS V.


UCITS V introduces the requirement to have remuneration policies and procedures which are aimed at promoting sound and effective risk management and discouraging risk taking that is inconsistent with the risk profile, rules or instrument of incorporation of the UCITS.

Remuneration rules will apply to key management company staff whose professional activities have a material impact on the risk profiles of the management company or of the UCITS it manages.

UCITS V provides that when management companies are establishing and applying remuneration policies, they should do so on a proportional basis; appropriate to their size, the size of the UCITS they manage, their internal organisation and the nature, scope and complexity of their activities.


UCITS V seeks to harmonise the administrative sanctions which can be imposed for infringement of the UCITS requirements between EU Member States by providing an exhaustive list of actions that require sanctions to be imposed and a minimum level of sanctions and measures which must be applied on the occurrence of an infringement.


All EU Member States have until the 18 March 2016 to adopt and publish laws, regulations and administrative provisions necessary to comply with UCITS V and must notify the European Commission of these measures.

The material in this update is for information purposes only. Professional legal advice should be sought in relation to any specific matter.

If you have any queries on UCITS V, please do not hesitate to contact a member of the Financial Services team at LK Shields.

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