Consultation outcome

Amendments to the UCITS Directive (UCITS V)

Updated 31 October 2016

1. Introduction

1.1 Background

The Undertakings for Collective Investment in Transferable Securities (UCITS) Directive was adopted in 1985 and aimed to offer greater business and investment opportunities for both asset managers and investors by integrating the EU market for investment funds. The UCITS Directive sets out a harmonised regulatory framework for investment funds that raise capital from the public and invest it in certain classes of assets, providing high levels of investor protection and a basis for the cross-border sale of these funds.

The UCITS Directive has been key to the development of the European investment fund industry. At the end of March 2015 the assets under management of UCITS funds were over €8.277 trillion, representing 65% of all investment fund assets in Europe. Funds marketed on a cross-border basis play an increasingly important role in the industry. The UCITS fund passport has paved the way for extensive cross-border marketing of funds.

The success of UCITS is not limited to the EU. UCITS are widely perceived as being regulated to a high standard and their status as a global “brand” has continued to boost net sales of cross-border funds outside Europe.

However, following the financial crisis, a number of issues were highlighted by a European Commission public consultation on the UCITS depositary function. A UCITS depositary is an entity that is independent from both the UCITS fund and its management company. It oversees the performance of certain fund transactions (such as unit subscriptions and redemptions by investors) and ensures the safe-keeping of the fund’s assets.

The Madoff fraud , where investors incurred huge losses due in part to failures of the depositary function in certain jurisdictions, highlighted that the UCITS Directive had been transposed into national laws in divergent ways. The European Commission concluded that this had resulted in inconsistent standards across the EU and a failure to secure an adequate level of protection for investors in UCITS funds.

The objective of the European Commission’s consultation paper was to gather evidence in order to clarify and strengthen the regulation and supervision of UCITS depositaries, with a view to consolidating the level of protection of UCITS investors. Submissions to the European Commission’s consultation paper suggested reforms in the areas of UCITS fund depositaries, remuneration principles, and national regimes for imposing sanctions for breaches of the Directive.

In July 2012, the European Commission formally adopted a reform of the UCITS Directive, commonly referred to as UCITS V, which was enacted and published in July 2014. UCITS V (Directive 2014/91/EU) amends the previous version of the UCITS Directive, known as UCITS IV (Directive 2009/65/EC).

The UCITS V Directive has an implementation deadline of 18 March 2016.

Purpose of this Paper

HM Treasury is consulting on the implementation of the UCITS V Directive separately from the Financial Conduct Authority (FCA). While implementation of UCITS V will primarily be achieved through changes to FCA rules, some legislative action will also be required. The purpose of this paper is to consult on these legislative changes. The FCA will be consulting separately on their proposed changes.

The implementation of UCITS V will require changes to both UK legislation and the FCA’s Handbook of rules and guidance. The ’level 1’ Directive must be transposed into UK law by 18 March 2016. The ‘level 2’ measures have not yet been set. This consultation paper seeks stakeholders’ views by midnight on 17 December 2015 on the elements of the ‘level 1’ proposals that HM Treasury is responsible for transposing.

In terms of implementation duties, HM Treasury will be responsible for the parts of the UCITS V Directive that are more structural in nature. This will involve changes or additions to Financial Services and Markets Act (FSMA) and relevant secondary legislation. The FCA will be responsible for the parts of the Directive that are more technical in nature and which require changes or additions to FCA rules.

Specifically, HM Treasury will be implementing the following provisions of the Directive:

• On UCITS depositaries, HM Treasury will implement:

• provisions relating to liability in the case of losses of financial instruments in custody, or other losses caused by a depositary’s negligent or intentional failure to fulfil its obligations

• On sanctions, HM Treasury will implement:

• provisions related to the reporting and sharing of information related to sanctions
• the requirements on the FCA relating to the sharing of information with other competent authorities, establishing specific procedures for the reporting of infringements of the Directive, and providing information regarding the imposition of sanctions to the European Securities and Markets Authority (ESMA)
• setting out the limited circumstances in which the FCA may refuse to act on a request for information from the competent authority of another EEA State concerning criminal investigations or proceeding
• the amendments and modifications to existing legislation to ensure that reporting of sanctions is carried out in a way which handles information appropriately and protects employees of management companies and depositaries
• amendments to the FSMA to ensure that the FCA’s existing administrative sanctions can be applied in relation to infringements of domestic legislation transposing the Directive
• provision is also made for the reporting and publication of sanctions measures for infringements of the Directive

This paper seeks views on HM Treasury’s proposed implementation methods, as well as the impact and costs to industry in ensuring compliance with the provisions.

The UCITS V provisions relating to Remuneration will be implemented through amendments to the FCA handbook (please see relevant chapters for details). HM Treasury is therefore not implementing the provisions for remuneration principles.

As regards the national sanction regimes, HM Treasury is making minor amendments to FSMA to clarify that the FCA is able to use its existing domestic administrative sanctions powers in relation to contraventions of national legislation transposing the UCITS directive.

While many of the Directive’s provisions are being implemented by the FCA, HM Treasury wishes to understand the impact of complying with the Directive as a whole, so this paper seeks views on the costs and benefits of all measures implemented by both HM Treasury and the FCA.

1.2 Who should read this paper?

The proposals in this paper apply particularly to fund managers who currently operate UCITS funds or may do so in future. This includes both UK-authorised firms and those authorised and regulated in other member states.

The proposals also apply to depositaries of UK-authorised UCITS schemes, and will be of interest to the auditors of such schemes, and to other persons that provide services to fund managers (such as third-party administrators).

The proposals concerning the new disclosure requirements (implemented by the FCA) may also interest those responsible for producing disclosure material for fund management companies, and national sanction regimes more generally will be of particular interest to fund management firms.

Consumers may have an interest in the remuneration principles and the measures surrounding the principles and practices of depositaries.

Any other stakeholder is welcomed to read this paper and give views on HM Treasury’s proposals for the implementation of UCITS V.

1.3 Summary of UCITS V

UCITS V introduces a number of targeted reforms to the UCITS Directive with the objective of updating the legislative framework to ensure the safeguarding of UCITS fund operations across the EU, to lower risk surrounding the management of UCITS funds, and to build consumer protection and trust in the market.

UCITS V addresses three main areas of UCITS fund legislation:

• depositaries
• remuneration principles
• national sanction regimes

1.4 Depositaries

While UCITS provisions on depositaries have broadly remained unchanged since the UCITS Directive first came into force in 1985, the investment environment for UCITS has evolved; fund portfolios are increasingly diverse and international, they are often complex and can be held in custody outside the EU (for example, in emerging markets). The Madoff fraud highlighted that there can be serious consequences if there are no adequate measures in place to prevent conflict of interest issues when there is insufficient independence between the fund manager and the depositary, or when delegating both roles to the same third party or sub-custodian of the fund manager or depositary’s choice.

As the European Commission highlighted in its Impact Assessment, holding assets through sub-custodians has become increasingly common, and under the current regime it is unclear what duties a depositary has in the selection and supervision of the sub-custodian. It is therefore legally uncertain across the EU to what extent a depositary is liable for losses at the sub-custodian level.

To address these concerns, the European Commission’s analysis of fund depositaries focused on three main components of depositaries’ operations:

• eligibility to act as a depositary
• delegation of custody
• liability

The introduction of measures that address these concerns in UCITS V will bring the UCITS Directive rules on depositaries broadly into line with other existing legislation for depositaries, specifically the measures laid out in the Alternative Investment Fund Managers Directive (AIFMD).

1.5 Remuneration Principles

The European Commission also highlighted issues surrounding the remuneration of staff of fund managers and other financial services firms. The fallout from the financial crisis demonstrated that in some cases, individual remuneration and performance incentive schemes in financial institutions, including management companies of UCITS funds, exacerbated the impact and scale of the crisis by contributing to decision making in the short term without acknowledging potential long term repercussions of those decisions. This increased the incentive for taking excessive risk, and is an issue that the measures on remuneration laid out in UCITS V seek to address.

1.6 National Sanction Regimes

Following the crisis, the European Commission and the Committees of Supervisors (now the European Supervisory Authorities) carried out analysis of national sanctioning regimes. The analysis found a number of weaknesses throughout existing systems that may impact the application of EU legislation. Compromised effectiveness of financial supervision may ultimately affect competition, stability and integrity of financial markets and consumer protection.

The European Commission therefore suggested putting in place common minimum standards in its Communication of 9 December 2010: ‘Reinforcing sanctioning regimes in the financial sector’. These proposals reinforce and standardise the approach to national sanctioning regimes.

The common minimum standards have been included throughout recent EU legislative proposals that include the Capital Requirements Directive IV, Markets in Financial Instruments Directive, the Market Abuse Regulation, and Transparency Directive. They are therefore also applied in UCITS V.

1.7 Format of this Paper

Changes to UK legislation to implement UCITS V will be effected by secondary legislation made under section 2(2) of the European Communities Act 1972. A draft Statutory Instrument (SI), to be titled the Undertakings for Collective Investment in Transferable Securities Regulations 2016, is published in Annex B of this paper. The FCA has separately published a consultation on proposed changes to FCA rules and guidance.

Chapters 2 to 4 seek views on each of the main areas of UCITS funds legislation of the UCITS V Directive in turn; Depositaries, Remuneration Principles, and National Sanction Regimes. Chapter 5 seeks views on a small number of miscellaneous provisions, including the requirements for reporting of infringements.

Throughout each of the chapters, there will be an introduction to the problem with existing legislation, a discussion of the proposed changes to legislation, HM Treasury’s approach to implementation including any policy options, followed by the questions that HM Treasury is asking consultees during this consultation process. A summary of these questions is attached in Annex A of this paper.

Chapter 6 outlines the method for response to the questions to consultees, and includes the approach to confidentiality.

A Pre-Consultation Stage Impact Assessment is published in Annex C.

2. Depositaries

2.1 Overview of the Provisions for Depositaries

2.1 UCITS V seeks to address three key aspects of depositary governance and practices. These can be broadly categorised as:

• eligibility to act as a depositary
• liability for safekeeping of a UCITS fund’s assets
• delegation of custody of a UCITS fund’s assets

This paper seeks views on HM Treasury’s approach to implementation of specific Depositary provisions, as well as views on the overall impact and costs to industry that will be incurred by complying with the depositary provisions.

Where the FCA is responsible for implementing certain provisions for depositaries, please see the consultation document entitled ‘UCITS V implementation and other changes to the Handbook affecting investment funds’, pp. 23-30.

2.2 Provisions on Depositary Liability for Loss of Financial Instruments

Overview

The new Article 24 of the UCITS Directive (inserted by Article 1(7) of UCITS V) provides that a depositary is liable to the UCITS fund and to investors for losses by the depositary, or by a third party to whom custody was delegated. It provides that in the case of such a loss, the depositary must return a financial instrument of an identical type or corresponding amount to the UCITS or to the management company without undue delay. This liability measure ensures a greater level of protection to UCITS funds and investors. There is a defence for a depositary if it can prove that the loss is as a result of an external event beyond its reasonable control. The provision also requires that depositaries are held liable for all other losses suffered as a result of the depositary’s negligent or intentional failure to fulfil its obligations.

A ‘strict liability’ standard that obligates depositaries to return instruments lost in custody irrespective of fault or negligence is designed to ensure a high level of investor protection and achieve a uniform standard across the EU.

The Directive clarifies that the liability of depositaries is not affected by delegation of the depositary’s safekeeping function. It also prohibits depositaries from limiting their liability by agreement, and clarifies that unit-holders can invoke liability directly or through the fund management company.

Below is an outline of HM Treasury’s approach to implementing those provisions that fall under the Statutory Instrument.

2.3 HM Treasury’s approach to implementing the provisions for Liability

In terms of implementing the provisions for depositary liability, HM Treasury are taking a copy-out approach, whereby the language used in the Directive is ‘copied out’ to ensure that there is no ‘gold-plating’ of the provisions.

This provision is implemented in regulation 3 of the statutory instrument, which inserts a new Part 5A into the Undertakings for Collective Investment in Transferable Securities Regulations 2011. This is in line with the approach taken in the AIFMD regulations in relation to depositary liability.

 Question 1

Do you agree that a copy-out approach is the correct way to implement the provisions for depositary liability (see regulation 3 of the Statutory Instrument, which inserts regulations 15B-D into the Undertakings for Collective Investment in Transferable Securities Regulations 2011)?

2.4 Provisions for distribution of assets upon insolvency

Overview

Article 22.8 of the Directive (inserted by Article 1(4) of UCITS V) requires that member states ensure that, in the event of the insolvency of the depositary (or delegated third party), UCITS assets that are held in custody by the depositary or delegate are unavailable for distribution among (or realisation for the benefit of) creditors upon insolvency.

2.5 HM Treasury’s approach to implementing the provisions for distribution of assets

The assets of a UCITS held in custody for the purposes of Article 22.8 are financial instruments that may be registered in a financial instruments account opened in the depositary’s books, and financial instruments that can be physically delivered to the depositary.

HM Treasury considers that Article 22.8 captures only those financial instruments that are actually held in custody at the point of insolvency. Those assets that a depositary (or delegate) does not hold in custody (whether or not as a result of a compliance failure) would not be caught by the Article.

HM Treasury’s view is that existing UK domestic legislation, FCA rules and insolvency law operate in conjunction to ensure that custody assets are protected from creditor distribution upon the insolvency of a UK depositary Under UK insolvency law, client property held on trust does not form part of the insolvency estate so as to be available for creditors.

Article 22.5 states that financial instruments must be registered in segregated accounts in the name of the UCITS or the management company so that they can be clearly identified as belonging to the UCITS at all times. In the UK, these requirements will be imposed by the FCA’s new Collective Investment Schemes Sourcebook (COLL) rules, on which the FCA is currently consulting. The UK legislation setting out the framework for depositaries and trustees of collective investment schemes (namely FSMA and the Open Ended Investment Companies Regulations 2001) provides that property held by a depositary or trustee is entrusted or held on trust for the participants in the scheme. In many cases the contractual or trust arrangements between the depositary and the UCITS/management company or with the delegated third party will expressly impose a trust arrangement over the assets held in custody. Additionally, the nature and purpose of depositaries and trustees (or any third party delegates) of UCITS funds, namely their express role in the safe-keeping of client assets, implies a trust or fiduciary relationship in relation to assets held on behalf of the fund. HM Treasury considers that these elements combined either expressly create or imply a trust over client assets held in custody, and therefore effectively ringfence those assets from the pool of assets available to creditors upon insolvency.

HM Treasury therefore considers that no specific implementation measure is required to transpose Article 22.8.

Question 2

Do you agree with HM Treasury’s approach to implementing the provisions for distribution of assets upon insolvency?

Question 3

If you do not agree with HM Treasury’s position that the provisions for the distribution of assets upon insolvency do not require substantial changes to the law, what are your suggestions for practical implementation of these measures?

2.6 Overall Impact and Cost of the UCITS V Depositary Provisions

In addition to the above questions, HM Treasury is seeking views on the overall impact of the UCITS V Depositary provisions, whether implemented by the FCA or HM Treasury.

With regard to the practical impact of the implementation of the UCITS V provisions in the UK, the overall effects of the policy objectives for depositaries to the UK industry are predicted to be moderate. This is because the UCITS V Directive requirements for depositaries are broadly in line with those already in place under AIFMD. However some of the requirements on depositaries are new or go further than AIFMD and will therefore result in firms incurring initial and ongoing costs.

The FCA have indicated that 10 of the 11 firms authorised to act as depositaries of UCITS in the UK are also depositaries of Alternative Investment Funds (AIFs). Therefore to the extent that the Level 2 measures will fall in line with AIFMD Level 2 Regulations, most firms will already have most of the systems, procedures and organisational arrangements in place to carry out the cash-monitoring, safekeeping and oversight duties mandated under UCITS V. It is therefore expected that the provisions for depositaries under UCITS V will have a narrow impact on UK industry.

There may be some limited impact on industry with respect to the following:

• Depositary agreements which are currently in place in respect of UCITS constituted as Open-Ended Investment Companies may need to be revised. As with AIFMD, we expect the depositary community will prepare new template agreements for negotiation.
• UCITS constituted as authorised unit trusts may need a depositary agreement for the first time and the existing trust deed may require amendment to enable such an agreement to be entered into.
• The disclosure text in the prospectus will also need to be updated to reflect the new depositary arrangements.

Where there are costs incurred to industry by complying with the depositaries provisions laid out under UCITS V, they may take the form of the following:

• Changes to ensure harmonisation of the depositaries’ duties. This includes keeping the assets of the UCITS safe, monitoring cash movements to and from the fund, and segregation requirements for assets that are held in custody. This may incur legal and compliance costs;
• Depositary contract agreements which are currently in place in respect of UCITS constituted as OEICs may need to be revised. This is due to changes in the obligations of depositaries and the scope of their duties. The depositary community are expected to prepare new template agreements for negotiation, which may result in reduced administrative costs to individual depositaries;
• UCITS constituted as authorised unit trusts may need a new depositary agreement and the existing trust deed may require amendment to enable such an agreement to be entered into. This may result in legal and compliance costs;
• When delegating to a sub-custodian, the depositary must continually monitor the actions of the sub-custodian. This may incur administrative costs;
• In the event of avoidable loss of a financial instrument held in a depositary, the cost of the liability will strictly fall to the depositary;
• The disclosure text in the prospectus will also need to be updated to reflect the new depositary regime. This is likely to incur an administrative cost.

 Question 4

What are your cost forecasts to ensure initial and ongoing compliance with all of the depositary provisions laid out under UCITS V, to be implemented by both HM Treasury and the FCA?

Question 5

Do you foresee any other type of cost not listed above that depositaries may incur when ensuring they comply with the depositary provisions laid out under UCITS V?

3. Remuneration

3.1 Overview of the Remuneration Provisions

UCITS V introduces a requirement for the UCITS fund management company to implement a remuneration policy for key staff that is consistent with sound risk management of the UCITS fund.

The proposed requirements in the UCITS Remuneration Code are broadly similar to those in the AIFMD Remuneration Code because of the similarities of the risks and the incentives in the two sectors. In general, implementing the UCITS V remuneration principles will therefore standardise the approach to remuneration across industry.

The remuneration principles will seek to:

• Promote sound and effective risk management and will not encourage risk taking that is inconsistent with the risk profile of the UCITS instruments under management, and will not conflict with the management company’s duty to act in the best interest of the fund.
• Align incentives with business strategy, objectives and values of the management company, the UCITS under management and the investors in such UCITS, and will seek to avoid conflicts of interest.
• Increase transparency of remuneration by requiring details of the up-to-date remuneration policy in the investor prospectus, and include a total and full breakdown of remuneration for the financial year to be included in the annual report.

The remuneration provisions in UCITS V apply to:

• senior management
• risk taking roles
• control functions
• any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers

3.2 HM Treasury’s Approach to Implementation

In terms of implementation of the provisions for Remuneration laid out under UCITS V, HM Treasury will not be making any changes to existing legislation, as all of the requirements will be implemented by the FCA by making amendments and additions to their Senior Management Arrangements, Systems and Controls sourcebook (SYSC) and Collective Investment Schemes sourcebook (COLL) rules.

3.3 Overall Impact and Cost of the Remuneration Provisions

The FCA are responsible for implementing the Remuneration provisions, for details please pages 14-22 of the FCA consultation paper entitled ‘[UCITS V implementation and other changes to the Handbook affecting investment funds]’(https://www.fca.org.uk/news/cp15-27-ucits-v-implementation-and-handbook-changes). However, HM Treasury seeks views on the overall impact and costs of the Remuneration provisions on industry.

In terms of overall practical impact and costs to industry incurred by complying with the remuneration provisions laid out under UCITS V, HM Treasury understands that firms will need to take steps to ensure their practices meet the requirements in UCITS V, including the following:

• Firms will need to carry out a gap analysis against the remuneration policies they have in place currently under existing regulatory requirements (AIFMD for example) to see what changes need to be made.
• Procedures for producing future prospectuses and Key Investor Information Documents (KIIDs) will need to be amended at the appropriate time to include details of the approach to remuneration.

Question 6

Do you agree with HM Treasury’s view of the practical implications that fund management firms will face in order to ensure they comply with the UCITS V remuneration provisions?

Question 7

Do you believe there are any additional implications that fund management firms will face in order to ensure they comply with the UCITS V remuneration provisions?

Question 8

What are your immediate familiarisation and ongoing cost forecasts to ensure compliance with the remuneration provisions laid out under UCITS V?

4. National Sanction Regimes

4.1 Overview of the National Sanction Regime Provisions

The provisions for national sanction regimes laid out in the UCITS V Directive reinforce and standardise the approach to national sanctioning regimes across the EU.

Common minimum standards to Sanction Regimes have been included throughout recent EU legislative proposals including the Capital Requirements Directive IV, Markets in Financial Instruments Directive, the Market Abuse Regulation, and Transparency Directive. They are therefore also applied in UCITS V.

This sanction regime applies to breaches of the main investor protection safeguards in the UCITS Directive.

Key incidents that lead to penalties being incurred will arise when:

• the activities of UCITS are pursued without authorisation
• the business of a management or investment company is carried out without authorisation, or where authorisation has been obtained through false statements
• a qualifying holding in a management company exceeds or falls below certain thresholds without notifying the competent authority;
• failing to notify the competent authority at least annually of the names of shareholders and members possessing qualifying holdings and the size of these holdings
• failing to comply with structural, organisational and procedural arrangements imposed by UCITS V
• failing to comply with requirements related to delegation of a management or investment company’s functions to third parties
• failing to employ a risk management process
• Failing to disclose relevant information to investors as required by UCITS V

For those persons who breach the rules, the administrative sanctions will include:

• a public statement identifying the person responsible for the breach
• an order requiring the individual to cease and desist from repetition of the relevant conduct
• a permanent or temporary ban from fund management
• suspension or withdrawal of authorisation
• in the case of legal persons (e.g. companies), a scale of fine of up to at least EUR 5 million or 10% of their turnover (or alternatively, a fine of at least twice the amount of benefit gained by the infringement);
• in the case of natural persons (i.e. individuals) a fine of up to at least EUR 5 million (or alternatively, a fine of at least twice the amount of benefit gained)

4.2 HM Treasury’s Approach to Implementation

HM Treasury believes that sanctions laid out under existing legislation already go beyond the level of sanctions laid out under UCITS V. FSMA already provides for the minimum sanctions required by UCITS V, namely:

• Public statements (sections 66 and section 205);
• Orders requiring conduct to be ceased (section 380);
• Suspension/withdrawal of authorisation (sections 55J and 206A);
• Temporary or permanent ban from exercising management functions (sections 56, 63 and 66);
• Administrative pecuniary sanctions against legal persons (section 206); and
• Administrative pecuniary sanctions against natural persons (sections 66 and 206).

These sanctions are triggered by breaches of requirements imposed by or under FSMA (including in FCA rules). HM Treasury are making a few minor amendments to existing sections of FSMA to clarify that breaches of the national legislation transposing the UCITS Directive trigger the FCA’s existing sanctions. Those amendments are contained in regulation 2 of the statutory instrument.

HM Treasury also considers that the administrative and criminal sanctions in existing legislation can be applied by the FCA in relation to each of the specific infringements laid down in new Article 99a of the directive (inserted by Article 1(17) of UCITS V).

The UCITS sanctions must be capable of being applied to the “management body” of a management company, investment company or depositary. This is defined in the directive as the body with ultimate decision making authority, comprising the supervisory and managerial functions (or only the managerial functions if the two functions are separated). HM Treasury’s position is that this requirement is satisfied by the “approved persons” regime in Part V of FSMA. The disciplinary powers that are available to the FCA under this Part apply to persons carrying out controlled functions. It is expected that this will capture members of the management body with ultimate decision making authority for UCITS funds or depositaries. However HM Treasury would be interested to hear from consultees as to whether they consider that the approved persons and accountability regime will capture all members of fund or depositary management bodies.

Question 9

Do you agree with HM Treasury’s approach to implementing the national sanctions provisions under UCITS V (set out in regulation 2 of the statutory instrument)?

Question 10

Do you agree that the approved persons and accountability regime in Part V of FSMA covers all members of management bodies of UCITS management companies, investment companies and depositaries? If not, which members of management bodies would not be covered by those regimes?

4.3 Overall Impact and Costs of the National Sanction Regime Provisions

HM Treasury is seeking views on the overall impact and costs incurred by industry when ensuring the immediate and ongoing compliance with the national sanction regime provisions.

As the sanctions referred to in UCITS V are enforceable under existing UK financial services legislation, namely FSMA, HM Treasury expects that the sanction regime provisions laid out under UCITS V will have a minimal impact on the UK fund management industry, as firms will already have taken steps to comply with the requirements laid out in other legislation and by the FCA.

Question 11

What level of impact and cost do you forecast the National Sanction Regime provisions laid out under UCITS V to have on industry?

Question 12

Do you foresee any other impact that the provisions for National Sanction Regimes will have on fund management companies, fund managers, depositaries or trustees?

Question 13

What are your estimated cost forecasts for ensuring immediate and ongoing compliance with the National Sanction Regime provisions laid out under UCITS V?

5. Other

5.1 Overview of Miscellaneous UCITS V Provisions

5.1 This Consultation Document has discussed the main provisions laid out under the UCITS V Directive, which broadly fall into three categories:

• depositaries
• remuneration
• National Sanction Regimes

5.2 Other Provisions

There are some further miscellaneous provisions that HM Treasury will be responsible for updating in legislation, including:

• Adding a requirement on the FCA in relation to publication of decisions or notices about imposition of sanctions under the directive. This can be found in regulation 2(7) of the draft statutory instrument
• Updating requirements on the FCA to share depositary information, the reporting of infringements, and the disclosure of information regarding penalties. This can be found in regulation 3(2) of the statutory instrument, which inserts a new part 5B into the Undertakings for Collective Investment in Transferable Securities Regulations 2011
• Setting out the circumstances in which FCA may refuse to act on requests for information from other EEA competent authorities relating to criminal investigations or proceedings relating to infringements of the directive. This can be found in regulation 3(2) of the statutory instrument, which inserts a new part 5B into the Undertakings for Collective Investment in Transferable Securities Regulations 2011
• Updating existing legislation to ensure that confidential information is treated appropriately and that whistle-blowers who report to ESMA are protected by existing UK legislation. Please see regulations 4 and 5 of the draft Statutory Instrument, p. 5.

Question 14

Do you agree that the draft Statutory Instrument correctly implements all of the Directive requirements not described in other parts of this paper?

Question 15

Are there any other matters that should be addressed?

Question 16

Overall, do you agree with HM Treasury’s proposed approach to the transposition of requirements affecting UCITS funds?

Question 17

Do you have any other information that does not relate to any of the consultation questions above that you feel would be beneficial to HM Treasury during the implementation of the UCITS V Directive?

6. Responding to the Consultation

The Government would welcome responses on its proposals for the implementation of UCITS V into UK law.

6.1 Summary of questions

1. Do you agree that a copy-out approach is the correct way to implement the provisions for depositary liability (see regulation 3 of the Statutory Instrument, which inserts regulations 15B-D into the Undertakings for Collective Investment in Transferable Securities Regulations 2011)?
2. Do you agree with HM Treasury’s approach to implementing the provisions for distribution of assets upon insolvency?
3. If you do not agree with HM Treasury’s position that the provisions for the distribution of assets upon insolvency do not require substantial changes to the law, what are your suggestions for practical implementation of these measures?
4. What are your cost forecasts to ensure initial and ongoing compliance with all of the depositary provisions laid out under UCITS V, to be implemented by both HM Treasury and the FCA?
5. Do you foresee any other type of cost not listed above that depositaries may incur when ensuring they comply with the depositary provisions laid out under UCITS V?
6. Do you agree with HM Treasury’s view of the practical implications that fund management firms will face in order to ensure they comply with the UCITS V remuneration provisions?
7. Do you believe there are any additional implications that fund management firms will face in order to ensure they comply with the UCITS V remuneration provisions?
8. What are your immediate familiarisation and ongoing cost forecasts to ensure compliance with the remuneration provisions laid out under UCITS V?
9. Do you agree with HM Treasury’s approach to implementing the national sanctions provisions under UCITS V (set out in regulation 2 of the statutory instrument)?
10. Do you agree that the approved persons and accountability regime in Part V of FSMA covers all members of management bodies of UCITS management companies, investment companies and depositaries? If not, which members of management bodies would not be covered by those regimes?
11. What level of impact and cost do you forecast the National Sanction Regime provisions laid out under UCITS V to have on industry?
12. Do you foresee any other impact that the provisions for National Sanction Regimes will have on fund management companies, fund managers, depositaries or trustees?
13. What are your estimated cost forecasts for ensuring immediate and ongoing compliance with the National Sanction Regime provisions laid out under UCITS V?
14. Do you agree that the draft Statutory Instrument correctly implements all of the Directive requirements not described in other parts of this paper?
15. Are there any other matters that should be addressed?
16. Overall, do you agree with HM Treasury’s proposed approach to the transposition of requirements affecting UCITS funds?
17. Do you have any other information that does not relate to any of the consultation questions above that you feel would be beneficial to HM Treasury during the implementation of the UCITS V Directive?

6.2 How to Respond

The Government would welcome the views of all stakeholders on the issues raised in the document. The consultation begins with the publication of this document and will last for a period of eight weeks. Please respond by midnight on 17 December 2015. Responses to the consultation should be sent to:

UCITS V Directive consultation
Assets, Savings and Consumers
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
Tel: 0207 270 1983
Email: UCITSV.Consultation@HMTreasury.gsi.gov.uk

This document can be found on HM Treasury’s website at www.hm-treasury.gov.uk. When responding please state whether you are responding as an individual or as part of an organisation. If responding on behalf of a larger organisation, please make it clear whom the organisation represents and, where applicable, how the members’ views were assembled.

6.3 Confidentiality

All written responses will be made public on HM Treasury’s website unless the author specifically requests otherwise. In the case of electronic responses, general confidentiality disclaimers that often appear at the bottom of emails will be disregarded for the purpose of publishing responses unless an explicit request for confidentiality is made in the body of the response. If you wish, part, but not all, of your response to remain confidential, please supply two versions – one for publication on the website with the confidential information deleted, and another confidential version for the team managing the consultation.

Even where confidentiality is requested, if a request for disclosure of the consultation response is made in accordance with the freedom of information legislation, and the response is not covered by one of the exemptions in the legislation, the Government may have to disclose the response in whole or in part.

6.4 Consultation Principles

This consultation is being run in accordance with the government’s consultation principles. The government will be consulting for [8] weeks. This shortened period is in order to give stakeholders adequate time to respond while also ensuring that government is able to meet industry’s concern to have the UK approach to the implementation of this Directive finalised as soon as possible.

6.5 Confidentiality Disclosures

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act (DPA) and the Environmental Information Regulations 2004). If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals, among other things, with obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality will be maintained in all circumstances.

An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department. The Department will process your personal data in accordance with the DPA, and in the majority of circumstances, this will mean that your personal data will not be disclosed to third parties.

6.6 Freedom of Information

Any Freedom of Information Act queries should be directed to:

Correspondence and Enquiry Unit
Freedom of Information Section
HM Treasury
1 Horse Guards Road
London
SW1A 1HQ
Tel: 020 7270 4558
Email: public.enquiries@hmtreasury.gsi.gov.uk