The Front Page, Asset Management & Investment Funds: EU & International Developments

UCITS V level 2 Regulation

The European Commission published the first official draft of the UCITS V level 2 Regulation. The UCITS V level 2 regulation will implement UCITS V which will come into force on 18 March 2016.

The draft Regulation sets out more detailed requirements on the UCITS V amendments affecting depositaries. Regulators, UCITS managers and depositaries have been waiting for this Regulation so as to understand how the detailed requirements can be implemented into relevant processes and procedures within the tight timescales envisaged. Sensibly, the current draft provides that the Regulation shall apply from a date which is six months after it comes into force (although this is still draft and so liable to change).

The draft Regulation covers

  • Definitions (Article 1);
  • Detail of what must be included in the written contract for the appointment of the depositary (Article 2);
  • Oversight duties- general requirements (Article 3);
  • Duties regarding subscription and redemptions (Article 4);
  • Duties regarding the valuation of units (Article 5);
  • Duties regarding the carrying out of the UCITS’ instructions (Article 6);
  • Duties regarding the timely settlement of transactions (Article 7);
  • Duties related to the UCITS’ income calculation and distribution (Article 8);
  • Cash monitoring- general requirements, monitoring of UCITS' cash flows and duties regarding payments upon subscriptions (Articles 9 to 11);
  • Conditions for performing the depositary functions (Articles 12 to 14);
  • Due diligence duties (Article 15);
  • Segregation obligation (Article 16);
  • Insolvency protection of UCITS assets when delegating custody functions (Article 17);
  • Loss of financial instruments and liability discharge (Chapter 3); and
  • Independence requirement (Chapter 4).

The delegated regulation is now be subject to scrutiny by co-legislators prior to publication in the Official Journal and will come into force 20 days after that date.

ESMA Q&A on application of AIFMD

On 2 December 2015, the European Securities and Markets Authority (ESMA) published an updated version of its Q&A paper on the application of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD). The Q&As were amended to reflect new queries on reporting to national competent authorities.

On 15 December 2015, ESMA published a further updated version of that Q&A paper. The Q&As were amended to address a query on depositaries and whether the depositary liability regime applies to those assets for which a depositary has safe-keeping duties on a look-through basis (according to Articles 89(3), first sub-paragraph, and 90(5), first sub-paragraph of the AIFMD Level 2 Regulation). This is of particular interest in the context of funds of funds or master-feeder structures. 

IOSCO reports on third hedge fund survey

On 11 December 2015, the International Organization of Securities Commissions (IOSCO) published a report  on the findings from its third hedge fund survey.

The survey gathers data from hedge fund managers and advisers about the markets in which they operate, their trading activities, leverage, funding and counterparty information. It forms part of IOCSO's work to support the G20 initiative to mitigate risk associated with hedge funds. The report explains the results of the survey and provides an overview of the hedge fund industry as at 30 September 2014.

Cybersecurity Directive

Negotiators of the European Parliament, the Council and the Commission have agreed on the first EU-wide legislation on cybersecurity which will set standardised rules for member states to better deal with cyber-attacks.

Following this political agreement, the text will have to be formally approved by the European Parliament and the Council. After that it will be published in the EU Official Journal and will officially enter into force. Member States will have 21 months to implement this Directive into their national laws and 6 months more to identify operators of essential services.

For more information please contact Nollaig Greene or a member of the Asset Management & Investment Funds Team.

Date published: 21 December 2015