EUROPE: ESMA publish Consultation Paper on technical advice to the European Commission on delegated acts required by UCITS V

Friday September 26 2014

The European Securities and Markets Authority (ESMA) have published a Consultation Paper on their technical advice to the European Commission on delegated acts required by the UCITS V Directive.

The consultation paper sets out ESMA’s proposals for possible implementing measures regarding the issues identified in the European Commission’s request. Section II explains the background to ESMA proposals. The formal proposals for advice are contained in the boxes in Annex IV to the paper, while further commentary and explanation is provided in Sections III and IV.

Advice on the insolvency protection of UCITS assets when delegating safekeeping (Section III) UCITS V provides that, when the custody functions are delegated by the depositary to a third party, such a third party shall take “all necessary steps to ensure that in the event of insolvency of the third party, assets of a UCITS held by the third party in custody are unavailable for distribution among or realisation for the benefit of creditors of the third party”. The European Commission is empowered to adopt delegated acts specifying the steps to be taken by the third party pursuant to these provisions. This section of the consultation paper proposes 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.

Advice on the independence requirement (Section IV) UCITS V states that “In carrying out their respective functions, the management company [and the investment company] and the depositary shall act […] independently and solely in the interest of the UCITS and the investors of the UCITS”. The European Commission is empowered to adopt delegated acts specifying the conditions for fulfilling this independence requirement. This section of the consultation paper identifies two types of link between the management company/investment company and the depositary which may jeopardise their independence. These are (a) the common management/supervision and (b) the cross-shareholdings between these entities.

ESMA will consider the feedback it receives to this consultation with a view to submitting the technical advice to the European Commission by the end of November 2014.

Click on the above link for further details.