EUROPEAN UNION: ESMA Publishes Consolidated UCITS Q&A

Tuesday February 2 2016

On 1^st February 2016, the European Securities and Markets Authority (ESMA) published a consolidated Questions and Answers (Q&A) on the application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS).

The consolidated Q&A includes new questions on additional documents funds need to provide for UCITS V.

Furthermore, the new Q&A also brings together the following four existing ESMA Q&As on UCITS:

• The Key Investor Information Document (KIID) for UCITS (2015/631);
• Q&A on ESMA’s guidelines on ETFs and other UCITS issues (2015/12);
• Notification of UCITS and exchange of information between competent authorities (2012/428); and
• Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS (2013/1950).

The following question and answers have been added:

Question 1a: UCITS V requires (i) the KIID to include a prescribed statement in relation to remuneration policy and (ii) the prospectus to include some remuneration-related information. UCITS are required to make an updated KIID available within 35 days of 31 December each year, while the ‘essential elements’ of the prospectus must be kept up to date at all times. Will UCITS be required to issue a further KIID and a revised prospectus on 18 March 2016 to reflect the UCITS V requirement?

Answer 1a: No: except where a UCITS is subject to national laws and regulations in its home Member State that require updates to be made by 18 March 2016, the UCITS will be allowed to update the KIID with this information at the next annual update after 18 March 2016, or on the first occasion after 18 March 2016 on which the KIID is revised or replaced for another purpose, if the information is available at that point in time. Similarly, a UCITS will be allowed to add the relevant information to the prospectus at the next occasion it is revised for another purpose or in any event by 18 March 2017 at the latest. In the meantime, UCITS management companies should make available on a relevant website the additional information about the management company’s remuneration arrangements as soon as it becomes available.

Question 1b: UCITS V requires the annual report to include some remuneration-related information. The annual report shall be published within four months from the end of the period to which it relates. Does the UCITS V requirement apply to all annual reports published on or after 18 March 2016?

Answer 1b: No, it is not necessary to include the remuneration-related information in any annual report relating to a period that ended before 18 March 2016. For annual reports relating to periods that end on or after 18 March 2016, but before the UCITS management company has completed its first annual performance period in which it has to comply with articles 14a and 14b of the Directive, the UCITS management company should include the remuneration-related information in the report on a best efforts basis and to the extent possible, explaining the basis for any omission.

Question 1c: When must existing UCITS depositary contracts be updated in order to meet the requirements under Directive 2014/91/EU (UCITS V)?

Answer 1c: UCITS V will start to apply on 18 March 2016. Under Article 22(2) of the UCITS Directive, introduced by UCITS V, the appointment of the depositary shall be evidenced by written contract, while the delegated acts required under Article 26b will set out the particulars that need to be included in that written contract. UCITS depositary contracts should be revised promptly in accordance with any transitional arrangements outlined in the delegated acts.

UCITS V contains provisions which prescribe in law the liability of depositaries. While there is no requirement to include those liability provisions in depositary contracts, in practice existing depositary contracts will contain liability provisions which will not be consistent with the depositary liability provisions set out in UCITS V. In accordance with Article 24(4), those provisions of a contract which set out the parties’ agreement on depositary liability and which conflict with the UCITS V depositary liability provisions will be void with effect from 18 March 2016. The UCITS V depositary liability provisions will apply instead. The liability provisions in existing depositary contracts should be amended to reflect the UCITS V depositary liability provisions when those depositary contracts are revised to comply with the delegated acts.

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