UCITS V Developments

Following the recent ESMA Consultation Paper on remuneration policies under UCITS V (see Regulatory Roundup 66) the FCA has published CP15/27 “UCITS V implementation and other changes to the Handbook affecting investment funds”.

As may be recalled a major change in UCITS V is the introduction of the need for UCITS management companies to establish and apply remuneration policies and practices.

The nine principles in the Handbook’s draft UCITS Remuneration Code (SYSC 19E) are the same as the nine principles in the AIFMD Remuneration Code (SYSC 19B), although the descriptive wording is not a mirror match e.g. with regard to the principle of deferral a period of ‘at least three years’ is required under SYSC 19E whereas under the AIFMD Code in SYSC 19B the period is ‘at least three to five years ..’ (see paragraphs 3.24 & 3.25 of CP15/27 for those requirements unique to the UCITS Code and those requirements that differ from the AIFMD Code equivalents).

SYSC 19C (BIPRU Remuneration Code) will be amended to confirm that a UCITS investment firm that meets its obligations under SYSC 19E and that is subject to BIPRU will not be required to demonstrate compliance with SYSC 19C.  The FCA will not be issuing any guidance to UCITS investment firms that are subject to the IFPRU Remuneration Code (SYSC 19A) and will await publication of final guidelines by the EBA.

Transitional provisions mean that a UCITS management company need not apply the UCITS remuneration principles to any awards of variable remuneration until it commences its first full performance year starting on or after 18 March 2016.

Information on remuneration will need to be disclosed in the prospectus and website as well as in the fund’s annual long report – the full amendments can be found in the revised COLL obligations in Appendix 1 Annex F of CP15/27.

Other UCITS V related changes being consulted on concern the depositaries of UCITS.

The current UCITS IV regime is fairly open as to what type of entity can be a depositary (“… shall be an institution which is subject to prudential regulation and ongoing supervision”).  UCITS V will require a depositary to be either a national central bank or a credit institution or (in terms of FCA/PRA jurisdiction and under discretion afforded by UCITS V amended Article 23(2)(c)) a full-scope IFPRU firm or an investment management firm that can meet the revised own fund requirement in IPRU(INV) 5. Other changes under UCITS V include the need for a single depositary to be appointed for each fund, under a written contract, and giving depositaries a cash oversight function reflecting the obligations of depositaries appointed under the AIFMD.

The consultation period ends Monday 9 November 2015.

As a reminder, Member States have until 18 March 2016 to transpose the Directive into national law – see Regulatory Roundup 59.