ESMA issues final report on UCITS V delegated acts

On November 28 the European Securities and Markets Authority issued its final report to the European Commission regarding two delegated acts on depositary requirements that must be issued to complement the primary legislative text of the UCITS V directive.
The report, drawn up in response to a request from the Commission on July 3 for technical advice, was issued following a period of consultation with the industry, which closed on October 24, on a preliminary draft of ESMA’s advice.
ESMA received 60 responses to the consultation paper from asset managers, depositary banks, industry groups, consumer representatives, public authorities and a law firm, as well as an academic and one individual.
In their feedback, the asset management industry associations regretted the short deadline for responses to the consultation, arguing that this would compromise what should be an objective exercise allowing the Commission to justify its policy choices according to its internal impact assessment guidelines. In fact ESMA did delay its submission to the commission, for which the original deadline was October 15.
Respondents also insisted that it was important to ensure that the Level 2 delegated legislation issued by the Commission would be applied in the same way throughout the EU, requiring national regulators to refrain from ‘gold-plating’ the measures with additional requirements in their jurisdictions, and urged that consistency be ensured between the UCITS delegated acts and their AIFMD counterparts.
The new depositary requirements are designed to broadly align the provisions of the UCITS regime with those of the Alternative Investment Fund Managers Directive regarding the rules on depositaries’ duties, delegation, eligibility to act as custodian, and liability.
In addition to the rules governing depositaries set out in the AIFMD, UCITS V contains additional requirements relating to the insolvency protection of fund assets in cases where the depositary delegates safekeeping duties to a third party, and the requirement for the management company and depositary to act independently of each other.
UCITS V stipulates that any third party to which custody is delegated by the depositary must take all necessary steps to ensure that in the event of the third-party custodian’s insolvency, the fund assets it holds should not be available for distribution to or realisation on behalf of its creditors.
The consultation paper proposes measures, arrangements and tasks to be undertaken by the third-party custodian, as well as measures to be implemented by the depositary, to be included in the Commission’s legislation.
Some respondents cautioned that the protection offered by segregation of assets was at the mercy of any developments in insolvency laws and jurisprudence, and that based on past experience, the laws of many jurisdictions do not ensure the return of clients assets without hindrance or delay, or even guarantee that they will not be treated as part of the insolvent estate of the third-party custodian.
They urged ESMA and the Commission to support harmonisation at international level, through IOSCO, of insolvency laws in third-country jurisdictions to ensure effective asset segregation and protection. ESMA says that since this is not part of its mandate, it would be more appropriate for IOSCO or the Commission to take the lead.
UCITS V also stipulates that in carrying out their respective functions, the management company (and investment company) and the depositary should act independently and solely in the interest of the UCITS fund and its investors.
The Commission’s depositary acts should set out how this independence requirement is to be ensured. The report identifies common management and/or supervision and cross-shareholdings between the management and depositary entities as links that could threaten their independence and recommends measures to address these risks.
ESMA says it will now work closely with the Commission to help it adapt the technical advice into formal delegated legislation. The report can be consulted in its entirety at: Please also see our previous article on this topic at