January 2013 Issue
EU member states had until 30 June 2011 to implement into national law the directive known as UCITS IV. Nevertheless, a directive proposal for UCITS V and a consultation paper for UCITS VI have already been published. While some may claim there is too much regulation, others consider it an advantage that UCITS are constantly developing, whether to deal with the weaknesses inherent in earlier directives or to face developments in the markets.
Investor interest in UCITS remains high. Statistics from the European Fund and Asset Management Association (EFAMA) show an increase of 9.5 percent compared to 30 December 2011 of the total assets in UCITS. These figures are positive, especially taking into account the difficult financial market environment.
UCITS has become a brand, generating interest not only among typical retail investors but also from institutional investors. While the good reputation of a brand may be built over time, it can also be quickly damaged if developments are not judiciously addressed.
In that context, below is a brief look at some of the most important recent developments.
Wrap up UCTS IV. The amended notification procedure and its short-to-market timelines under UCITS IV are a success. Also, the key investor information document is well accepted, even though the administrative set-up can be a challenge. Regarding the management company (the ManCo) passport, at least one Luxembourg ManCo set up a UCITS which is subject to the law of another member state. Further, some master-feeder structures have been established, whereas cross-border mergers did not take off. There is an expectation that both the ManCo passport as well as master-feeder structures will be used more frequently.
UCITS V proposal. The proposed UCITS V directive mainly deals with the role of the depositary and manager remuneration. The definition of the duties of the depositary is based on the one used in the AIFMD. Significant concerns have been raised regarding the level of liability and the reversal of the burden of proof (against the depositary). Will depositary services become tremendously costly due to this increased potential liability? In terms of manager remuneration, one consequence of the rules would be the need for greater organisational clarity. But considering the usual organisation of UCITS funds, this is likely to have less impact than initially expected.
New Luxembourg circular. In October 2012, the Luxembourg regulator issued a circular on UCITS ManCos which centres mainly around organisational, structural and reporting matters. In this context the Luxembourg ‘promotership requirement’ has been abolished.
It should be noted that a Luxembourg UCITS ManCo may also act as a general partner or ManCo to a Luxembourg regulated alternative investment fund. Furthermore, the contemplated AIFMD transposition foreshadows that a UCITS ManCo may also be licensed as an AIFM, allowing for the entire range of regulated investment fund products to be serviced under one roof.
UCITS VI consultation paper. Through the UCITS VI consultation paper, the European Commission has already addressed queries relating to asset management techniques, eligibility of assets and improvements on UCITS IV measures. We believe that the main challenges will be preserving the basic characteristics of UCITS and avoiding the fragmentation of UCITS into a number of varieties. It would be significantly preferable to keep one, and only one, form of UCITS.
Manfred Dietrich
Rechtsanwalt
Loyens & Loeff
T: +352 466 230 200
E: manfred.dietrich@loyensloeff.com
www.loyensloeff.lu
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Manfred Dietrich
Loyens & Loeff