Ucits V and increased liability
The Ucits V legislation, which came into effect last week, lists amendments to the existing Ucits IV statute and requires a single depositary be appointed for each Ucits.
Essentially, a depositary will now be liable for the ‘avoidable loss of a financial instrument held in custody’, according to changes published by the Financial Conduct Authority (FCA).
Furthermore, banks acting as the depositary will also be responsible for safe-keeping of the Ucits in terms of monitoring cash movements, performance and meeting segregation requirements for assets held in their custody.
Jessica Arrol, associate at law firm Charles Russell Speechlys, explained: “If there is a loss, a depositary must return a financial instrument of an identical type of the corresponding amount without undue delay.
“A depositary will also be liable for all other losses suffered by a Ucits fund and its investors as a result of its negligent or intentional failure to properly fulfil its obligations under the Ucits directive.”
Increase in fees
Despite FCA assurance that the new law is designed to give European investors a greater level of protection, Arrol has warned that implementing the new changes will lead to an increase in fees charged by depositary banks.
She said: “We have seen an increase in charges on the depositary side which may have been prompted by the new regime.
“In certain cases, depositaries may have taken the opportunity to renegotiate previously agreed contractual arrangements.
“It is likely that depositaries will be looking to protect themselves where they can in light of the enhanced liability provisions and detailed duties imposed on them under Ucits V.”
However, Marc-André Bechet, director of legal and tax at the Association of the Luxembourg Fund Industry (Alfi), believes it is too early to tell whether the new Ucits V directive will have a impact on fees.
He said: “It is extremely difficult at this stage to make any statement on whether Ucits V could potentially lead to an increase in fees.
“This being said, Ucits V clarifies the duties and responsibilities of depositary banks, but also of management companies.
“Changes in fee structures could thus come from both sides.”
