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UCITS Anatomy™


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UCITS V is the latest installment of the UCITS saga — which is to European legislation what the appendices to the Lord of the Rings are to fantasy literature. It can be found at 2014/91/EU (EUR Lex). It augments and amends UCITS IV, much of which is still in force. UCITS IV has specific implications for Depositaries and their sub-custodians (known in the legislation as "delegates"). Much of this was prompted by Madoff[1].

Here's from an official EU idiot's guide to the legislation:

The Problem

There were 3 problems with existing UCITS legislation:

  • Legal protection for UCITS investors varies too much among countries.
    • UCITS assets are held by a depositary which also checks the fund manager's activities (e.g. compliance with investment strategy). There were only vague requirements on the depositary and its liability towards investors when things go wrong. These requirements were interpreted differently across Europe, so investors don't always have the same standards of protection.
    • Different countries tended to take different approaches to penalising fund managers or depositaries.
  • It had not kept up with the complexity of investment techniques and instruments.
  • It allowed inappropriate pay policies for fund managers, which lead to excessive risk-taking.

The solution

Detailed, comprehensive rules on depositaries' tasks that would establish:

  • Which assets the depositary must hold directly, what it must do with them and what it should do for assets that can't be held this way.
  • how and when depositaries can delegate activities to sub-custodians, and their residual liability where they have done so;
  • Depositary's obligations assets held by the depositary are lost: the depositary must replace them as soon as possible with assets of the same type or value (unless this is due to an external event beyond its control).
  • Comprehensive rules on pay policies.
  • minimum penalties across europe to be used when UCITS, their managers or depositaries breach key requirements.

See also


  1. I derive some perverse enjoyment from the fact that Madoff is a broken link on this site. Click on it and there’s nothing there.