European Scrutiny Committee Contents

19 Financial services: undertakings for collective investments in transferable securities



+ ADDs 1-2

COM(12) 350

Draft Directive amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions

Legal baseArticle 53(1) TFEU; co-decision; QMV
DepartmentHM Treasury
Basis of considerationMinister's letter of 14 December 2012
Previous Committee ReportsHC 86-xii (2012-13), chapter 8 (12 September 2012) and HC 86-xvi (2012-13), chapter 12 (24 October 2012)
Discussion in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared


19.1 The Undertakings for Collective Investments in Transferable Securities (UCITS) Directive was originally adopted in 1985 and allows open-ended investment funds investing in transferable securities to be subject to the same standards of regulation in each Member State and to be marketed to investors in other Member States without the need for additional authorisation. The Directive was recast in 2009 as Directive 2009/65/EC.[56]

19.2 When the Alternative Investment Fund Managers Directive is transposed into the national laws of Member States in July 2013, funds aimed at professional investors, such as hedge funds and private equity funds, will have substantially greater investor protection requirements than UCITS funds which are aimed at retail investors.

19.3 In July the Commission presented this draft Directive in order to help address the anomaly of professional investors having better protection than retail investors by introducing new requirements in key areas. It is a narrow update, only introducing new requirements in respect of depositaries, remuneration and sanctions.

19.4 The draft Directive was presented as part of the Commission's retail package that also includes the draft Regulation on key information documents for investment products[57] and the draft recast Directive on insurance mediation.[58] It is expected that a further legislative proposal will follow shortly to address the remaining imbalances in investor protection as well as bringing wider reforms to UCITS funds.

19.5 When we considered this proposal in September we heard that the Government supports the Commission's consideration of amendments to the UCITS Directive, holding that retail investors should be able to expect a consistent and suitable level of protection regardless of where a fund is located in the EU. We said that, whilst we recognised the utility of this proposal for improving protection for retail investors, we noted the Government's intention to seek improvements to the text of the draft Directive in regard to issues related to depositaries, including depositary liability, sanctions and remuneration. In October we had an interim account of working group negotiations and looked forward to hearing about further substantive developments in due course. Meanwhile the document continued under scrutiny.[59]

The Minister's letter

19.6 The Economic Secretary to the Treasury (Sajid Javid) writes now about a new Presidency compromise text circulated very recently as a result of further working group discussion. He discusses the key content of the text as follows.


19.7 The Minister reminds us that:

  • the original text would have required a depositary to a UCITS to be a credit institution or a Markets in Financial Investments Directive (MiFID) investment company; and
  • three of the six depositaries in the UK are authorised under a national regime and this provision would have forced them to restructure.

He says that:

  • the compromise proposed deletes the provision that a depositary may be a MiFID investment company;
  • instead it copies the key capital, organisational, and reporting requirements of MiFID authorisation directly into the UCITS Directive on a minimum harmonising basis;
  • this would allow MiFID firms or other firms authorised to equivalent standards to act as depositaries to UCITS; and
  • this will be sufficient to bring all UK firms into scope and also prevents other Member States from permitting firms with less stringent requirements than MiFID to act as depositary to UCITS that might be marketed to UK investors.


19.8 In this connection the Minister says that:

  • for the most part, depositary liability requirements have been aligned with those of the Alternative Investment Fund Managers Directive;
  • the difference is that, where a third country jurisdiction requires a depositary to delegate its safekeeping function to a local entity, the depositary cannot discharge its liability on a contractual basis to the local entity in the event of loss of assets caused by a criminal or negligent act by the local entity; and
  • this is acceptable.


19.9 On sanctions the Minister tells us that:

  • the Government's position has been that sanctions are a horizontal issue and that a consistent approach needs to be taken across dossiers;
  • following the general approach on the Markets Abuse Regulation, the relevant sanctions provisions are being copied across into the UCITS proposals; and
  • this secures all the Government's key specific concerns in the sanctions text.


19.10 Here the Minister says that:

  • the Government has pushed for as close as possible an alignment on remuneration provisions with the Alternative Investment Fund Managers Directive;
  • barring the removal of certain technical points that were not relevant in a UCITS context, the remuneration requirements are the same as the Alternative Investment Fund Managers Directive; and
  • moves to impose stricter requirements have been resisted.


19.11 We are grateful to the Minister for his account of developments on this proposal and note the improvements secured. Having no further questions to ask we clear the document.

56   See Back

57   (34087) 12402/12 + ADDs 1-2: see chapter 20 of this Report. Back

58   (34089) 12407/12 + ADDs 1-2: see HC 86-xvi (2012-13), chapter 14 (24 October 2012). Back

59   See headnote. Back

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Prepared 2 January 2013