The ECB has given its opinion (dated 11 January 2013) on the proposed directive amending the UCITS Directive as regards depositary functions, remuneration policies and sanctions, namely the UCITS V Directive.

The ECB broadly welcomes the proposed directive, which is aimed at strengthening the UCITS framework specifically in relation to:

• Remuneration policies and practices of senior management
• Rules on the appointment of depositaries and the performance of depositary functions
• The regime for administrative sanctions and measures

The ECB is of the opinion that the new rules may play an important role in preventing malpractices and enhancing investor confidence and believes the proposed strengthening is timely in light of the enhancements achieved by AIFMD.

The ECB makes a number of observations as set out below, many of which stem from the ECB’s opinion that the protection of retail investors requires more stringent rules for UCITS depositaries than for depositaries appointed by alternative investment funds:

• The proposed directive should explicitly prohibit a UCITS depositary, or any party to whom the custody of a UCITS fund has been delegated, from re-using the assets under its management for its own account. AIFMD permits re-use of assets subject to prior consent of a fund’s managers.
• Delegation by a UCITS depositary to a sub-custodian located outside the EU should be subject in all cases to appropriate safeguards, such as minimum capital requirements and effective supervision in the country concerned.
• The ECB supports the proposition that only credit institutions and investment firms be eligible to act as UCITS depositories, but recommends that the capital requirements regime for credit institutions and investment firms acting as depositaries should be further assessed to ensure adequate safeguards are in place relating to the exercise of the depositary function.
• The ECB considers that the “external events beyond … reasonable control” that trigger the possibility for a depositary to discharge liability by contract should be specified in the European Commission ‘delegated acts’ in a detailed manner.

Specific drafting proposals are set out in the Annex accompanying the opinion to address these recommendations.