UCITS V | Draft Law

On August 5th 2015, the government introduced the draft law 6845 which aims at transposing Directive 2014/19/UE of the European Parliament and of the Council of July 23rd 2014 (the “UCITS V Directive”), amending the 2009/65/CE Directive, into Luxembourg Law (the “Draft Law”) .

The Draft Law implements the UCITS V Directive into Luxembourg law while amending the law of December 17th 2010 on undertakings for collective investment (the “UCI Law”) and the law of July 12th 2013 on alternative investment fund managers (the “AIFM Law”).

1. Amendment of the UCI Law

  • The introduction of a new depositary regime

The Draft Law transposes faithfully the text of the UCITS V Directive. It clarifies the notion of the safekeeping of assets, regulates the regime of delegation and sub-delegation and introduces the obligation for the segregation of assets held in custody. In addition, it prohibits the re-use of assets by the depositary itself, unless certain conditions are met. This differs from the AIFM Directive, where the re-use of assets is permitted after prior consent of the AIF or the AIFM acting on the AIF’s behalf.
Most importantly, in case of loss caused by an event which is not beyond its reasonable control, the Draft Law provides for the obligation to return financial instruments held under custody, of an identical type or corresponding amount.

“In general, the new regime of liability of the depositary of UCITS is largely based on the provisions of the AIFM Law although in this case the depositary is not allowed to discharge its liability.„

  • The harmonisation of the rules regarding remuneration policies

The rules introduced concerning the remuneration of individuals aim to prevent excessive risk taking and situations involving conflicts of interests.
They introduce, among other provisions, the obligation to apply remuneration policies which are compatible with sound and effective risk management.
The new rules apply to UCITS management companies and self-managed SICAV.

  • The harmonisation of administrative sanctions

The new regime of administrative sanctions include a list of breaches and minimum sanctions harmonised at a European level and rules concerning the publication of sanctions, encouraging the reporting of breaches to the CSSF.

2. Amendment of the AIFM Law

The Draft Law further proposes some amendments to the AIFM Law that are not related to the implementation of the UCITS V Directive: alternative investment fund managers, to have their accounting documents audited by an independent auditor (i) the possibility for AIFM to provide on a cross-border basis certain investment services such as the management of individual portfolios and investment advice which for the moment may only be performed in the country where they are authorised.