Brussels, 20/03/2014 (Agence Europe) - On Wednesday 19 March, the EU member states' representatives to the EU on the Coreper committee endorsed changes to the UCITS V directive on collective investment in transferable securities in order to boost security following the Madoff scandal (see EUROPE 11027).
The new rules provide a better definition of the safekeeping and oversight duties of depositories (companies holding bonds bought by UCITS managers). The only bodies now eligible to act as UCITS depositories are central banks, banks and registered investment companies meeting certain capital requirements. If the depository goes bankrupt, then the assets in the UCITS will be segregated from the depository's assets and the end investor will be able to appeal directly to the depository. The depositories will be held liable for losses by companies to which they had delegated the safe-keeping of assets. The measures will come into force two years after the new directive comes into effect, and an 18-month deadline is set for transposition of the deadline.
The last time the rules changed was in 1985, and different member states took different approaches. The collapse of Lehman Brothers and then the Madoff scandal demonstrated that harmonisation was required because investors were not guaranteed the same protection levels across the EU.
Remuneration rules. In order to limit excessive risk-taking, the directive lays down rules governing variable pay for UCITS fund managers. Bonuses will not be capped, but half of bonus payments must be in the form of shares in the UCITS fund and 40% of the bonus will be paid after three years (60% for very high bonuses). The European Securities Markets Authority (ESMA) will draw up guidelines for identifying exactly who is covered by these rules.
The harmonised rules on fines on fund managers who fail to meet their obligations cap the fines at €5 million or 10% of turnover for a company and €5 million for an individual. In both cases, the fine must be at least double the profits fraudulently made by the person or company being penalised.
For the first time, under pressure from the European Parliament, the new rules protect whistle-blowers who provide information to national or European authorities. (MB)