On February 2, the Financial Conduct Authority (FCA) published a policy statement on the implementation of the Undertakings for the Collective Investment of Transferable Securities V Directive (UCITS V). Policy Statement 16/2 sets out FCA Handbook changes required to implement UCITS V and also the FCA’s feedback on responses received to Part I of the FCA’s Consultation Paper 15/27, released in September 2015.

As discussed in the Corporate & Financial Weekly Digest edition of September 11, 2015, the Consultation Paper contained three sections with proposed rule changes. Part I of the Consultation Paper set out draft rules to transpose UCITS V into UK regulation. Part II set out draft rules to align the FCA Handbook with the regulation on European long-term investment funds (ELTIF Regulation). Part III contained draft incidental changes to the FCA Handbook.

In its latest Policy Statement, the FCA clarified:

  • guidance on payments in non-cash instruments;
  • whether consequential changes to prospectus and scheme documents will require approval from the FCA (following the implementation of UCITS V);
  • UCITS V disclosure requirements for managers of non-UCITS retail schemes (NURS), including that NURS will not be required to disclose the list of the depositary’s delegates and sub delegates in prospectuses;
  • the level of infrastructures that non-bank depositaries must have in place when delegating the safekeeping function to a third party;
  • that UCITS depositaries will be able to delegate the performance of administrative and technical tasks to a third party; and
  • which of the Client Assets Sourcebook rules relating to records, accounts and reconciliations will continue to be applicable to depositories of UCITS until the Level 2 Regulation goes into effect.

UCITS V goes into effect on March 18. However, the associated Level 2 Regulation has not yet been published and it is unclear when it will become applicable. The FCA acknowledges that there is a “mismatch” between the UCITS V implementation date, and when the relevant Level 2 Regulation will take effect and notes that firms may face uncertainty in relation to:

  • minimum terms to be included in the contract between the management company and the depositary;
  • oversight, cash monitoring and safekeeping duties of depositories;
  • types of financial instruments that the depositary must hold in custody and associated segregation requirements;
  • terms and conditions of the depositary’s liability for losses of financial instruments;
  • terms of the depositary’s delegation of the safekeeping function to third-party custodians; and
  • requirements for independence between the management company and the depositary.

The FCA confirmed that despite potential uncertainties, firms are expected to make efforts to comply with the requirements of UCITS V. However, the FCA also confirmed in its Policy Statement that where existing handbook rules cover the topics above, firms should continue to comply with those until the Level 2 Regulation is applicable.

The FCA will outline its final position in relation to Part II and III of the Consultation Paper at a later date.

A copy of the Policy Statement can be found here.

A copy of the Consultation Paper can be found here.