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Alternative Market Briefing

Other Voices: Fortress Europe? New UCITS V rules could be cumbersome for US fund managers

Tuesday, March 11, 2014

By: Kaye Scholer Attorneys

The European Parliament and Council recently agreed on the substance of the new UCITS V Directive, which will include safeguards to protect client assets in the event of a depositary’s insolvency and also address remuneration practices that are thought to encourage excessive risk-taking. These new rules may make it more cumbersome for UCITS that are either managed or (sub-)advised by US managers.

UCITS (Undertakings for Collective Investment in Transferable Securities, investment vehicles established under Directive 2001/107/EC and 2001/108/EC) are basically the EU equivalent of US mutual funds. They form a sector of the European asset management industry that is valued at approximately €9.0 trillion. Quite a number of UCITS are either managed or (sub-)advised by US fund managers. There is some concern that the new UCITS V Directive, discussed below, might make it more cumbersome to implement this "work-sharing scheme."

UCITS V

The European Parliament and Council reached agreement on the substance of the new UCITS V rules on February 25, 2014. These new rules will include safeguards to protect client assets in the event of a depositary’s insolvency. Under the February 25 agreement, depositaries will be liable for any loss of UCITS assets held in custody, while clients will also have the right of redress against the depositary. Only national central banks, credit institutions and regulated firms with "sufficient capi......................

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