Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions
Date: 2012-07-03
Institutions: European Commission
Subjects: administrative sanction, approximation of laws, bank deposit, financial legislation, investment company, market access, market supervision, remuneration of work, right of establishment, securities, venture capital

EUROPEAN COMMISSION 

Strasbourg, 3.7.2012  
COM(2012) 350 final 

2012/0168 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2009/65/EC on the coordination of laws, regulations and 
administrative provisions relating to undertakings for collective investment in 
transferable securities (UCITS) as regards depositary functions, remuneration policies 
and sanctions 

(Text with EEA relevance) 

{SWD(2012) 185 final} 
{SWD(2012) 186 final} 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

1.1. 

General 

Since  the  UCITS  Directive  was  adopted  in  1985,  the  rules  relating  to  depositaries  in  the 
Directive have remained unchanged: they consist of a number of generic principles setting out 
the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be 
entrusted to a depositary. This depositary shall, in accordance with national law, be liable for 
losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from 
employing  a  negligence-based  standard,  makes  reference  to  national  laws  in  respect  of  the 
precise  contours  of  these  duties.  This  reference  leaves  considerable  scope  for  diverging 
interpretations regarding the scope of a depositary's duties and the liability for the negligent 
performance  thereof.  As  a  result,  different  approaches  have  developed  across  the  European 
Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions.  

The potential consequences of national divergences in the liability standard came  to the  fore 
following the Lehman bankruptcy1 and the Madoff  fraud.  In particular,  the  consequences of 
the Madoff fraud have been particularly acute in some EU Member States. In one instance, a 
particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale 
of the Madoff fraud essentially went undetected for a long period because the depositary had 
delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard 
Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and 
broker  responsible  for  purchasing  financial  instruments  on  behalf  of  the  fund.  The  Madoff 
case raised several important issues in relation to UCITS funds. First, it raises the question of 
the  precise  conditions  under  which  a  depositary  acting  on  behalf  of  a  UCITS  fund  can 
delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on 
the precise conditions under which custody may be delegated.  

The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent 
should the manager of an investment fund be allowed to belong to the same corporate group 
as  the  sub-custodian  to  whom  custody  has  been  delegated?  Can  it  really  be  expected  that  a 
fund manager will always behave in a manner conducive to protecting the interests of a fund's 
investors where the manager is also the sub-custodian of the assets they invest in? In respect 
of conflicts of interests that may arise in relation  to the independence of the depositary, the 
UCITS Directive is limited to stipulating the general principle that a company cannot manage 
a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover 
the  conflicts  of  interest  that  may  arise  in  case  the  management  function  and  the  depositary 
functions are delegated to one and the same third party.  

Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, 
especially in relation to the principal custodian's liability in case of delegation of custody to a 
sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules 
in the relevant UCITS Directive, is dealt with differently in individual Member States.  

1 

One  of  the  consequences  of  the  financial  crisis  was  the  bankruptcy  of  the  Lehman  Brothers 
International  Europe,  the  Lehman  UK  entity  which  collapsed  in  2008.  This  entity  was  entrusted  as 
a  sub-custodian  with  assets  of  some  collective  investment  schemes  (although  non-UCITS  funds,  the 
regulatory model was similar to that of UCITS in terms of depositary rules). 

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The Madoff case brought to the fore an essential development in the UCITS sphere: while the 
UCITS provisions on depositaries have remained unchanged, the investment environment for 
UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which 
may  be  more  complex  and  also  may  be  issued  and  held  in  custody  outside  the  EU  (for 
instance, in emerging markets); fund portfolios are increasingly diverse and international.  

As a consequence, holding assets through sub-custody arrangements, so as to match the fund's 
investment strategies, have become increasingly common. The Madoff fraud has shown that 
the risks associated with the use of delegated sub-custody networks are not always negligible. 
Assets can be lost at the level of the sub-custodian, which might include loss through fraud 
committed  by  the  sub-custodian,  negligence  of  the  sub-custodian  or  the  bankruptcy  of  the 
sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has 
in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty 
to what extent a depositary is liable for losses at sub-custodian level.  

It  must  be  noted  that  on  12  July  2010  the  Commission  proposed  the  extension  of  investor 
compensation  schemes  to  cover  investors  in  UCITS.  The  amendments  to  Directive  97/9/EC 
aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not 
able to cover its liabilities. This should serve as an additional means to increase the protection 
for  investors  in  UCITS.  However,  at  this  stage  this  proposal  has  not  been  accepted  by  the 
Council and is subject to further negotiations.  

In  addition,  the  financial  crisis  also  revealed  that  the  remuneration  and  incentive  schemes 
commonly applied within financial institutions were themselves exacerbating the impact and 
scale  of  the  crisis.  Remuneration  policies  contributed  to  short-term  decision  making  and 
created incentives for taking excessive risk.  

transformed 

the  Committees  of  Supervisors  (now 

Finally,  the  analysis  of  national  sanctioning  regimes  carried  out  by  the  Commission,  along 
into  European  Supervisory 
with 
Authorities) has shown a number of divergences and weaknesses which may have a negative 
impact on the proper application of EU legislation, the effectiveness of financial supervision, 
and  ultimately  on  competition,  stability  and  integrity  of  financial  markets  and  consumer 
protection.  Therefore,  in  its  Communication  of  9  December  2010  "Reinforcing  sanctioning 
regimes  in  the  financial  sector"2  the  Commission  suggested  setting  EU  minimum  common 
standards  on  certain  key  issues,  in  order  to  promote  convergence  and  reinforcement  of 
national sanctioning regimes. The Commission has included such common rules, adapted to 
the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral 
EU  legislation  concerned  (CRD  IV,  MiFID,  Market  Abuse  Directive,  Transparency 
Directive). Extending this work to the UCITS framework is a natural additional step in this 
process. 

This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust 
in financial markets. The package has two other parts. The first is an extensive overhaul of the 
Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level 
of  protection  when  buying  insurance  products.  The  final  part  of  the  package  aims  at 
improving  transparency  in  the  investment  market  for  retail  investors  (a  proposal  for  a 
Regulation on key information documents for investment products). 

2 

COM(2010)716 final. 

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1.2. 

Results of consultations with the interested parties and impact assessment  

1.2.1.  Consultation with interested parties 

On  3  July  2009  the  Commission  launched  a  consultation  on  UCITS  depositaries.  This  was 
followed  by  a  feed-back  statement  in  November  of  the  same  year.3  The  results  of  the 
consultation,  supplemented  by  the  technical  input  from  ESMA,  are  duly  reflected  in  the 
impact assessment report.  

On 9 December 2010, the Commission services launched a second public consultation on the 
UCITS  depositary  function  and  on  managers'  remuneration,  which  closed  on  31  January, 
2011. In total, 58 contributions were received most of which signalled a broad support of the 
review  initiative,  particularly  with  respect  to  the  clarification  of  depositary  functions  and  to 
the simplification of the regulatory landscape as a result of the proposed alignment with the 
AIFM  Directive.4  Respondents  however  took  a  more  critical  stance  vis-à-vis  the  issue  of 
depositary liability.5 The feed-back statements to both consultations are available in Annex 2 
of that impact assessment.  

As  to  the  issue  of  administrative  sanctions,  this  report  reflects  replies  to  an  ad  hoc 
questionnaire  prepared  by  the  Commission  services  and  sent  to  the  European  Securities 
Committee  (ESC),  as  well  as  to  ESMA.  A  summary  of  the  Member  State  replies  to  the 
questionnaire is presented as Annex 7 to the Impact Assessment. 

1.2.2. 

Impact assessment 

The  impact  assessment  focused  on  five  issues:  eligibility  to  act  as  a  depositary,  criteria  for 
delegating  custody,  liability  for  the  loss  of  financial  instruments  held  in  custody, 
remunerations of UCITS managers and sanctions for breaches of the UCITS rules.  

Eligibility to act as a depositary  

The current UCITS framework provides little clarity on the institutions that are eligible to act 
as  a  depositary  for  a  UCITS  fund.  According  to  Article  23(3)  UCITS Member  States  enjoy 
significant  discretion  as  to  the  institutions  they  deem  eligible  to  act  as  UCITS  depositaries, 
provided  that  the  institutions  comply  with  the  requirements  of  Article  23  (2)  (i.e.  they  are 
subject to prudential regulation and on-going supervision).  

This has led to divergent approaches across Member States: out of the 17 Member States that 
require depositaries to be credit institutions, 12 impose specific capital requirements just for 
carrying out custody activities or other related UCITS depositary functions. In those Member 
States  that  allow  entities  other  than  credit  institutions  to  act  as  a  UCITS  depositary,  only  3 
require depositaries to fulfil additional capital requirements.  

National divergences as to the entities that can act as depositaries for a UCITS fund may be at 
the  origin  of  significant  legal  uncertainty  and  could  lead  to  differential  levels  of  investor 

3 

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Available at: 
http://ec.europa.eu/internal_market/consultations/docs/2009/ucits/feedback_statement_en.pdf  
Categories of respondents: corporate entities and their industry associations (46), Member State public 
authorities (11), and consumer organisations (1). 
Two public consultations are respectively available at: 
http://ec.europa.eu/internal_market/consultations/docs/2009/ucits/consultation_paper_en.pdf and 
http://ec.europa.eu/internal_market/consultations/docs/2010/ucits/consultation_paper_en.pdf 

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protection. Furthermore, allowing entities that are not either credit institutions or investment 
firms  to  act  as  depositaries  without  applying  minimum  capital  requirements  entails 
considerable risk in relation to the resources available to these entities.  

Three options emerged for harmonising the scope of institutions that are deemed to provide 
sufficient  guarantees  in  terms  of  prudential  regulation  and  capital  requirements  to  fulfil  the 
task of being a depositary. The impact assessment concludes that both credit institutions and 
regulated  investment  firms  provide  sufficient  guarantees  in  terms  of  prudential  regulation, 
capital requirements and effective supervision to act as UCITS depositaries. Other institutions 
(such  as,  e.g.,  law  firms,  notaries)  are  not  deemed  to  provide  these  guarantees  and  would 
have,  if  they  wished  to  act  as  UCITS  depositaries,  to  transform  themselves  into  regulated 
investment  firms.  As  most  UCITS  depositaries  are  already  credit  institutions  or  regulated 
investment firms, the impact of the chosen option would thus only concern a small minority 
of  unlicensed  service  providers.  Notaries  and  law  firms  would,  obviously,  be  allowed  to 
continue  to  act  in  their  traditional  field  as  depositaries  for  non-UCITS  funds,  such  as  small 
venture capital and private equity funds that rarely invest in listed securities. 

Delegation of custody  

Changes to the UCITS directive introduced in 2001 extended the scope of eligible assets for 
UCITS to new classes of assets.6 As a result, UCITS managers now invest in a much greater 
number  of  countries  and  in  more  complex  instruments  than  in  1985.  As  more  investment 
opportunities  arise  in  different  third  country  jurisdictions,  the  necessity  to  appoint  sub-
custodians in these jurisdictions increases.  

Despite  the  enlargement  of  eligible  investment  instruments,  the  UCITS  Directive  does  not 
define the conditions applicable in case a depositary delegates custody to a sub-custodian. The 
lack of clarity pertains both to the conditions under which a delegation can take place (e.g., 
objective reason for delegation, level of skill in selecting sub-custodian, intensity of ongoing 
monitoring of sub-custodian) and to the conditions under which, exceptionally, custody might 
be  delegated  to  third  country  custodians  who  do  not  meet  prudential  and  supervisory 
standards.  

The impact assessment concludes that the delegation of custody should be governed by rules 
on diligence in selecting an appointing a sub-custodian, and on the ongoing monitoring of the 
activities of the sub-custodian. For the rare case in which a UCITS' investment strategy would 
involve  investing  in  financial  instruments  issued  in  countries  that  require  mandatory  local 
custody  and  where  no  custodian  operates  that  could  comply  with  the  above  delegation 
requirements and prudential standards, delegation should nevertheless be allowed so long as 
strict circumstances are fulfilled.  

Liability 

According to Article 24 of UCITS Directive, liability for loss of a financial instrument that is 
held in custody only arises in case of 'unjustifiable failure to perform obligations' or 'improper 
performance' of these duties. These legal terms have given rise to different interpretations in 

6 

Including money market instruments, index-based funds including exchange traded funds (ETFs) fund 
of  funds,  derivatives  (options,  swaps,  futures/forwards)  or  other  over-the-counter  derivatives.  Please 
refer to Directive 2007/16/EC, available at:   
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2007:079:0011:0019:EN:PDF 

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Member States and thus differences in investor protection. Some Member States apply a so-
called 'strict' liability regime, where the depositary has an immediate obligation to return the 
lost  asset  to  the  UCITS,  while  others  take  the  view  that  the  loss  of  assets  does  not  always 
imply  an  unjustifiable  failure  to  perform  its  duties  on  the  part  of  the  depositary  that  should 
lead to liability for that depositary. As a consequence, the liability standard is not the same in 
all Member States.  

The issue of liability is most relevant where custody is delegated. According to Article 22(2), 
the depositary's liability "shall not be affected by the fact that it has entrusted to a third party 
all  or  some  of  the  assets  in  its  safe-keeping".  The  UCITS  Directive  contains  no  further 
provisions  governing  liability  for  the  loss  of  a  financial  instrument  where  custody  has  been 
delegated to a third party. This issue is left to the general principle expressed in Article 22(2), 
which  gives  a  wide  margin  of  interpretation  to  Member  States.  For  instance,  some  Member 
States  only  impose  an  obligation  to  monitor  the  sub-custodian  which  means  that  the 
depositary will not be held liable in case of loss if it shows it has performed its monitoring 
duty  correctly  (a  negligence-based  standard).  By  contrast,  other  Members  States  impose  an 
obligation  to  return  the  assets  irrespective  of  whether  a  monitoring  duty  was  breached.  The 
Madoff case demonstrated the fundamental difference between strict liability and negligence 
standards.  

The impact assessment concludes that a 'strict liability' standard obliging depositaries to return 
instruments lost in custody irrespective of fault or negligence is both conducive to ensuring a 
high level of investor protection and to achieving a uniform standard across the EU. In line 
with the needs of retail investors, liability in case of the loss of an instrument held in custody 
should  be  based  on  a  uniform  EU  standard  that  entails  a  'strict  liability'  for  returning  lost 
instruments  at  the  cost  of  the  principal  custodian,  without  any  option  for  the  principal 
custodian to discharge liability in case of delegated custody.  

Remuneration 

Given that the remuneration of UCITS managers is, at least partly, based on the performance 
of the fund, there is an incentive to increase the level of risk in a fund's portfolio in order to 
increase  potential  returns.  However,  the  higher  level  of  risk  exposes  the  fund  investors  to 
higher  potential  losses  than  might  be  expected  given  the  disclosed  risk  profile  of  the  fund. 
Remuneration structures might be skewed so that managers participate in materialized returns 
but do not participate in materialized losses, creating further incentives to take on higher risk 
strategies.  Furthermore,  remuneration  structures  are  seldom  disclosed  in  the  fund's  offering 
documents, rendering managers largely unaccountable to investors as far as the determinants 
of executive pay in line with fund performance are concerned. 

It is envisaged to introduce a requirement for the UCITS management company to implement 
remuneration  policy  that  is  consistent  with  sound  risk  management  of  the  UCITS  fund  and 
complies  with  minimum  remuneration  principles.  The  UCITS  management  company  would 
also be required to disclose the amount of remuneration for the financial year with appropriate 
detail in the annual report of the UCITS fund. 

Sanctions 

The  analysis  of  national  rules  on  sanctions  for  breaches  of  the  obligations  of  the  UCITS 
Directive carried out by the Commission has revealed three salient features: (i) differences in 
the amounts of pecuniary sanctions (i.e. fines) applied to the same categories of breaches; (ii) 

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different criteria were applicable to determining the amount of administrative sanctions; and 
(iii) variations in the level of the use of sanctions.  

The  policy  choice  is  to  achieve  minimum  harmonization  of  the  sanctioning  regimes  by 
requiring  (i)  a  minimum  catalogue  of  administrative  sanctions  and  measures  (including 
harmonization  of  the  lower  bound  of  the  maximum  amounts  of  administrative  fines),  (ii)  a 
minimum  list  of  sanctioning  criteria,  and  (iii)  competent  authorities  and  management 
companies to establish whistle-blowing mechanisms. This sanctioning regime would apply to 
a catalogue of breaches of main investor protection safeguards in the UCITS Directive.  

2. 

LEGAL ELEMENTS OF THE PROPOSAL 

2.1. 

Rules on depositaries’ duties 

In  relation  to  the  depositary's  core  safekeeping  and  oversight  duties,  the  draft  proposes  to 
amend Article 22 UCITS in the following manner:  

Article 22(1) specifies that a single depositary shall be appointed for each UCITS fund. This 
rule intends to ensure that one fund cannot have several depositaries.  

Article 22(2) proposes to specify that the appointment of a depositary shall be evidenced by 
written contract.  

Article 22(3) makes uniform a list of oversight duties of depositaries of UCITS established in 
a contractual form and UCITS established in a corporate form. These duties involve verifying 
compliance  with  applicable  rules  when  UCITS  shares  are  sold,  issued,  re-purchased, 
redeemed  and  cancelled;  verifying  that  any  consideration  is  remitted  to  it  within  the  usual 
time limits; verifying that the investment company's income is applied in accordance with the 
law  and  its  instruments  of  incorporation,  ensuring  that  the  value  of  units  in  a  UCITS  is 
calculated in accordance with the applicable national law and the fund rules; and carrying out 
instructions of the management or investment company.  

Article 22(4) contains detailed provisions on cash monitoring. This paragraph intends to equip 
the  depositary  with  a  view  over  all  the  assets  of  the  UCITS,  cash  included.  This  paragraph 
also  ensures  that  no  cash  account  associated  with  the  funds'  transactions  shall  be  opened 
without  the  depositary's  knowledge.  The  aim  is  to  avoid  the  possibility  of  fraudulent  cash 
transfers.  This  paragraph  also  introduces  a  segregation  requirement,  so  that  any  financial 
instruments  on  the  depositary's  book  held  for  a  UCITS  can  be  distinguished  from  the 
depositary's own assets and can at all times be identified as belonging to that UCITS; such a 
requirement  aims  to  confer  an  additional  layer  of  protection  for  investors  should  the 
depositary default.  

Article  22(5)  introduces  a  distinction  between  (1)  custody  duties  relating  to  financial 
instruments that can be held in custody by the depositary and (2) verification of the ownership 
duties relating to the remaining types of assets. A reference to the custody of physical assets, 
such  as  real  estate  or  commodities,  is  not  necessary  because  such  assets  are  currently  not 
eligible to be held in a UCITS portfolio. 

New Article 25(2) contains a series of customary provisions on conduct, the avoidance of and 
the management of conflicts of interest.  

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In  this  context,  Article  26b  introduces  new  implementing  measures  defining  detailed 
conditions for performing depositary monitoring and custody functions, including (i) the type 
of financial instruments that shall be included in the scope of the depositary's custody duties; 
(ii) the conditions under which the depositary may exercise its custody duties over financial 
instruments  registered  with  a  central  securities  depositary;  and  (iii)  the  conditions  under 
which  the  depositary  shall  monitor  financial  instruments  issued  in  a  nominative  form  and 
registered with an issuer or a registrar.  

2.2. 

Rules on delegation 

Article  22(7)  defines  the  conditions  in  which  the  depositary’s  safekeeping  duties  can  be 
delegated  to  a  sub-custodian.  Essentially,  the  conditions  and  requirements  upon  which  a 
UCITS  depositary  may  entrust  its  safekeeping  duties  to  a  third  party  are  aligned  with  those 
applicable under the AIFM Directive.  

Article 26b delegates to the Commission the power to adopt delegated acts that will further 
define the depositary's initial and on-going due diligence duties, including those that apply to 
the selection and appointment of a sub-custodian.  

2.3. 

Rules on eligibility to act as a UCITS custodian 

In  light  of  the  different  national  eligibility  criteria  that  currently  apply  to  the  activities  of 
depositaries,  the  draft  proposes  to  modify  Article  23(2)  setting  out  an  exhaustive  list  of 
entities  that  are  eligible  to  act  as  depositaries.  The  policy  choice  is  to  only  allow  credit 
institutions and investment firms to act as UCITS depositaries. Article 23 contains transitional 
provisions for UCITS that appointed entities that are no longer able to act as depositaries.  

2.4. 

Rules on liability 

Article 24(1) aims to clarify the UCITS depositary's liability in case of the loss of a financial 
instrument that is held in custody. According to this paragraph, the UCITS depositary, in case 
a financial instrument held in custody is lost, shall be under the obligation to return a financial 
instrument  of  the  identical  type  or  of  the  corresponding  amount  to  the  UCITS.  No  further 
discharge of liability in case of loss of assets is envisaged, except in case the depositary can 
prove that the loss is due to an 'external event beyond its reasonable control'. Moreover, it is 
made clear that, in case of assets that are lost, the UCITS depositary has the general obligation 
to return the financial instruments of the identical type or of the corresponding amount to the 
UCITS ‘without undue delay’. 

Article  26b  provides  for  corresponding  implementing  measures  to  clarify  certain  technical 
aspects, for example to specify circumstances under which an instrument held in custody may 
be considered as lost.  

Article 24(2) contains the rule according to which the depositary's liability is not affected by 
the fact that it has entrusted to a third party all or some of its custody tasks. As a result, the 
depositary  is  obliged  to  return  instruments  held  in  custody  that  are  lost,  even  if  the  loss 
occurred with the sub-custodian. As mentioned above, no further discharge of liability (either 
regulatory or contractual) in case of loss of assets by a sub custodian shall be envisaged.  

Article 24(2), in contrast to Article 21(12) AIFMD, therefore holds the depositary liable for 
the  return  of  the  instrument,  also  in  case  of  delegation,  without  the  possibility  to  discharge 
liability  by  contract.  This  strengthening  of  the  liability  in  case  of  delegation  of  custody 

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appears  justified  in  light  of  the  very  large  investors  base  and  the  retail  nature  of  UCITS 
holders.  Introducing  a  regime  with  the  same  contractual  possibility  for  the  depositary  to  be 
discharged  of  its  liability  as  it  is  allowed  under  AIFM  Directive,  is  not  considered  to  be 
entirely appropriate. To a similar extent, envisaging that the liability of the depositary could 
be  discharged  where  assets  are  transferred  to  a  sub-custodian  that  does  not  comply  with 
delegation criteria would also not be appropriate. 

2.5. 

Redress 

Article  24(5)  concerns  redress  against  the  depositary.  This  paragraph  aligns  the  rights  of 
investors  in  both  corporate  and  contractual  UCITS  so  that  they  are  able  to  invoke  claims 
relating to the liabilities of depositaries, either directly or indirectly (through the management 
company),  depending  on  the  legal  nature  of  the  relationship  between  the  depositary,  the 
management company and the unit-holders.  

2.6. 

Remuneration 

The  proposed  Articles  14a  and  14b  reflect  current  policy  on  remuneration  of  senior 
management,  risk  takers  and  those  who  exercise  control  functions.  These  principles  should 
also apply to those that manage a UCITS fund, be it managed in the form of an investment 
company or in the form of a management company.  

2.7.  Access to telephone and data records 

Existing telephone and data traffic records constitute important evidence to detect and prove a 
breach of the provisions of the UCITS Directive. Therefore, Article 98 is modified in order to 
ensure  that  competent  authorities  should  be  able  to  require  existing  telephone  and  existing 
data  traffic  records  held  by  a  telecommunication  operator  or  by  a  UCITS,  a  management 
company,  an  investment  company  or  a  depositary,  where  a  reasonable  suspicion  exists  that 
such records related to the subject-matter of the inspection may be relevant to prove a breach 
of  the  provisions  of  the  UCITS  Directive.  It  should  also  be  clear  that  these  records  shall 
however not concern the content of the communication to which they relate. 

2.8. 

Sanctions and measures 

Articles 99a to 99e reflect current horizontal policies in the financial service sector concerning 
sanctions and measures. They define a common approach to the main breaches of the UCITS 
Directive. Article 99a sets out a list of the main breaches. It also lays down the administrative 
sanctions and measures that the competent authorities should be empowered to apply in case 
of the main breaches.  

3. 

BUDGETARY IMPLICATION 

There are no implications for the EU budget in that no additional funding and no additional 
posts will be required to perform these tasks. The tasks envisaged for the European Securities 
and  Markets  Authority  fall  within  the  scope  of  existing  responsibilities  for  this  Authority, 
therefore the allocation of resources and staff foreseen in the approved Legislative Financial 
Statements for this Authority will be sufficient to facilitate the execution of these tasks.  

EN 

9 

   EN 

2012/0168 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 2009/65/EC on the coordination of laws, regulations and 
administrative provisions relating to undertakings for collective investment in 
transferable securities (UCITS) as regards depositary functions, remuneration policies 
and sanctions 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 53(1) thereof, 

Having regard to the proposal from the European Commission7, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Central Bank8,  

After consulting the European Data Protection Supervisor, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council9  should  be 
amended  in  order  to  take  into  account  market  developments  and  the  experiences  of 
market  participants  and  supervisors  gathered  so  far,  in  particular  to  address 
discrepancies  between  national  provisions  in  respect  of  depositaries'  duties  and 
liability, remuneration policy and sanctions.  

In order to address the potentially detrimental effect of poorly designed remuneration 
structures on the sound management of risks and control of risk-taking behaviour by 
individuals,  there  should  be  an  express  obligation  for  undertakings  of  collective 
investment in transferable securities (UCITS) management companies to establish and 
maintain,  for  those  categories  of  staff  whose  professional  activities  have  a  material 
impact  on  the  risk  profiles  of  the  UCITS  they  manage,  remuneration  policies  and 
practices  that  are  consistent  with  sound  and  effective  risk  management.  Those 

7 
8 
9 

OJ C,,p. 
OJ C,,p. 
OJ L 302,17.11.2009, p.32. 

EN 

10 

   EN 

                                                 
(3) 

(4) 

(5) 

(6) 

(7) 

categories  of  staff  should  at  least  include  senior  management,  risk  takers,  control 
functions,  and  any  employees  receiving  total  remuneration  that  takes  them  into  the 
same remuneration bracket as senior management and risk takers. Those rules should 
also  apply  to  UCITS  investment  companies  that  do  not  designate  a  management 
company. 

The  principles  governing  remuneration  policies  should  recognise  that  UCITS 
management companies are able to apply those policies in different ways according to 
their size and the size of the UCITS they manage, their internal organisation and the 
nature, scope and complexity of their activities. 

The  principles  regarding  sound  remuneration  policies  established  in  this  Directive 
should  be  consistent  with  and  be  complemented  by  the  principles  set  out  in  the 
Commission  Recommendation  2009/384/EC  of  30  April  2009  on  remuneration 
policies in the financial services sector10. 

In  order  to  promote  supervisory  convergence  in  the  assessment  of  remuneration 
policies  and  practices,  the  European  Securities  and  Markets  Authority  (ESMA), 
established by Regulation (EU) No 1095/2010 of the European Parliament and of the 
Council11 should ensure the existence of guidelines on sound remuneration policies in 
the asset management sector. The European Banking Authority (EBA) established by 
Regulation  (EU)  No  1093/2010  of  the  European  Parliament  and  of  the  Council12 
should assist ESMA in the elaboration of such guidelines. 

The  provisions  on  remuneration  should  be  without  prejudice  to  the  full  exercise  of 
fundamental rights guaranteed by the Treaties, general principles of national contract 
and labour law, applicable legislation regarding shareholders’ rights and involvement 
and  the  general  responsibilities  of  the  administrative  and  supervisory  bodies  of  the 
institution  concerned,  as  well  as  the  right,  where  applicable,  of  social  partners  to 
conclude  and  enforce  collective  agreements,  in  accordance  with  national  laws  and 
custom. 

In  order  to  ensure  the  necessary  level  of  harmonisation  of  the  relevant  regulatory 
requirements  in  different  Member  States  additional  rules  should  be  adopted  defining 
the  tasks  and  duties  of  depositaries,  designating  the  legal  entities  that  may  be 
appointed  as  depositaries  and  clarifying  the  liability  of  depositaries  in  cases  UCITS 
assets are lost in custody or in the case of depositaries' improper performance of their 
oversight duties. Such improper performance may result in the loss of assets but also 
in  the  loss  of  the  value  of  assets,  if,  for  example,  a  depositary  tolerated  investments 
that were not compliant with fund rules, while exposing the investor to unexpected or 
anticipated  risks.  Additional  rules  should  also  clarify  the  conditions  under  which 
depositary functions may be delegated. 

(8) 

It  is  necessary  to  clarify  that  a  UCITS  should  appoint  a  single  depositary  having 
general oversight over the UCITS's assets. Requiring that there be a single depositary 
should ensure that the depositary has a view over all the assets of the UCITS and both 
fund  managers  and  investors  have  a  single  point  of  reference  in  the  event  that 

10 
11 
12 

OJ L 120,15.5.2009,p.22. 
OJ L 331,15.12.2010,p.84. 
OJ L 331,15.12.2010,p.12. 

EN 

11 

   EN 

                                                 
problems  occur  in  relation  to  the  safekeeping  of  the  assets  or  the  performance  of 
oversight  functions.  The  safekeeping  of  assets  includes  holding  assets  in  custody  or, 
where assets are of such a nature that they cannot be held in custody, verification of 
the ownership of those assets as well as record-keeping for those assets. 

In  performing  its  tasks,  a  depositary  should  act  honestly,  fairly,  professionally, 
independently and in the interest of the UCITS or of the investors of the UCITS. 

In order to ensure a harmonised approach to the performance of depositaries duties in 
all Member States irrespective of the legal form taken by the UCITS, it is necessary to 
introduce a uniform list of oversight duties that are incumbent on both a UCITS with a 
corporate form (an investment company) and a UCITS in a contractual form.  

(9) 

(10) 

(11)  The  depositary  should  be  responsible  for  the  proper  monitoring  of  the  UCITS'  cash 
flows, and, in  particular,  for ensuring that investor  money  and  cash belonging  to  the 
UCITS is booked correctly on  accounts  opened  in the name of the UCITS, or in the 
name of the management company acting on behalf of the UCITS, or in the name of 
the depositary acting on behalf of the UCITS. Therefore detailed provisions should be 
adopted on cash monitoring so as to ensure effective and consistent levels of investor 
protection. When ensuring investor money is booked in cash accounts, the depositary 
should take into account the principles set out in Article 16 of Commission Directive 
2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European 
Parliament  and  of  the  Council  as  regards  organisational  requirements  and  operating 
conditions for investment firms and defined terms for the purposes of that Directive13.  

(12) 

In order to prevent fraudulent cash transfers, it should be required that no cash account 
associated with the funds' transactions be opened without the depositary's knowledge.  

(13)  Any  financial  instrument  held  in  custody  for  a  UCITS  should  be  distinguished  from 
the depositary's own assets, and at all times be identified as belonging to that UCITS; 
such a requirement should confer an additional layer of protection for investors should 
the depositary default. 

(14) 

(15) 

In addition to the existing duty to safe keep assets belonging to a UCITS, assets should 
be differentiated between those that are capable of being held in custody and those that 
are  not,  where  a  record-keeping  and  ownership  verification  requirement  applies 
instead.  The  group  of  assets  that  can  be  held  in  custody  should  be  clearly 
differentiated,  since  the  duty  to  return  lost  assets  should  only  apply  to  that  specific 
category of financial assets.  

It  is  necessary  to  define  the  conditions  for  the  delegation  of  the  depositary's  safe-
keeping  duties  to  a  third  party.  Delegation  and  sub-delegation  should  be  objectively 
justified  and  subject  to  strict  requirements  in  relation  to  the  suitability  of  the  third 
party entrusted with the delegated function, and in relation to the due skill, care and 
diligence  that  the  depositary  should  employ  to  select,  appoint  and  review  that  third 
party.  For  the  purpose  of  achieving  uniform  market  conditions  and  an  equally  high 
level  of  investor  protection,  such  conditions  should  be  aligned  with  those  applicable 
under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 
2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC 

13 

OJ L 241, 2.9.2006, p. 26. 

EN 

12 

   EN 

                                                 
and  2009/65/EC  and  Regulations  (EC)  No  1060/2009  and  (EU)  No  1095/201014. 
Provisions  should  be  adopted  to  ensure  that  third  parties  dispose  of  the  necessary 
means to perform their duties and that they segregate UCITS' assets.  

(16)  Entrusting  the  custody  of  assets  to  the  operator  of  a  securities  settlement  system  as 
provided for in Directive 98/26/EC of the European Parliament and of the Council of 
19 May 1998 on settlement finality in payment and securities settlement systems15 or 
entrusting  the  provision  of  similar  services  to  third-country  securities  settlement 
systems should not be considered a delegation of custody functions.  

(17)  A  third  party  to  whom  the  safe-keeping  of  assets  is  delegated  should  be  able  to 

maintain an omnibus account, as a common segregated account for multiple UCITS. 

(18)  Where custody is delegated to a third party, it is also necessary to ensure that the third 
party  is  subject  to  specific  requirements  on  effective  prudential  regulation  and 
supervision.  In  addition,  in  order  to  ensure  that  the  financial  instruments  are  in  the 
possession of the third party to whom custody was delegated, periodic external audits 
should be performed.  

(19) 

(20) 

(21) 

In  order  to  ensure  consistently  high  levels  of  investor  protection,  provisions  on 
conduct  and  on  the  management  of  conflicts  of  interest  should  be  adopted  and  they 
should  apply  in  all  situations,  including  in  case  of  delegation  of  safe-keeping  duties. 
Those  rules  should  in  particular  ensure  a  clear  separation  of  tasks  and  functions 
between the depositary, the UCITS and the management company. 

In order to ensure a high level of investor protection and to guarantee an appropriate 
level  of  prudential  regulation  and  on-going  control,  it  is  necessary  to  establish  an 
exhaustive list of entities that are eligible to act as depositaries, such that only credit 
institutions and investment firms are permitted to act as UCITS depositaries. In order 
to allow other entities that may have previously been eligible to act as depositaries for 
UCITS  funds  to  convert  themselves  into  eligible  entities,  transitional  provisions 
should be provided for those entities. 

It is necessary to specify and clarify the UCITS depositary's liability in case of the loss 
of a financial instrument that is held in custody. The depositary should be liable, where 
a financial instrument held in custody has been lost, to return a financial instrument of 
the identical type or of the corresponding amount to the UCITS. No further discharge 
of liability in case of loss of assets should be envisaged, except where the depositary is 
able to prove that the loss is due to an 'external event beyond its reasonable control, 
the consequences of which would have been unavoidable despite all reasonable efforts 
to  the  contrary'.  In  this  context,  a  depositary  should  not  be  able  to  rely  on  internal 
situations such as a fraudulent act by an employee to discharge itself of liability. 

(22)  Where  the  depositary  delegates  custody  tasks  and  the  financial  instruments  held  in 
custody  by  a  third  party  are  lost,  the  depositary  should  be  liable.  It  should  also  be 
established that in case of loss of an instrument held in custody, a depositary is bound 
to return a financial instrument of identical type or the corresponding amount, even if 
the  loss  occurred  with  a  sub-custodian.  The  depositary  shall  only  discharge  that 

14 
15 

OJ L 174, 1.7.2011, p. 1. 
OJ L 166, 11.6.1998, p. 45. 

EN 

13 

   EN 

                                                 
liability  where  it  can  prove  that  the  loss  resulted  from  an  external  event  beyond  its 
reasonable control and with consequences that were unavoidable despite all reasonable 
efforts  to  the  contrary.  In  this  context,  a  depositary  should  not  be  able  to  rely  on 
internal  situations  such  as  a  fraudulent  act  by  an  employee  to  discharge  itself  of 
liability. No discharge of liability either regulatory or contractual should be possible in 
case of loss of assets by a depository or its sub-custodian. 

(23)  Every  investor  in  a  UCITS  fund  should  be  able  to  invoke  claims  relating  to  the 
liability  of  its  depositary,  either  directly  or  indirectly,  through  the  management 
company.  Redress  against  the  depositary  should  not  depend  on  the  legal  form  that  a 
UCITS  fund  takes  (corporate  or  contractual  form)  or  the  legal  nature  of  the 
relationship between the depositary, the management company and the unit-holders.  

(24)  On 12 July 2010 the Commission proposed amendments to Directive 97/9/EC of the 
European  Parliament  and  of  the  Council  of  3  March  1997  on  investor  compensation 
schemes.16 It is essential that that the proposal of 12 July 2010 be complemented by 
clarifying the obligations and the scope of the liability of the depositary and the sub-
custodians  of  UCITS  with  a  view  to  provide  a  high  level  of  protection  for  UCITS 
investors where a depositary cannot meet its obligations set out in this Directive. 

(25) 

(26) 

(27) 

(28) 

It is necessary to ensure that the same requirements apply to depositaries irrespective 
of  the  legal  form  a  UCITS  takes.  Consistency  of  requirements  should  enhance  legal 
certainty,  increase  investor  protection  and  contribute  to  a  creating  uniform  market 
conditions. The Commission has not received any notification that the derogation from 
the general obligation to entrust assets to a depositary has been used by an investment 
company.  Therefore,  the  requirements  of  Directive  2009/65/EC  regarding  the 
depositary of an investment company should be considered redundant.  

In  line  with  the  Commission  Communication  of  8  December  2010  on  reinforcing 
sanctioning regimes in the financial services sector,17 competent authorities should be 
empowered  to  impose  pecuniary  sanctions  which  are  sufficiently  high  so  as  to  be 
dissuasive and proportionate, so as to offset expected benefits from behaviours which 
breach requirements. 

In  order  to  ensure  a  consistent  application  across  Member  States,  when  determining 
the  type  of  administrative  sanctions  or  measures  and  the  level  of  administrative 
pecuniary  sanctions,  Member  States  should  be  required  to  ensure  that  competent 
authorities take into account all relevant circumstances. 

In order to strengthen the dissuasive effect on the public at large and to inform them 
about  breaches  of  rules  which  may  be  detrimental  to  investors'  protection,  sanctions 
should  be  published,  save  in  certain  well-defined  circumstances.  In  order  to  ensure 
compliance with the principle of proportionality, sanctions should be published on an 
anonymous  basis  where  publication  would  cause  a  disproportionate  damage  to  the 
parties involved.  

16 
17 

OJ L 84, 26.03.1997,p.22 
COM(2010)716 final.. 

EN 

14 

   EN 

                                                 
(29) 

In  order  to  detect  potential  breaches,  competent  authorities  should  be  entrusted  with 
the  necessary  investigatory  powers,  and  should  establish  effective  mechanisms  to 
encourage reporting of potential or actual breaches.  

(30)  This  Directive  should  be  without  prejudice  to  any  provisions  in  the  law  of  Member 

States relating to criminal offences and sanctions. 

(31)  This Directive respects the fundamental rights and observes the principles recognised 
in  the  Charter  of  Fundamental  Rights  of  the  European  Union  as  enshrined  in  the 
Treaty on the Functioning of the European Union.  

(32) 

In  order  to  ensure  that  the  objectives  of  this  Directive  are  attained,  the  Commission 
should  be  empowered  to  adopt  delegated  acts  in  accordance  with  Article  290  of  the 
Treaty  on  the  Functioning  of  the  European  Union.  In  particular,  the  Commission 
should be empowered to adopt delegated acts to specify the particulars that need to be 
included  in  the  standard  agreement  between  the  depositary  and  the  management 
company  or  the  investment  company,  the  conditions  for  performing  depositary 
functions,  including  the  type  of  financial  instruments  that  should  be  included  in  the 
scope of the depositary’s custody duties, the conditions subject to which the depositary 
may  exercise  its  custody  duties  over  financial  instruments  registered  with  a  central 
depositary  and  the  conditions  subject  to  which  the  depositary  should  safe  keep  the 
financial  instruments  issued  in  a  nominative  form  and  registered  with  an  issuer  or  a 
registrar,  the  due  diligence  duties  of  depositaries,  the  segregation  obligation,  the 
conditions subject to and circumstances in which financial instruments held in custody 
should  be  considered  as  lost,  what  is  to  be  understood  by  external  events  beyond 
reasonable control, the consequences  of  which  would  have been unavoidable  despite 
all reasonable efforts to the contrary. The Commission, when preparing and drawing-
up delegated acts, should ensure simultaneous, timely and appropriate transmission of 
relevant documents to the European Parliament and to the Council. 

(33) 

In  accordance  with  the  Joint  Political Declaration  of  28  September  2011  of  Member 
States  and  the  Commission  on  explanatory  documents18,  Member  States  have 
undertaken  to  accompany,  in  justified  cases,  the  notification  of  their  transposition 
measures  with  one  or  more  documents  explaining  the  relationship  between  the 
components  of  a  directive  and  the  corresponding  parts  of  national  transposition 
instruments. With regard to this Directive, the legislator considers the transmission of 
such documents to be justified.  

(34)  The objectives of the actions to be taken to improve investors' confidence in UCITS, 
by enhancing requirements concerning the duties and the liability of depositaries, the 
remuneration  policies  of  management  companies  and  investment  companies,  and  by 
introducing common standards for the sanctions applying to the main breaches of the 
provisions of this Directive, cannot be sufficiently achieved by Member States acting 
independently of one another. Since only action at the European level can address the 
identified weaknesses, and therefore such action can be better achieved at Union level, 
the  Union  should  adopt  the  necessary  measures,  in  accordance  with  the  principle  of 
subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance 

18 

OJ C 369,17.12.2011, p. 14. 

EN 

15 

   EN 

                                                 
with the principle of proportionality, as set out in that Article, this Directive does not 
go beyond what is necessary in order to achieve that objective. 

(35)  Directive 2009/65/EC should therefore be amended accordingly,  

HAVE ADOPTED THIS DIRECTIVE: 

Article 1 

Directive 2009/65/EC is amended as follows: 

(1) 

The following Articles 14a and 14b are inserted: 

"Article 14a 

1.  Member  States  shall  require  management  companies  to  establish  and  apply 
remuneration policies and practices that are consistent with and promote sound and 
effective  risk  management  and  do  not  encourage  risk-taking  which  is  inconsistent 
with  the  risk  profiles,  rules  or  instruments  of  incorporation  of  the  UCITS  they 
manage. 

2.  The  remuneration  policies  and  practices  shall  cover  salaries  and  discretionary 
pension benefits. 

3.  The  remuneration  policies  and  practices  shall  apply  to  those  categories  of  staff, 
including  senior  management,  risk  takers,  control  functions  and  any  employee 
receiving  total  remuneration  that  falls  within  the  remuneration  bracket  of  senior 
management and risk takers and whose professional activities have a material impact 
on the risk profiles of the management companies or of UCITS they manage. 

4. In accordance with Article 16 of Regulation (EU) No 1095/2010 of the European 
Parliament  and  of  the  Council(*),  ESMA  shall  issue  guidelines  addressed  to 
competent  authorities  which  comply  with  Article  14b.  Those  guidelines  shall  take 
into  account  the  principles  on  sound  remuneration  policies  set  out  in  Commission 
Recommendation  2009/384/EC(**),  the  size  of  the  management  company  and  the 
size of UCITS they manage, their internal organisation and the nature, the scope and 
the  complexity  of  their  activities.  In  the  process  of  development  of  the  guidelines 
ESMA shall cooperate closely with the European Banking Authority (EBA) in order 
to  ensure  consistency  with  requirements  developed  for  other  sectors  of  financial 
services, in particular credit institutions and investment firms.  

Article 14b 

1.  When  establishing  and  applying  the  remuneration  policies  referred  to  in  Article 
14a, management companies shall comply with the following principles in a way and 
to  the  extent  that  is  appropriate  to  their  size,  internal  organisation  and  the  nature, 
scope and complexity of their activities: 

(a) 

the  remuneration  policy  is  consistent  with  and  promotes  sound  and 
effective  risk  management  and  does  not  encourage  risk-taking  which  is 

EN 

16 

   EN 

inconsistent  with  the  risk  profiles,  rules  or  instruments  of  incorporation 
of the UCITS they manage; 

the remuneration policy is in line with the business strategy, objectives, 
values  and  interests  of  the  management  company  and  the  UCITS  it 
manages or the investors of such UCITS, and includes measures to avoid 
conflicts of interest; 

the  management  body  of  the  management  company,  in  its  supervisory 
function,  adopts  and  periodically  reviews  the  general  principles  of  the 
remuneration policy and is responsible for its implementation; 

the  implementation  of  the  remuneration  policy  is,  at  least  annually, 
subject  to  central  and  independent  internal  review  for  compliance  with 
policies  and  procedures  for  remuneration  adopted  by  the  management 
body in its supervisory function; 

staff  engaged  in  control  functions  are  compensated  in  accordance  with 
the  achievement  of  the  objectives  linked  to  their  functions,  independent 
of the performance of the business areas they control; 

the  remuneration  of  the  senior  officers  in  the  risk  management  and 
compliance  functions 
the  remuneration 
committee; 

is  directly  overseen  by 

(b) 

(c) 

(d) 

(e) 

(f) 

(g)  where  remuneration  is  performance  related,  the  total  amount  of 
remuneration  is  based  on  a  combination  of  the  assessment  of  the 
performance  of  the  individual  and  of  the  business  unit  or  UCITS 
concerned  and  of  the  overall  results  of  the  management  company,  and 
when assessing individual performance, financial as well as non-financial 
criteria are taken into account; 

(h) 

(i) 

(j) 

the  assessment  of  performance  is  set  in  a  multi-year  framework 
appropriate to the life-cycle of the UCITS managed by the management 
company  in  order  to  ensure  that  the  assessment  process  is  based  on 
longer  term  performance  and  that  the  actual  payment  of  performance-
based  components  of  remuneration  is  spread  over  a  period  which  takes 
account  of  the  redemption  policy  of  the  UCITS  it  manages  and  their 
investment risks; 

guaranteed  variable  remuneration  is  exceptional,  occurs  only  in  the 
context of hiring new staff and is limited to the first year; 

fixed  and  variable  components  of  total  remuneration  are  appropriately 
balanced  and  the  fixed  component  represents  a  sufficiently  high 
proportion  of  the  total  remuneration  to  allow  the  operation  of  a  fully 
flexible  policy  on  variable  remuneration  components,  including  the 
possibility to pay no variable remuneration component; 

(k)  payments  related 

termination  of  a  contract  reflect 
performance achieved over time and are designed in a way that does not 
reward failure; 

the  early 

to 

EN 

17 

   EN 

(l) 

the measurement of performance used to calculate variable remuneration 
components  or  pools  of  variable  remuneration  components  includes  a 
comprehensive  adjustment  mechanism  to  integrate  all  relevant  types  of 
current and future risks; 

(m)  subject  to  the  legal  structure  of  the  UCITS  and  its  fund  rules  or 
instruments  of  incorporation,  a  substantial  portion,  and  in  any  event  at 
least  50%  of  any  variable  remuneration  consists  of  units  of  the  UCITS 
concerned, or equivalent ownership interests, or share-linked instruments 
or  equivalent  non-cash  instruments,  unless  the  management  of  UCITS 
accounts  for  less  than  50%  of  the  total  portfolio  managed  by  the 
management  company,  in  which  case  the  minimum  of  50%  does  not 
apply. 

The instruments referred to in this point shall be subject to an appropriate 
retention  policy  designed  to  align  incentives  with  the  interests  of  the 
management  company  and  the  UCITS  it  manages  and  the  investors  of 
such  UCITS.  Member  States  or  their  competent  authorities  may  place 
restrictions on the types and designs of those instruments or ban certain 
instruments as appropriate. This point shall be applied to both the portion 
of  the  variable  remuneration  component  deferred  in  line  with  point  (n) 
and the portion of the variable remuneration component not deferred; 

(n) 

a  substantial  portion,  and  in  any  event  at  least  40%,  of  the  variable 
remuneration component, is deferred over a period which is appropriate 
in view of the life cycle and redemption policy of the UCITS concerned 
and  is  correctly  aligned  with  the  nature  of  the  risks  of  the  UCITS  in 
question. 

The  period  referred  to  in  this  point  shall  be  at  least  three  to  five  years 
unless  the  life  cycle  of  the  UCITS  concerned  is  shorter;  remuneration 
payable  under  deferral  arrangements  vests  no  faster  than  on  a  pro-rata 
basis; in the case of a variable remuneration component of a particularly 
high amount, at least 60% of the amount shall be deferred; 

(o) 

the variable remuneration, including the deferred portion, is paid or vests 
only  if  it  is  sustainable  according  to  the  financial  situation  of  the 
management  company  as  a  whole,  and  justified  according  to  the 
performance  of  the  business  unit,  the  UCITS  and  the  individual 
concerned. 

The 
total  variable  remuneration  shall  generally  be  considerably 
contracted  where  subdued  or  negative  financial  performance  of  the 
management  company  or  of  the  UCITS  concerned  occurs,  taking  into 
account both current compensation and reductions in payouts of amounts 
previously earned, including through malus or clawback arrangements; 

(p) 

the pension policy is in line with the business strategy, objectives, values 
and  long-term  interests  of  the  management  company  and  the  UCITS  it 
manages. 

EN 

18 

   EN 

If  the  employee  leaves  the  management  company  before  retirement, 
discretionary pension benefits shall be held by the management company 
for a period of five years in the form of instruments referred to in point 
(m).  In  the  case  of  an  employee  reaching  retirement,  discretionary 
pension benefits shall be paid to the employee in the form of instruments 
referred to in point (m), subject to a five year retention period; 

(q) 

staff  are  required  to  undertake  not  to  use  personal  hedging  strategies  or 
remuneration-  and  liability-related  insurance  to  undermine  the  risk 
alignment effects embedded in their remuneration arrangements; 

(r) 

variable  remuneration  is  not  paid  through  vehicles  or  methods  that 
facilitate the avoidance of the requirements of this Directive. 

2. The principles set out in paragraph 1 shall apply to remuneration of any type 
paid by the management companies and to any transfer of units or shares of the 
UCITS,  made  to  the  benefits  of  those  categories  of  staff,  including  senior 
management,  risk  takers,  control  functions  and  any  employee  receiving  total 
remuneration  that  falls  into  the  remuneration  bracket  of  senior  management 
and  risk  takers,  whose  professional  activities  have  a  material  impact  on  their 
risk profile or the risk profiles of the UCITS that they manage. 

3. Management companies that are significant in terms of their size or the size 
of the UCITS they manage, their internal organisation and the nature, the scope 
and the complexity of their activities shall establish a remuneration committee. 
The  remuneration  committee  shall  be  constituted  in  a  way  that  enables  it  to 
exercise  competent  and  independent  judgment  on  remuneration  policies  and 
practices and the incentives created for managing risk. 

The  remuneration  committee  shall  be  responsible  for  the  preparation  of 
decisions regarding remuneration, including those which have implications for 
the  risk  and  risk  management  of  the  management  company  or  the  UCITS 
concerned  and  which  are  to  be  taken  by  the  management  body  in  its 
supervisory  function.  The  remuneration  committee  shall  be  chaired  by  a 
member  of  the  management  body  who  does  not  perform  any  executive 
functions  in  the  management  company  concerned.  The  members  of  the 
remuneration  committee  shall  be  members  of  the  management  body  who  do 
not perform any executive functions in the management company concerned. 

_______ 

(*)  OJ L 331, 15.12.2010, p. 12. 

(**)  OJ L 120, 15.5.2009, p. 22.” 

(2) 

In Article 20(1), point (a) is replaced by the following: 

"(a) the written contract with the depositary referred to in Article 22(2); " 

(3) 

Article 22 is replaced by the following: 

"Article 22 

EN 

19 

   EN 

1.  An  investment  company  and,  for  each  of  the  common  funds  it  manages,  a 
management  company  shall  ensure  that  a  single  depositary  is  appointed  in 
accordance with the provisions of this Chapter. 

2. The appointment of the depositary shall take the form of a written contract.  

That  contract  shall  comprise  rules  establishing  the  flow  of  information  deemed 
necessary to allow the depositary to perform its functions in respect of the UCITS for 
which  it  has  been  appointed  as  depositary,  as  set  out  in  this  Directive  and  in  other 
laws, regulations and administrative provisions which are relevant for depositaries in 
the UCITS home Member State.  

3. The depositary shall: 

(a) 

(b) 

(c) 

(d) 

(e) 

ensure  that  the  sale,  issue,  re-purchase,  redemption  and  cancellation  of 
units  of  the  UCITS  are  carried  out  in  accordance  with  the  applicable 
national laws and the fund rules or instruments of incorporation; 

ensure  that  the  value  of  the  units  of  the  UCITS  is  calculated  in 
accordance  with  the  applicable  national  laws  and  the  fund  rules  or  the 
instruments of incorporation; 

carry out the instructions of the management company or an investment 
company,  unless  they  conflict  with  the  applicable  national  laws  or  the 
fund rules or the instruments of incorporation; 

ensure  that  in  transactions  involving  the  assets  of  the  UCITS  any 
consideration is remitted to the UCITS within the usual time limits; 

ensure  that  the  income  of  the  UCITS  is  applied  in  accordance  with  the 
applicable  national  laws  and  the  fund  rules  or  the  instruments  of 
incorporation. 

4.  The  depositary  shall  ensure  that  the  cash  flows  of  the  UCITS  are  properly 
monitored, and shall in particular ensure that all payments made by or on behalf of 
investors upon the subscription of units of the UCITS have been received, and that 
all  cash  of  the  UCITS  has  been  booked  in  cash  accounts  that  meet  the  following 
conditions: 

(a) 

(b) 

(c) 

they  are  opened  in  the  name  of  the  UCITS  or  in  the  name  of  the 
management company acting on behalf of the UCITS, or in the name of 
the depositary acting on behalf of the UCITS; 

they are opened at an entity referred to in points (a), (b) and (c) of Article 
18(1) of Commission Directive 2006/73/EC(*) and 

they  are  maintained  in  accordance  with  the  principles  set  out  in  Article 
16 of Directive 2006/73/EC. 

Where the cash accounts are opened in the name of the depositary acting on behalf of 
the UCITS, no cash of the entity referred to in point (b) of the first subparagraph and 
none of the own cash of the depositary shall be booked on such accounts.  

EN 

20 

   EN 

5.  The  assets  of  the  UCITS  shall  be  entrusted  to  the  depositary  for  safe-keeping  as 
follows:  

(a) 

for financial instruments that may be held in custody, the depositary shall:  

(i) hold in custody all financial instruments that may be registered in a financial 
instruments  account  opened  in  the  depositary's  books  and  all  financial 
instruments that can be physically delivered to the depositary; 

(ii)  ensure  that  all  those  financial  instruments  that  can  be  registered  in  a 
financial  instruments  account  opened  in  the  depositary's  books  are 
registered  in  the  depositary's  books  within  segregated  accounts  in 
accordance  with  the  principles  set  out  in  Article  16  of  Directive 
2006/73/EC,  opened  in  the  name  of  the  UCITS  or  the  management 
company  acting  on  behalf  of  the  UCITS,  so  that  they  can  be  clearly 
identified  as  belonging  to  the  UCITS  in  accordance  with  the  applicable 
law at all times; 

(b) 

for other assets the depositary shall: 

(i) verify the ownership of the UCITS or the management company acting on 
behalf  of  the UCITS  of such  assets by assessing whether the UCITS or 
the  management  company  acting  on  behalf  of  the  UCITS  holds  the 
ownership based on information or documents provided by the UCITS or 
the management company and, where available, on external evidence; 

(ii) maintain a record of those assets for which it is satisfied that the UCITS or 
the  management  company  acting  on  behalf  of  the  UCITS  holds  the 
ownership and keep that record up-to-date. 

6. Member States shall ensure that in the event of insolvency of the depositary, assets 
of a UCITS held by the depositary in custody are unavailable for distribution among 
or realisation for the benefit of creditors of the depositary. 

7.  The  depositary  shall  not  delegate  to  third  parties  its  functions  as  referred  to  in 
paragraphs 3 and 4.  

The depositary may delegate to third parties the functions referred to in paragraph 5 
only where:  

(a) 

(b) 

(c) 

the  tasks  are  not  delegated  with  the  intention  of  avoiding  the 
requirements of this Directive; 

the  depositary  can  demonstrate  that  there  is  an  objective  reason  for  the 
delegation; 

the  depositary  has  exercised  all  due  skill,  care  and  diligence  in  the 
selection  and  the  appointment  of  any  third  party  to  whom  it  wants  to 
delegate  parts  of  its  tasks,  and  keeps  exercising  all  due  skill,  care  and 
diligence  in  the  periodic  review  and  ongoing  monitoring  of  any  third 
party to whom it has delegated parts of its tasks and of the arrangements 
of the third party in respect of the matters delegated to it. 

EN 

21 

   EN 

The functions referred to in paragraph 5 may be delegated by the depositary only to a 
third party which at all time during the performance of the tasks delegated to it: 

(a)  has  structures  and  expertise  that  are  adequate  and  proportionate  to  the 
nature  and  complexity  of  the  assets  of  the  UCITS  or  the  management 
company acting on behalf of the UCITS which have been entrusted to it; 

(b) 

(c) 

(d) 

(e) 

for  custody  tasks  referred  to  in  point  (a)  of  paragraph  5,  is  subject  to 
effective prudential regulation, including minimum capital requirements, 
and supervision in the jurisdiction concerned; 

for custody tasks referred to in point (a) of paragraph 5, is subject to an 
external periodic audit to ensure that the financial instruments are in its 
possession; 

segregates the assets of the clients of the depositary from its own assets 
and from the assets of the depositary in such a way that they can at any 
time  be  clearly  identified  as  belonging  to  clients  of  a  particular 
depositary; 

in the event of insolvency of the third party, assets of a UCITS held by 
the  third  party  in  custody  are  unavailable  for  distribution  among  or 
realisation for the benefit of creditors of the third party; 

(f) 

complies  with  the  general  obligations  and  prohibitions  set  out  in 
paragraph 5 and Article 25. 

Notwithstanding point (b) of the third subparagraph where the law of a third country 
requires that certain financial instruments be held in custody by a local entity and no 
local  entities  satisfy  the  delegation  requirements  laid  down  in  that  point,  the 
depositary may delegate its functions to such a local entity only to the extent required 
by the law of the third country and only for as long as there are no local entities that 
satisfy the delegation requirements, and only where: 

(a) 

the  investors  of  the  relevant  UCITS  are  duly  informed  that  such 
delegation  is  required  due  to  legal  constraints  in  the  law  of  the  third 
country and of the circumstances justifying the delegation, prior to their 
investment;  

(b) 

the UCITS, or the management company on behalf of the UCITS, have 
instructed  the  depositary  to  delegate  the  custody  of  such  financial 
instruments to such a local entity. 

The  third  party  may,  in  turn,  sub-delegate  those  functions,  subject  to  the  same 
requirements.  In  such  a  case,  Article  24(2)  shall  apply  mutatis  mutandis  to  the 
relevant parties. 

For the purposes of the first to the fifth subparagraphs, the provision of services as 
specified by Directive 98/26/EC of the European Parliament and of the Council(**) 
by securities settlement systems as designated for the purposes of Directive 98/26/EC 
or  the  provision  of  similar  services  by  third-country  securities  settlement  systems 
shall not be considered a delegation of its custody functions. 

EN 

22 

   EN 

_________  

(*) OJ L 241, 2.9.2006, p. 26. 

(**) OJ L 166, 11.6.1998, p. 45.” 

(4) 

Article 23 is amended as follows: 

(a)  Paragraph 2 is replaced by the following: 

"2. The depositary shall be: 

(a) 

a credit institution authorised in accordance with Directive 2006/48/EC; 

(b) 

an  investment  firm,  subject  to  capital  adequacy  requirements  in 
accordance with Article 20(1) of Directive 2006/49/EC including capital 
requirements  for  operational  risks  and  authorised  in  accordance  with 
Directive  2004/39/EC  and  which  also  provides  the  ancillary  service  of 
safe-keeping and administration of financial instruments for the account 
of  clients  in  accordance  with  point  (1)  of  Section  B  of  Annex  I  to 
Directive 2004/39/EC; such investment firms shall in any case have own 
funds not less than the amount of initial capital referred to in Article 9 of 
Directive 2006/49/EC; 

Investment  companies  or  management  companies  acting  on  behalf  of  the  UCITS 
they  manage,  that,  before  [date:  transposition  deadline  set  out  in  Article  2(1)  first 
subparagraph],  appointed  as  a  depositary  an  institution  that  does  not  meet  the 
requirements  set  out  in  this  paragraph,  shall  appoint  a  depositary  that  meets  those 
requirements  before  [date:  1  year  after  a  deadline  set  out  in  Article  2(1)  first 
subparagraph" 

(b)  Paragraphs 3, 4, 5 and 6 are deleted.  

(5) 

Article 24 is replaced by the following: 

"Article 24 

1. Member States shall ensure that the depositary shall be liable to the UCITS and to 
the unit holders of the UCITS for the loss by the depositary or a third party to whom 
the custody of financial instruments held in custody in accordance with point (a) of 
Article 22(5) has been delegated. 

In  case  of  a  loss  of  a  financial  instrument  held  in  custody,  Member  States  shall 
ensure that the depositary shall return a financial instrument of identical type or the 
corresponding amount to the UCITS or the management company acting on behalf of 
the UCITS without undue delay. The depositary shall not be liable if it can prove that 
the loss has arisen as a result of an external event beyond its reasonable control, the 
consequences of which would have been unavoidable despite all reasonable efforts to 
the contrary. 

Member States shall ensure that the depositary shall also be liable to the UCITS, and 
to  the  investors  of  the  UCITS,  for  all  other  losses  suffered  as  a  result  of  the 

EN 

23 

   EN 

depositary’s negligent or intentional failure to properly fulfil its obligations pursuant 
to this Directive. 

2. The liability of the depositary shall not be affected by any delegation referred to in 
Article 22(7). 

3. The liability of the depositary referred to in paragraph 1 shall not be excluded or 
limited by agreement.  

4. Any agreement that contravenes the provision of paragraph 3 shall be void.  

5.  Unit  holders  in  the  UCITS  may  invoke  the  liability  of  the  depositary  directly  or 
indirectly through the management company." 

(6) 

In Article 25, paragraph 2 is replaced by the following: 

"2.  In  carrying  out  their  respective  functions,  the  management  company  and  the 
depositary shall act honestly, fairly, professionally, independently and in the interest 
of the UCITS and the investors of the UCITS. 

A  depositary  shall  not  carry  out  activities  with  regard  to  the  UCITS  or  the 
management  company  on  behalf  of  the  UCITS that  may  create conflicts of interest 
between  the  UCITS,  the  investors  in  the  UCITS,  the  management  company  and 
itself,  unless  the  depositary  has  functionally  and  hierarchically  separated  the 
performance  of  its  depositary  tasks  from  its  other  potentially  conflicting  tasks,  and 
the  potential  conflicts  of  interest  are  properly  identified,  managed,  monitored  and 
disclosed to the investors of the UCITS." 

(7) 

Article 26 is replaced by the following: 

"Article 26 

1. The law or the fund rules of the common fund shall lay down the conditions for 
the replacement of the management company and the depositary and rules to ensure 
the protection of unit-holders in the event of such replacement. 

2. The law or the instruments of incorporation of the investment company shall lay 
down  the  conditions  for  the  replacement  of  the  management  company  and  the 
depositary  and  rules  to  ensure  the  protection  of  unit-holders  in  the  event  of  such 
replacement.  

(8) 

The following Articles 26a and 26b are inserted: 

"Article 26a  

The  depositary  shall  make  available  to  its  competent  authorities,  competent 
authorities  of  the  management  company's  home  Member  State  and  the  competent 
authorities  of  the  UCITS  home  Member  State,  on  request,  all  information  which  it 
has obtained while performing its duties and that may be necessary for the competent 
authorities to carry out their duties under this Directive. 

Article 26b  

EN 

24 

   EN 

1. 

The  Commission  shall  be  empowered  to  adopt,  by  means  of  delegated  acts  in 
accordance with Article 112 and subject to the conditions of Articles 112a and 112b, 
measures specifying: 

(a) 

(b) 

(c) 

(d) 

(e) 

the particulars that need to be included in the written contract referred to 
in Article 22(2); 

the  conditions  for  performing  the  depositary  functions  pursuant  to 
Articles 22(3), (4) and (5), including: 

(i)  the  type  of  financial  instruments  to  be  included  in  the  scope  of  the 
custody  duties  of  the  depositary  in  accordance  with  point  (a)  of 
Article 22(5); 

(ii) the conditions subject to which the depositary is able to exercise its 
custody  duties  over  financial  instruments  registered  with  a  central 
depositary;  

(iii)  the  conditions  subject  to  which  the  depositary  is  to  safekeep  the 
financial  instruments  issued  in  a  nominative  form  and  registered 
with an issuer or a registrar, in accordance with point (b) of Article 
22(5); 

the  due  diligence  duties  of  depositaries  pursuant  to  point  (c)  of  second 
subparagraph of Article 22(7); 

the segregation obligation pursuant to point (d) of third subparagraph of 
Article 22(7); 

the  conditions  subject  to  which  and  circumstances  in  which  financial 
instruments held in custody are to be considered as lost for the purpose of 
Article 24; 

(f)  what  is  to  be  understood  by  external  events  beyond  reasonable  control, 
the  consequences  of  which  would  have  been  unavoidable  despite  all 
reasonable efforts to the contrary pursuant to Article 24(1)." 

(9) 

In Article 30, the first paragraph is replaced by the following: 

"Articles 13, 14, 14a and 14b shall apply mutatis mutandis to investment companies 
that  have  not  designated  a  management  company  authorised  pursuant  to  this 
Directive." 

(10) 

Section 3 of Chapter V is deleted. 

(11) 

In Article 69(3) the following second subparagraph is added: 

"The annual report shall also contain:  

(a) 

the  total  amount  of  remuneration  for  the  financial  year,  split  into  fixed 
and variable remuneration paid by the management company and by the 

EN 

25 

   EN 

investment  company  to  its  staff,  and  the  number  of  beneficiaries,  and 
where relevant, the carried interest paid by the UCITS; 

(b) 

the  aggregate  amount  of  remuneration  broken  down  by  senior 
management  and  members  of  staff  of  the  management  company  and, 
where  relevant,  of  the  investment  company,  whose  actions  have  a 
material impact on the risk profile of the UCITS." 

(12) 

Article 98 is amended as follows: 

(a) 

In paragraph 2 point (d) is replaced by the following: 

"(d) require existing telephone records and traffic data, as defined in Article 2 
(b) of Directive 2002/58/EC of the European Parliament and of the Council(*), 
that  are  held  by  UCITS,  management  companies,  investment  companies  or 
depositories  where  a  serious  suspicion  exists  that  such  records  related  to  the 
subject-matter  of  the  inspection  may  be  relevant  to  prove  a  breach  by  the 
UCITS, management companies, investment companies or depositories of their 
obligations  under  this  Directive;  these  records  shall  however  not  concern  the 
content of the communication to which they relate. 

_________  

(*) 

OJ L 201, 31.7.2002, p. 37." 

(b)  The following paragraph 3 is added: 

"3. If a request for records of telephone or data traffic referred to in point (d) of 
paragraph  2  requires  authorisation  from  a  judicial  authority  according  to 
national  rules  such  authorisation  shall  be  applied  for.  Such  authorisation  may 
also be applied for as a precautionary measure." 

(13) 

Article 99 is replaced by the following: 

"Article 99 

1. Member States shall provide that their respective competent authorities may take 
appropriate  administrative  sanctions  and  measures  where  the  national  provisions 
adopted  in  the  implementation  of  this  Directive  have  not  been  complied  with,  and 
shall  ensure  that  those  measures  are  applied.  The  sanctions  and  measures  shall  be 
effective, proportionate and dissuasive. 

2. Member States shall ensure that where obligations apply to UCITS, management 
companies,  investment  companies  or  depositaries,  in  case  of  a  breach,  sanctions  or 
measures may be applied to the members of the management body, and to any other 
individuals who under national law are responsible for the breach.  

3.  Competent  authorities  shall  be  given  all  investigatory  powers  that  are  necessary 
for  the  exercise  of  their  functions.  In  the  exercise  of  their  powers,  competent 
authorities shall cooperate closely to ensure that sanctions or measures produce the 
desired results and coordinate their action when dealing with cross border cases." 

EN 

26 

   EN 

(14) 

The following Articles 99a, 99b, 99c, 99d and 99e are inserted: 

"Article 99a 

1. This Article shall apply when: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

the  activities  of  UCITS  are  pursued  without  obtaining  authorisation  in 
breach of Article 5; 

the  business  of  a  management  company  is  carried  on  without  obtaining 
prior authorisation in breach of Article 6; 

the  business  of  an  investment  company  is  carried  on  without  obtaining 
prior authorisation in breach of Article 27; 

a  qualifying  holding  in  a  management  company  is  acquired,  directly  or 
indirectly,  or  such  a  qualifying  holding  in  a  management  company  is 
further  increased  so  that  the  proportion  of  the  voting  rights  or  of  the 
capital  held  would  reach  or  exceed  20%,  30%  or  50%  or  so  that  the 
management company would become its subsidiary (hereinafter referred 
to  as  the  proposed  acquisition),  without  notifying  in  writing  the 
competent authorities of the management company in which the acquirer 
is seeking to acquire or increase a qualifying holding in breach of Article 
11(1); 

a qualifying holding in a management company is disposed of, directly or 
indirectly, or reduced so that the proportion of the voting rights or of the 
capital  held  would  fall  below  20%,  30%  or  50%  or  so  that  the 
management company would cease to be a subsidiary, without notifying 
in writing the competent authorities, in breach of Article 11(1); 

a  management  company  has  obtained  an  authorisation  through  false 
statements or any other irregular means in breach of Article 7(5)(b); 

an  investment  company  has  obtained  an  authorisation  through  false 
statements or any other irregular means in breach of Article 29(4)(b); 

a  management  company,  on  becoming  aware  of  any  acquisition  or 
disposal of holdings in their capital that cause holdings to exceed or fall 
below  one  of  the  thresholds  referred  to  in  Article  11(10)  of  Directive 
2004/39/EC,  fails 
those 
acquisitions or disposals in breach of Article 11(1); 

the  competent  authorities  of 

inform 

to 

a  management  company  fails  to,  at  least  once  a  year,  inform  the 
competent  authority  of  the  names  of  shareholders  and  members 
possessing  qualifying  holdings  and  the  sizes  of  such  holdings  in  breach 
of Article 11(1); 

a  management  company  fails 
to  comply  with  procedures  and 
arrangements  imposed  in  accordance  with  the  national  provisions 
implementing Article 12(1)(a); 

EN 

27 

   EN 

(k) 

(l) 

a  management  company 
to  comply  with  structural  and 
organisational  requirements  imposed  in  accordance  with  the  national 
provisions implementing Article 12(1)(b); 

fails 

investment  company 

an 
to  comply  with  procedures  and 
arrangements  imposed  in  accordance  with  the  national  provisions 
implementing Article 31; 

fails 

(m)  a management company or an investment company fails to comply with 
requirements  related  to  delegation  of  its  functions  to  third  parties 
imposed  in  accordance  with  the  national  provisions  implementing 
Articles 13 and 30; 

(n) 

(o) 

(p) 

(q) 

(r) 

(s) 

a management company or an investment company fails to comply with 
rules  of  conduct  imposed  in  accordance  with  the  national  provisions 
implementing Articles 14 and 30; 

a  depositary  fails  to  perform  its  tasks  in  accordance  with  national 
provisions implementing paragraphs (3) to (7) of Article 22; 

an investment company and, for each of the common fund it manages, a 
management  company  repeatedly  fails  to  comply  with  obligations 
concerning  the  investment  policies  of  UCITS  set  out  by  national 
provisions implementing Chapter VII; 

a management company or an investment company fails to employ a risk 
management  process  and  a  process  for  accurate  and  independent 
assessment  of  the  value  of  OTC  derivatives  as  set  out  in  national 
provisions implementing Article 51(1); 

an investment company and, for each of the common fund it manages, a 
management  company  repeatedly  fails  to  comply  with  obligations 
concerning 
in 
to  be  provided 
accordance with the national provisions implementing Articles 68 to 82; 

information 

investors 

imposed 

to 

a  management  company  or  an  investment  company  marketing  units  of 
UCITS  it  manages  in  a  Member  State  other  than  the  UCITS  home 
Member State fails to comply with the notification requirement set out in 
Article 93(1). 

2.  Member  States  shall  ensure  that  in  all  cases  referred  to  in  paragraph  1,  the 
administrative  sanctions  and  measures  that  may  be  applied  include  at  least  the 
following:  

(a) 

(b) 

(c) 

a  public  statement  which  indicates  the  natural  or  legal  person  and  the 
nature of the breach; 

issuing an order requiring the natural or legal person to cease the conduct 
and to desist from a repetition of that conduct; 

in  case  of  a  management  company  or  a  UCITS,  withdrawal  of  the 
authorisation of the management company or the UCITS; 

EN 

28 

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(d) 

(e) 

imposing  a  temporary  ban  against  any  member  of  the  management 
company's  or  the  investment  company's  management  body  or  any  other 
natural  person,  who  is  held  responsible,  to  exercise  functions  in  those 
companies; 

in case of a legal person, imposing administrative pecuniary sanctions of 
up  to  10%  of  the  total  annual  turnover  of  that  legal  person  in  the 
preceding  business  year;  where  the  legal  person  is  a  subsidiary  of  a 
parent  undertaking,  the  relevant  total  annual  turnover  shall  be  the  total 
annual  turnover  resulting  from  the  consolidated  account  of  the  ultimate 
parent undertaking in the preceding business year; 

(f) 

in case of a natural person, imposing administrative pecuniary sanctions 
of up to EUR 5 000 000, or in the Member States where the euro is not 
the official currency, the corresponding value in the national currency on 
the date of entry into force of this Directive; 

(g) 

imposing administrative pecuniary sanctions of up to twice the amount of 
the  profits  gained  or  losses  avoided  because  of  the  breach  where  those 
can be determined. 

Article 99b 

Member  States  shall  ensure  that  the  competent  authorities  publish  any  sanction  or 
measure imposed for breach of the national provisions adopted in the implementation 
of this Directive without undue delay, including information on the type and nature 
of the  breach and the  identity of  persons responsible for it, unless such publication 
would  seriously  jeopardise  the  stability  of  financial  markets.  Where  publication 
would cause a disproportionate damage to the parties involved, competent authorities 
shall publish the sanction or measure imposed on an anonymous basis. 

Article 99c 

1.  Member  States  shall  ensure  that  when  determining  the  type  of  administrative 
sanctions  or  measures  and  the  level  of  administrative  pecuniary  sanctions,  the 
competent authorities shall take into account all relevant circumstances, including: 

(a) 

the gravity and the duration of the breach; 

(b) 

the degree of responsibility of the responsible natural or legal person;  

(c) 

(d) 

(e) 

the  financial  strength  of  the  responsible  natural  or  legal  person,  as 
indicated  by  the  total  turnover  of  the  responsible  legal  person  or  the 
annual income of the responsible natural person; 

the  importance  of  profits  gained  or  losses  avoided  by  the  responsible 
natural or legal person, insofar as they can be determined; 

the  level  of  cooperation  of  the  responsible  natural  or  legal  person  with 
the competent authority; 

(f) 

previous breaches by the responsible natural or legal person. 

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29 

   EN 

2.  ESMA  shall  issue  guidelines  addressed  to  competent  authorities  in  accordance 
with  Article  16  of  Regulation  (EU)  No  1093/2010  on  types  of  administrative 
measures and sanctions and level of administrative pecuniary sanctions. 

Article 99d 

1.  Member  States  shall  ensure  that  competent  authorities  establish  effective 
mechanisms  to  encourage  reporting  of  breaches  of  the  national  provisions 
implementing this Directive to competent authorities. 

2. The mechanisms referred to in paragraph 1 shall include at least: 

(a) 

(b) 

specific  procedures  for  the  receipt  of  reports  on  breaches  and  their 
follow-up;  

appropriate  protection  for  employees  of  investment  companies  and 
management  companies  who  report  breaches  committed  within  the 
company; 

(c)  protection  of  personal  data  concerning  both  the  person  who  reports  the 
breaches and the natural person who is allegedly responsible for a breach, 
in compliance with the principles laid down in Directive 95/46/EC of the 
European Parliament and of the Council(*). 

3.  Member  States  shall  require  institutions  to  have  in  place  appropriate  procedures 
for their employees to report breaches internally through a specific channel. 

Article 99e 

1.  Member  States  shall  provide  ESMA  annually  with  aggregated  information 
regarding  all  measures  or  sanctions  imposed  in  accordance  with  Article  99.  ESMA 
shall publish this information in an annual report. 

2. Where the competent authority has published a measure or sanction, it shall also 
report the measures or sanctions to ESMA. Where a published measure or sanction 
relates  to  a  management  company,  ESMA  shall  add  a  reference  to  the  published 
measure  or  sanction  in  the  list  of  management  companies  published  under  Article 
6(1).  

3.  ESMA  shall  develop  draft  implementing  technical  standards  concerning  the 
procedures and forms for submitting information as referred to in this Article. 

Power is conferred on the Commission to adopt the implementing technical standards 
referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) 
No 1095/2010. 

ESMA shall submit those draft implementing technical standards to the Commission 
by [insert date]." 

________  

(*)  OJ L 281, 23.11.1995, p. 31." 

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30 

   EN 

(15) 

The following Article 104a is inserted: 

"Article 104a 

1.  Member  State  shall  apply  Directive  95/46/EC  to  the  processing  of  personal  data 
carried out in the Member State pursuant to this Directive. 

2. Regulation EC No 45/2001 of the European Parliament and of the Council(*) shall 
apply  to  the  processing  of  personal  data  carried  out  by  ESMA  pursuant  to  this 
Directive. 

________  

(*)  OJ L 8, 12.1.2001, p. 1." 

(16) 

In Article 112, paragraph 2 is replaced by the following: 

"2. The power to adopt the delegated acts referred to in Articles 12, 14, 43, 51, 60, 
61, 62, 64, 75, 78, 81, 95 and 111 shall be conferred on the Commission for a period 
of four years from 4 January 2011. The power to adopt the delegated acts referred to 
in Article 50a shall be conferred on the Commission for a period of four years from 
21 July 2011. The power to adopt the delegated acts referred to in Article 26b shall 
be  conferred  on  the  Commission  for  a  period  of  four  years  from  […].  The 
Commission shall draw up a report in respect of delegated powers not later than six 
months  before  the  end  of  the  four-year  period.  The  delegation  of  power  shall  be 
automatically  extended  for  periods  of  an  identical  duration,  unless  the  European 
Parliament or the Council revokes them in accordance with Article 112a." 

(17) 

In Article 112a, paragraph 1 is replaced by the following: 

"1. The delegation of power referred to in Articles 12, 14, 26b, 43, 50a, 51, 60, 61, 
62,  64,  75,  78,  81,  95  and  111  may  be  revoked  at  any  time  by  the  European 
Parliament or by the Council." 

(18) 

Annex I is amended as set out in the Annex to this Directive 

Article 2 

1. 

Member States shall adopt and publish, by […] at the latest, the laws, regulations and 
administrative  provisions  necessary  to  comply  with  this  Directive.  They  shall 
forthwith communicate to the Commission the text of those provisions. 

They  shall  apply  the  laws,  regulations  and  administrative  provisions  referred  to  in 
paragraph 1 from […]. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

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31 

   EN 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 3 

Article 4 

This Directive is addressed to the Member States. 

Done at Strasbourg,  

For the European Parliament 
The President 

For the Council 
The President 

EN 

32 

   EN 

ANNEX  

In Annex I, point 2 of the Schedule A is replaced by the following; 

"2. Information concerning the depositary: 

2.1. The identity of the depositary of the UCITS and a description of its duties; 

2.2.  A  description  of  any  safe-keeping  functions  delegated  by  the  depositary,  the 
identification  of  the  delegate and any conflicts of interest that may arise from such 
delegation" 

EN 

33 

   EN