COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document 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  
SWD(2012) 185 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

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 

{COM(2012) 350 final} 
{SWD(2012) 186 final} 

EN 

   EN 

 
 
 
 
  
 
1. 

INTRODUCTION ................................................................................................................5 

1.1. 

The delegation of custody....................................................................................................... 6 

1.2.  Wider issues linked to the ‘dematerialisation’ of securities ..................................................... 6 

1.3. 

Previous action by the Commission......................................................................................... 7 

2.  PROCEDURAL ISSUES AND CONSULTATIONS.........................................................8 

2.1. 

Procedural issues .................................................................................................................... 8 

2.2. 

Stakeholder consultation ........................................................................................................ 9 

3.  BACKGROUND AND CONTEXT .................................................................................. 10 

3.1. 

Economic importance of UCITS funds .....................................................................................10 

3.2. 

Investor profile of UCITS funds...............................................................................................11 

3.3. 

Trends in services provided to UCITS funds ............................................................................11 

3.4. 

The fee structure applicable to depositary duties ...................................................................13 

3.5. 

Remuneration structures in the fund management industry ..................................................14 

4.  PROBLEM DEFINITION................................................................................................ 15 

4.1. 

Divergent criteria on eligibility to act as a depositary .............................................................15 

4.2. 

Unclear rules on delegation of custody ..................................................................................15 
4.2.1.  Conditions of delegation ...........................................................................................................16 
Third country delegations..........................................................................................................17 
4.2.2. 

4.3. 

Unclear scope of liability in case of loss (including loss when custody has been delegated) ....17 

4.4. 

Unclear remuneration practices .............................................................................................18 

4.5. 

Divergent sanctioning regimes ...............................................................................................19 
4.5.1.  Differences in levels of administrative fines across Member States.........................................19 
4.5.2.  Divergences in criteria for setting the level of administrative sanctions ..................................20 
4.5.3.  Varying enforcement levels.......................................................................................................21 

4.6. 

Consequences under the baseline scenario ............................................................................21 
Impact on investors ...................................................................................................................21 
Impact on the UCITS fund and its management company........................................................22 
Impact on depositaries ..............................................................................................................23 
Impact on other financial service providers ..............................................................................23 
Impact on national authorities ..................................................................................................23 

4.6.1. 
4.6.2. 
4.6.3. 
4.6.4. 
4.6.5. 

4.7. 

Problem tree..........................................................................................................................24 

4.8. 

The EU's right to act and justification .....................................................................................27 

 
 
 
5.  OBJECTIVES..................................................................................................................... 28 

5.1. 

Coherence of objectives with other Commission policies........................................................28 

6.  POLICY OPTIONS ........................................................................................................... 29 

6.1. 

Problem No 1: Divergent criteria on eligibility to act as depositary .........................................29 

6.2. 

Problem No 2:  Unclear rules on delegation of safe-keeping duties.........................................30 

6.3. 

Problem No 3: Unclear scope of depositary's liability .............................................................31 

6.4. 

Problem No 4: Unclear remuneration practices ......................................................................31 

6.5. 

Problem No 5: Divergent sanctioning regimes ........................................................................32 

7.  COMPARISON OF POLICY OPTIONS......................................................................... 32 

7.1. 

Problem No 1: Divergent criteria on eligibility to act as depositary .........................................32 

7.2. 

Problem No 2: Unclear rules on delegation of custody ...........................................................34 

7.3. 

Problem No 3: Unclear scope of a depositary's liability...........................................................37 

7.4. 

Problem No 4: Unclear remuneration practices ......................................................................41 

7.5. 

Problem No 6: Divergent sanctioning regimes ........................................................................42 

7.6. 

Choice of preferred legal instrument......................................................................................45 

8.  CUMULATIVE AND OTHER IMPACTS ...................................................................... 46 

8.1. 

Social and environmental impacts..........................................................................................46 

8.2. 

Cumulative impacts of the proposal .......................................................................................46 

8.3. 

Impact on third countries.......................................................................................................47 

9.  MONITORING AND EVALUATION............................................................................. 47 

10. 

ANNEXES ...................................................................................................................... 49 

10.1. 

ANNEX 1: Related initiatives ..................................................................................................49 

10.2. 

ANNEX 2: Feed-back statements to the public consultations ..................................................60 

10.3. 

ANNEX 3: Shares of Households that invest in UCITS Funds ....................................................91 

10.4. 

ANNEX 4: UCITS Net Assets by Country of Domiciliation.........................................................92 

10.5. 

ANNEX 5: Summary of the 2010 CESR mapping exercise.........................................................94 

10.6. 

ANNEX 6: The Commission's broad Framework on remuneration .........................................101 

10.7. 

ANNEX 7: Summary of replies to the questionnaire on administrative sanctions ..................103 

3 

 
10.8. 

ANNEX 8: Core violations of the UCITS Directive...................................................................190 

10.9. 

ANNEX 9: Glossary of key terms ...........................................................................................192 

4 

 
1. 

INTRODUCTION 

Since its introduction in 1985, the UCITS Directive1 has offered to European investors a 
wide range of high quality and safe investment products. The subsequent reforms of the 
Directive  (2001  and  2009)  have  built  upon  the  high  level  of  investor  protection  and 
prudential supervision ensured by the Directive. The standards introduced in the UCITS 
rules have also contributed to the success of the UCITS brand in third countries (notably 
in Asia and Latin America) where UCITS funds domiciled in the EU enjoy a significant 
investor base. The requirements relating to depositaries that act on behalf of undertakings 
for collective investment in transferable securities (UCITS) are one of the key building 
blocks within the UCITS framework and aim primarily to ensure a high level of investor 
protection.  

The UCITS depositary must be an entity that must be independent from the UCITS fund 
and the UCTIS fund's manager. Neither the fund manager nor any prime brokers that act 
as counterparties to the fund may also act as the fund's depositary. The independence of a 
depositary is necessary because the depositary essentially acts both as a supervisor (the 
'legal  conscience')  of  a  UCITS  fund,  overseeing  certain  fund  transactions  (redemptions 
and investor payments to the fund) and as a custodian over the fund's assets.  

A  depositary  "safe-keeps"  the  assets  in  which  a  UCITS  invests  and  thus  maintains  the 
UCITS' and its investors' property interests. While the safekeeping of investors assets is a 
core task of the depositary, the depositary also performs certain oversight functions, such 
as verifying that a UCITS fund's sales, repurchase and redemption of units or shares is 
carried  out  in  accordance  with  applicable  laws,  that  the  net  asset  value  of  units  is 
calculated in line with national laws and fund rules, that transactions of the fund manager 
comply  with  all  applicable  laws  and  that  transactions  involving  the  fund's  assets  are 
carried out within the customary time periods.   

Despite its important role, the UCITS rules relating to depositaries in the Directive have 
remained  mostly  unchanged  since  1985:  there  are  a  number  of  generic  principles 
applying  to  depositaries,  leaving  room  for  diverging  interpretations  of  their  duties  and 
related  liabilities.  As  a  minimum  requirement,  the  UCITS  Directive  does  mention, 
however,  that  the  management  of  a  UCITS  cannot  be  entrusted  to  the  same  entity  that 
acts  as  a  depositary.  What  the  UCITS  directive  does  not  specify  is  that  the  separation 
between  portfolio  management  and  custody  should  also  prevail  in  case  the  depositary 
function  is  delegated  to  a  third  party  who,  in  turn,  cannot  be  portfolio  manager  and 
custodian  at  the  same  time.  This  latter  conflict  of  interest  was  present  in  the  Madoff 
scenario (described in further detail below).  

Different national rules have developed in many of those areas not specifically covered 
by the UCITS Directive. Especially in respect to entities eligible to act as a depositary, 
rules  on  delegation,  rules  on  conflict  of  interest  in  case  of  delegation  and  rules  on 
liability  for  the  loss  of  assets  in  custody,  the  high  level  principles  contained  in  the 

1 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination 
of laws, regulations and administrative provisions relating to undertakings for collective investment in 
transferable securities (UCITS),, OJ L302, 17.11.2009, p 32. 

5 

 
 
                                                 
Directive  have  allowed  the  emergence  of  different  approaches  across  the  European 
Union.  As  evidenced  by  the  Madoff  case,  this  has  led  to  different  levels  of  investor 
protection depending on where the UCITS fund is domiciled.   

1.1. 

The delegation of custody 

The  potential  consequences  of  these  divergences  came  to  the  fore  in  the  course  of  the 
Madoff fraud, which hit the headlines on 11 December 2008. The brokerage operation of 
Bernard  Madoff  was  revealed  as  a  giant  Ponzi  scheme  resulting  in  the  largest  investor 
fraud  ever  committed  by  one  individual.  Huge  sums  that  were  allegedly  invested  by 
Bernard  Madoff  turned  out  to  have  vanished  with  no  corresponding  securities  in  Mr 
Madoff's investment fund.   

The consequences of the Madoff scandal are not confined to the US. The issue has been 
particularly acute in some EU Member States. One particular fund that acted as a feeder 
fund for Madoff recorded losses of around $ 1.4 billion due to Madoff investments which 
turned  out  to  be  fictitious.  The  losses  suffered  by  this  ‘feeder  fund’  channelling 
investments to Madoff, have brought to the issue of depositary's liability to the fore. In 
this case, both the management of investments and custody in relation to the assets that 
belong  to  the  fund  were  delegated  to  entities  operated  by  Madoff.  A  ‘feeder  fund’  is 
essentially  a  vehicle  that  collects  investors’  money  and  then  provides  these  monies  to 
another financial service provider, usually a broker or another fund, so that the latter can 
design and execute an investment strategy.   

The large scale of the Madoff fraud essentially went undetected for a long period because 
the depositary responsible for the safekeeping of the fund assets delegated custody over 
these  assets  to  another  entity  run  by  Bernard  Madoff,  the  US  broker  "Bernard  Madoff 
Investment Securities".  

The  circumstances  of  the  Madoff  case  raised  several  important  issues  in  relation  to 
UCITS funds. First, what are the precise conditions under which the depositary acting on 
behalf of a UCITS fund can delegate safekeeping of the fund's investment assets to a sub-
custodian?  The  current  UCITS  Directive  is  silent  on  the  precise  conditions  of  sub-
custody.  

But more importantly, the Madoff scandal has also revealed general uncertainties within 
the  UCITS  framework,  especially,  in  relation  to  the  principal  custodian's  on-going 
liability in case of delegation of custody to a sub-custodian. As will be explained below, 
the  issue  of  liability  in  case  of  delegation,  in  the  absence  of  harmonised  rules  in  the 
relevant  UCITS  Directive,  is  dealt  with  differently  in  individual  Member  States.  The 
main  difference  is  essentially  that,  in  some  jurisdictions,  the  depositary  is  obliged  to 
reimburse investors for losses that stem from the decision to sub-delegate custody, while 
other jurisdictions limit liability to the diligent selection of the sub-custodian.  

1.2.  Wider issues linked to the ‘dematerialisation’ of securities 

While  the  Madoff  scandal  triggered  a  closer  look  at  the  consequences  of  a  loss  of 
instruments that are held in (electronic) custody, some of the issue raised by the Madoff 
fraud  are  intrinsically  linked  to  the  trend  toward  recording  ownership  in  financial 
instruments by means of an electronic book entry.  

6 

 
The current gaps in the UCITS rules on depositaries are also linked to the increasing use 
of  electronic  book  entry  ('computerisation  of  securities')  to  register  and  keep  track  of 
ownership changes in securities.  The current UCITS framework does not take issues and 
circumstances linked to electronic custody into account.  

The trend toward electronic book entry started much before Madoff and the consequences 
of  this  development  are  not  at  all  reflected  in  the  way  the  1985  UCITS  rules  on 
depositaries are configured. For example, the basic distinction between electronic custody 
over  transferable  securities  and  record-keeping  in  relation  to  all  "other"  assets  is  not 
reflected in UCITS.  More precise rules on such financial instruments that are to be held in 
custody  and  more  clarity  on  the  consequences  of  their  loss  are  therefore  driven  by  the 
need to keep pace with technology in the depositary sector.  The remainder of this section 
sets out the main problems inherent in the current regulatory framework that governs the 
activities of UCITS depositaries, i.e., eligibility to act as a depositary, rules on delegation 
of  custody,  liability  for  the  loss  of  a  financial  instrument  in  custody,  remuneration 
policies of UCITS managers and sanctions. 

1.3. 

Previous action by the Commission 

In  2009,  the  Commission  introduced  its  proposal  on  Alternative  Investment  Fund 
Managers  to  regulate  the  alternative  part  of  the  asset  management  industry  that,  until 
then,  had  not  been  subject  to  any  regulation  and  supervision  at  EU  level.  The  AIFM 
Directive2 that was finally adopted in 2010 draws the lessons from the Madoff case and 
introduces  a  complete  and  fully  harmonised  system  on  liability  related  to  the 
performance of depositary tasks for alternative investment funds. These rules, however, 
apply  only  to  alternative  investment  funds  that  are  targeted  to  professional  investors. 
The precedent set by the AIFMD constitutes nevertheless an essential point of reference 
for  the  improvement  of  the  current  depositary  rules  for  UCITS.  It  is  obviously  an 
unintended  anomaly  that  retail  investors  remain  less  protected  than  the  professional 
investors covered by the AIFM framework. 

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.  These  tendencies,  in  turn,  increased 
levels of systemic risk.  

More generally, and in view systemic issues and commitments that were made at the G20 
level, the EU is taking coordinated steps across all financial services sectors to introduce 
consistent  requirements  governing  remuneration  policies,  as  set  out  in  the  Commission 
Recommendation of April 2009.3 The adoption of CRD III,4 the AIFM Directive, and the 
ongoing work on the level 2 measures under Solvency II will confirm the determination 

2      Directive  2011/61/EC  of  the  European  Parliament  and  of  the  Council  of  8  June  2011  on  Alternative 
Investment  Fund  Managers  and  amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations 
(EC) No 1060/2009 and (EU) No 1095/2010, OJ L 174, 1.7.2011, p.1. 

3 http://ec.europa.eu/internal_market/company/docs/directors-remun/financialsector_290409_en.pdf 

4 Directive 2010/76/EU of the European Parliament and of the Council of 24 November 2010 amending 
Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-
securitisations, and the supervisory review of remuneration policies, OJ L 329, 14.12.2010, p.3 

7 

 
                                                 
 
 
of  the  EU  to  fulfil  these  commitments.  Extending  this  work  to  also  cover  the 
remuneration of UCITS investment managers is a natural additional step in this process. 

Sanctions  are  not  harmonised  in  any  financial  services  legislation  at  EU  level  and  the 
analysis of national sanctioning regimes carried out by the Commission, along with the 
Committees  of  Supervisors  (now  transformed  into  European  Supervisory  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"5  the  Commission  suggested  setting  EU 
minimum common standards on certain key issues, in order to promote convergence and 
reinforcement of national sanctioning regimes. A significant majority of respondents to 
the consultation launched by the Communication shared the Commission's analysis of the 
shortcomings  in  the  existing  national  sanctioning  regimes  and  were  supportive  of  EU 
action to set minimum common rules on the key issues identified, which include level of 
administrative  fines;  criteria  to  be  taken  into  account  when  applying  sanctions  and 
mechanisms  facilitating  enforcement.    Therefore,  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. 

2. 

PROCEDURAL ISSUES AND CONSULTATIONS 

2.1. 

Procedural issues 

The  proposed  amendments  to  the  UCITS  Directive  are  part  of  the  Commission's  2012 
Work  Programme  in  the  area  of  financial  services. The impact  assessment process was 
initiated  in  September  2010  with  the  first  meeting  of  the  Inter-Service  Steering  Group 
(ISSG),  comprising  the  following  Commission  services:  Competition,  Health  and 
Consumers, Taxation and Customs Union, Enterprise and Industry, Secretariat General, 
Economic  and  Financial  Affairs,  and  the  Legal  Service.  Further  meetings  of  the  ISSG 
took place in January, March and September 2011. Subsequent to the last meeting, the IA 
assessment  was  adjusted  to  widen  the  breadth  of  policy  options  to  address  the  key 
problems that arise in respect of depositaries, their duties and their liability. In order to 
enhance the overall presentation, the problem definitions in the IA were streamlined. In 
addition, more economic evidence on the structure of the depositary markets in the EU 
and  overseas  was  added,  more  research  was  conducted  on  the  typical  UCITS  investor 
profile  and  the  economic  rationale  behind  the  increasingly  frequent  sub-delegations  to 
third  countries  is  presented  in  a  more  detailed  manner  (Section  3).    Finally,  more 
background  was  added  on  the  precise  facts  on  the  Madoff  case,  as  this  case  largely 
triggered the need to reform the rules applicable to UCITS depositaries. The new version 
was communicated to the ISSG on 1 February 2012 and the latter did not request a new 
meeting to discuss these adjustments.    

The  report  was  sent  to  the  Impact  Assessment  Board  (IAB)  on  3  February  2012  and 
discussed  before  the  IAB  on  29  February  2012.  Subsequent  to  the  meeting  of  the  IAB 

5 COM(2010)716 final. 

8 

 
                                                 
changes  were  introduced,  in  particular  relating  to  the  cost  of  custody,  the  cost  of 
recordkeeping, the overall custody fee structure (specifying differences in custody fees in 
different jurisdictions) and the repercussions that regulatory change might have on these 
parameters. Improvements were also made in explaining the different legal standards that 
are  currently  employed  to  delineate  a  custodian's  liability  to  return  instrument  lost  in 
custody  and,  in  particular,  instruments  lost  at  the  level  of  a  delegate  sub-custodian. 
Significant changes were made to better describe the economic repercussions of inaction 
on  various  stakeholders  directly  or  indirectly  linked  to  providing  services  to  UCITS 
funds (in the baseline scenario).    

2.2. 

Stakeholder consultation 

The  Commission  launched  in  2009,  in  direct  response  to  the  Madoff  scandal,  a  first 
public  consultation  in  order  to  strengthen  the  regulation  and  supervision  of  UCITS 
depositaries. A feedback statement6 published in 2009 showed that the clarification of the 
UCITS  depositary  function  was  an  essential  step  for  a  comprehensive  review  of  the 
existing  European  regulatory  principles  applicable  to  depositary  functions.  The  same 
year,  the  Commission  published  a  proposal  in  order  to  regulate  the  alternative  funds 
managers  (AIFM)  which  also  introduced  some  provisions  relating  to  the  depositary 
function. The AIFM Directive7 that was finally adopted in 2010 draws the lessons from 
the  Madoff  case  and  introduces  a  complete  and  fully  harmonised  system  on  liability 
related to the performance of depositary tasks for alternative investment funds.  

As  part  of  its  wider  reform  on  all  provisions  pertaining  to  the  role  and  liability  of 
depositaries, the Commission undertook8 to introduce targeted changes to the depositary 
provisions  in  the  UCITS  Directive9.  In  its  Communication  of  2nd  June  2011  (COM 
(2010) 31 final,  page  7),  the  Commission proposes to adopt "changes to the legislation 
applicable  to  the  UCITS  depositaries  function  in  response  to  the  Madoff  fraud,  which 
revealed the need to further harmonise certain aspects of the level of protection offered to 
UCITS investors". 

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.  58  contributions  were  received  and  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 

6  http://ec.europa.eu/internal_market/consultations/2009/ucits_depositary_function_en.htm. Feedback 

statement is also provided in Annex 2. 

7      Directive  2011/61/EC  of  the  European  Parliament  and  of  the  Council  of  8  June  2011  on  Alternative 
Investment  Fund  Managers  and  amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations 
(EC) No 1060/2009 and (EU) No 1095/2010, OJ L 174, 1.7.2011, p.1. 

8       In its communication of 2nd June , available at : 

2010http://ec.europa.eu/internal_market/finances/docs/general/com2010_en.pdf 

9  

  Directive: 2009/65/EC.· OJ L 302, 17.11.2009, p. 32-96 http://eur-    
  lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:302:0032:0096:en:PDF 

9 

 
 
                                                 
 
with the AIFM Directive. Respondents however took a more critical stance vis-à-vis the 
issue of depositary liability10.  

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 
questionnaires is presented as Annex 7. 

3. 

BACKGROUND AND CONTEXT  

3.1. 

Economic importance of UCITS funds  

Investment  funds  are  special  investment  vehicles,  created  for  the  purpose  of  gathering 
funds  from  investors,  and  investing  those  funds  in  a  diversified  portfolio  of  financial 
instruments. Since its origin in 1985, the UCITS Directive has been the basis on which a 
genuine  European  retail  investment  fund  'product'  has  been  built.  UCITS  has  created  a 
comprehensive  legal  framework  that  offers  increased  investment  opportunities  for 
businesses  and  households  alike.  At  the  same  time,  the  directive  also  introduced  a 
financial  services  'passport',  whereby  a  UCITS  fund  can  be  marketed  across  the  EU, 
following authorisation from the competent authorities of its country of domicile (i.e. the 
home country) and notification to the competent authorities of the host market. 

Cross  border  subscriptions  to  UCITS  compliant  investment  funds  have  grown 
considerably since the UCITS rules were first introduced in 1985. The UCITS acronym 
has developed into a strong brand and is nowadays, apart from Europe, also recognized 
in  Asia  and  South  America.    The  success  of  UCITS  as  a  cross  border  vehicle  for 
investments  is  borne  out  by  the  rapid  growth  of  assets  that  are  managed  in  UCITS 
compliant funds. Total assets under management (AuM) grew from €3,403bn at the end 
of 2001 to €5,889bn by end 2010, according to data from the European Fund and Asset 
Management Association (EFAMA). In September 2011 AuM stood at € 5,515bn.  

About  80%  of  UCITS  assets  are  invested  by  funds11  domiciled  in  four  jurisdictions: 
Luxembourg  (32.4%),  France  (20.6%),  Ireland  (14.4%),  and  the  United  Kingdom 
(11.5%).  

In line with the requirement that the depositary is located in the same Member State as 
either the UCITS fund or the investment company, most UCITS assets are safe-kept by 
depositaries  located  in  either  Luxembourg,  France,  Ireland,  the  United  Kingdom. 
Overall, the European depositary industry is today entrusted with safe keeping of around 
€5.3 trillion worth in UCITS assets.  

10 Two public consultations have been published on the UCITS depositary function. The latest, published 
in  December  2010,  also  includes  managers'  remuneration  issues.  They  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/summary_of_responses_en.pdf 

11  Full  Member  State  data  is  provided  in  Annex  4.    Source:  EFAMA  Quarterly  Statistical  Release  N°47 
(Third Quarter of 2011). At the end September 2011, the number of UCITS reached 35,517.  The main 
domiciles per number of UCITS funds are Luxembourg (26.9%), France (22.2%), Ireland (8.7%) and 
Spain (7.1%).  

10 

 
 
                                                 
3.2. 

Investor profile of UCITS funds 

8%

3%

23%

28%

Households

Other financial corporation

in 

Insurance corporations and pension funds

Non-financial corporations
General government

EU investors to mutual funds (2010)

to  2010  data12,  EU 
According 
investors  held  €  6.9  billion  in 
mutual  funds13,  of  which  about 
75% was invested in EU domiciled 
funds and 25% in funds that are not 
domiciled 
the  EU.  Non-EU 
investors  invested  further  €  3,300 
the  EU  domiciled 
billion 
mutual  funds.  The  investor  profile 
of  an  EU  mutual  fund  is  depicted 
in the graph. As more than 85% of 
EU  mutual  fund  investments  are 
directed  towards  UCITS  vehicles  to  (€5,889  out  of  6.9  bn  in  2010),  the  graph  is 
representative  for  the  UCITS  investor  profile  as  well.  The  graph  shows  retail  investors 
are heavily exposed to mutual funds. 28% of fund holdings are made up of direct retail 
investments  while  another  61%  are  intermediated  either  through  insurance  policies, 
pension  funds  and  other  financial  corporations.  Intermediaries,  for  example  pension 
funds that provide retirement benefits to individual investors, invest monies they collect 
from retail investors into mutual funds. Essentially this means that around 90% of mutual 
fund investments are directly or indirectly attributable to retail investors.    

into 

38%

Based on data  from statistical offices of six Member States14, it is estimated that about 
22.5 million (i.e. 10 %) of EU households are invested in mutual funds. Given the fact 
that  the  major  EU  fund  domiciles  are  concentrated  in  the  above-mentioned  four  EU 
jurisdictions, this demonstrates significant cross-border sales of fund units based on the 
'passport'. 

3.3. 

Trends in services provided to UCITS funds 

A typical UCITS fund uses several service (external or internal) providers to operate and 
execute its investments. Normally, the fund relies on an investment manager to manage 
the assets, one or several brokers to execute trades, a fund administrator to calculate the 
value of the fund’s investments and a custodian to safe-keep investment positions. While 
being  obliged  to  work  together,  these  service  providers  should  be  independent  of  each 
other and their functions should be strictly separate. Separation of the above services is 
an  essential  tool  to  avoid  fraud.  One  function  that  should  be  separate  from  all  of  the 
others  is  that  of  safe-keeping  of  assets  by  means  of  a  depositary.    A  depositary  should 
therefore neither be identical to an investment manager, a fund administrator or a broker. 
A depositary should also not belong to the same corporate group as any of the other fund 
service providers.       

12 Source: Eurostat, Sectoral Accounts 

13 Both UCITS and non-UCITS 

14  Share  of  household  investing  in  funds:  Germany  (16%),  Italy  (11%),  Austria  (11%),  France  (10%), 

Spain (7%), the United Kingdom (6%). The sources are listed in Annex 3. 

11 

 
                                                 
include 

trends  affecting 

the  custody  sector 

increased  competition, 

Recent 
the 
disappearance of local custodians and the emergence of a handful of global players. The 
largest  global  custodians,  in  terms  of  client  assets  under  custody  (AuC)  for  2010,  are 
Bank of New York Mellon ($25.5trillion), State Street ($16.7 trillion), J.P. Morgan $16.6 
trillion) and Citigroup ($13.5trilllion)15.  
The table provides an overview of the main suppliers of global custody services, in terms 
of assets under management (AuM), relative changes in AuM and the number of custody 
clients.    

GLOBAL CUSTODY ASSETS (all mutual funds) 

BNP PARIBAS 
BNY MELLON * 
(* includes assets under 
administration) 
Brown Brothers Harriman 
CITI 
HSBC SECURITIES SERVICES 
JP MORGAN 
NORTHEN TRUST 
RBC DEXIA 
SGSS 
STATE STREET  

7 trillion
25,50 trillion

3,10 trillion
13,50 trillion
5,70 trillion
16,60 trillion
4,36 trillion
2,23 trillion
4,76 trillion
16,7 trillion

N/D
12,0%

31,6%
14,5%
9,5%
8,0%
17,0%
18,1%
8,0%
18,8%

N/D
4700

346
N/D
1167
2895
1933
N/D
150
2645

In  this  context  it  is  important  to  note  that  not  even  the  largest  of  the  above-mentioned 
global custodians have custody operations of their own in all of the jurisdictions that a 
UCITS fund might wish to invest in. According to newspaper reports no single custody 
bank is believed to have operations in more than 40 jurisdictions16. This means that local 
custody  is  often  "outsourced"  to  non-affiliated  sub-custodians  operating  in  those 
jurisdictions not covered by a global custodian's network.     

Markets where global custodians offer DIRECT CUSTODY 

Europe  Asia  Americas  Middle East  Africa 

BNP PARIBAS 
BNY MELLON 
Brown Brothers Harriman 
CITI 
HSBC SECURITIES SERVICES 
JP MORGAN 
NORTHEN TRUST 
RBC DEXIA 
SGSS 
STATE STREET 

17 
5 
- 
N/D 
6 
3 
2 
3 
15 
1 

3 
- 
- 
N/D 
13 
3 
- 
- 
1 
- 

1 
3 
1 
N/D 
4 
1 
2 
1 
- 
2 

- 
- 
- 
N/D 
6 
- 
- 
- 
- 
- 

1 
- 
- 
N/D 
- 
- 
- 
- 
3 
- 

Markets where global custodians offer CUSTODY VIA SUB-CUSTODIANS 
Europe  Asia  Americas  Middle East  Africa 

BNP PARIBAS 
BNY MELLON 
BROWN BROTHERS HARRIMAN 

23 
35 
38 

16 
20 
17 

11 
12 
13 

9 
10 
10 

21 
22 
15 

Total 
22 
8 
1 
60 
29 
7 
4 
4 
19 
3 

Total 

80 
99 
93 

15  Source:  Global 
www.icfamagazine.com 

custody 

survey  2011. 

International  Custody  &  Fund 

administration 

16 Source: Steve Johnson, in Financial Times, June 7, 2009 Depositary banks in protest over EU plans.  

12 

 
  
 
 
                                                 
CITI 
HSBC SECURITIES SERVICES 
JP MORGAN 
NORTHEN TRUST 
RBC DEXIA 
SGSS 
STATE STREET 

N/D 
6 
33 
35 
37 
21 
N/D 

N/D 
18 
16 
17 
19 
16 
N/D 

N/D 
4 
12 
11 
10 
8 
N/D 

N/D 
12 
14 
13 
9 
8 
N/D 

N/D 
- 
19 
22 
11 
8 
N/D 

34 
40 
94 
98 
86 
61 
104 

3.4. 

The fee structure applicable to depositary duties 

The  payment  schedule  for  custody  and  record-keeping  of  fund  assets  is  set  out  in  a 
‘ratecard’ negotiated with the fund manager which includes a holding fee based on the 
value  of  the  assets  being  ‘held’  in  custody  (or monitored), as well  as a  transaction fee. 
Additional elements affecting the cost of such services are the nature of the assets and the 
size of the fund.  

The cost of custody is normally calculated as a percentage of the assets that are held in 
custody.  The cost  of  custody,  on  average, in Europe varies between 0.25 and 1.25 bp.  
This corresponds to a fee ranging between 0.00025% and 0.001 % of the assets held in 
custody. There are differences in the cost of custody between different Member States. 
These differences can amount, on average, to 0.25-1.0 bp.  Custody in the United States 
is even cheaper, ranging from 0.2 bp to maximum of 0.5 bp.  

The cost of holding assets in custody in third countries is significantly higher. For most 
developing countries, the cost of custody varies between 25 to 50 bp.  Custody in some 
developing countries may cost up to 60 bp.   

The  cost  of  record-keeping  (checking  ownership  records  and  recording  individual 
contracts that are not suitable for custody) is higher at between 1 and 1.25 bp.  This is 
due  to  the  fact  that  custody  is  nowadays  based  on  electronic  data  entries  reflecting  the 
existence of a security. Therefore, moving to a broader scope of instruments to be held in 
(electronic) custody might entail cost savings of, on average, between 0.5 and 0.75 bp.   

The  above  described  cost  structure  of  custody  allows  for  three  conclusions.  First,  the 
provision  of  custody  services,  which  is  essentially  the  clearing,  servicing  and 
safekeeping  of  assets,  is  typically  a  low  margin  product  by  itself.   However,  when 
coupled  with  other  value  added  services like foreign exchange, securities lending,  cash 
management  and  fund  accounting,  margins  associated  with  the  total  bundled  service 
offering  can  become  higher. Nevertheless,  global  custodians  have  largely  been  able  to 
achieve higher margins by deploying large scale operations and technology which lower 
per unit costs.  

Second, price differentials between EU Member States seem a question of max. 1 bp.  On 
the  other  hand,  price  differentials  between  Europe  and  certain  emerging  markets  can 
become quite significant. The overall rate of custody is therefore heavily influenced by 
the  composition  of  a  fund's  portfolio  (e.g.,  the  share  of  instruments  issued  in  emerging 
markets).  As  fund  clients  are  generally  charged  on  a  per  market  basis,  with  emerging 
markets attracting higher fees, those with large emerging markets portfolios will usually 
have a higher blended rate. In addition to portfolio composition, emerging markets will 
typically  have  additional  settlement  related  requirements  and  other  logistical  related 
issues which increase costs. 

13 

 
 
3.5. 

Remuneration structures in the fund management industry 

Typical of a principal-agent relationship, the asset management industry is defined by the 
division  between  the  control  of  financial  wealth  and  its  ownership.  Compensation 
structures, as an intimate part of this relationship, are as a result shaped by the necessity 
to  align  the  incentives  of  those  fund  managers  (i.e.  the  agents)  that  control  wealth  by 
making investment decisions with those of the unit-holders (i.e. the principals) who own 
but delegate their wealth for this purpose.  

Evidence suggests that remuneration for the individual fund managers consists of a fixed 
base  salary,  topped  by  a  bonus  based  partially  on  a  fund's  relative  performance  with 
respect the previous performance period (t-1) which is typically quarterly (i.e. high water 
mark). The high water mark shall be the highest NAV per unit/share and is a benchmark 
for gauging a manager's performance in the period t0. An independent fund administrator 
(at  times  this  coincides  with  the  depositary),  whose  main  function  is  to  calculate  the 
NAV  of  the  fund,  shall  compare  performance  and  authorise  a  bonus  only  where  NAV 
exceeds  its  peak  (or  high  water  mark  value)  of  the  previous  period.  References  to 
industry  benchmarks  (usually  standard  market  indices  like  MSCI,  S&P  500,  etc.)  or  to 
average peer performance are also more broadly taken into account. Typically, bonuses 
will  be  paid  from  a  bonus  pool,  the  size  of  which  is  determined  by  the  overall 
performance of the management company. An individual’s share of the pool will largely 
be driven by its own performance, but there will also be other 'soft' factors not related to 
investment performance, such as professional experience, teamwork and seniority. As a 
result, there is no mechanistic relationship between relative return performance of a fund 
and an individual manager’s remuneration17. 

According to a pre-financial crisis study by the Bank for International Settlements (BIS), 
the  size  of  the  bonus  component  in  individual  asset  managers’  compensation  varies 
considerably  across  countries,  with  a  general  trend towards  a gradually  higher share of 
variable  compensation  to  total  pay.  According  to  gathered  evidence,  bonuses  are,  on 
average, around 25-40% of total pay in Spain, 30% in Germany, and, as a rule, no larger 
than 50% in France. In Italy, bonuses range from between 15-20% of base pay at the low 
end,  up  to  150%  at  the  high  end.  In  the  United  Kingdom,  however,  the  importance  of 
bonuses  seems  to  be  higher:  the  median  fund  manager  will  receive  a  bonus  of  about 
100% but exceptional asset managers can earn as much as six-times their base salary in 
the form of bonuses18. Many stakeholders stressed in their responses to the consultation 
that  where  an  individual  manager's  variable  remuneration  component  is  linked  to  the 
performance  of  the  fund,  multi-year  periods  are  taken  into  account  (between  3  and  5 
years) as a safeguard against 'short-termism'. 

Besides the direct rewards for achieving higher returns relative to a selected benchmark, 
performance  is  also  rewarded  indirectly  through  management  fees  corresponding  to  a 
fixed  component  of  total  assets  under  management  (AUM),  albeit  with  fee  levels 
differing across management styles and asset classes. In other words, a positive relative 
performance rewards the fund manager through new fund inflows thereby increasing the 
AUM. This nexus between relative performance and new fund inflows acts as an implicit 

17  For  further  references,  see  the  report  Incentive  structures  in  institutional  asset  management  and  their 
implications for financial markets, submitted by an ad hoc working group established by the Committee on 
the Global Financial System. Source: Bank of International settlements, March 2003. 

18 Ibid., p. 23. 

14 

 
                                                 
incentive  structure.  Finally,  the  increasing  layers  of  intermediation  within  the  industry 
and the growing complexity of UCITS-eligible products all imply a series of hidden costs 
to  investors.  These  range  from  product  servicing  costs  throughout  an  investment's 
lifecycle, to excessive trading due to high portfolio turnover, etc. Fees from stock lending 
and other transactions (including the re-use of collateral) involving the fund's assets are 
generally undisclosed, but may well influence the size of executive pay while mitigating 
real operating costs reflected in the Total Expense Ratio (TER)19.  

4. 

PROBLEM DEFINITION 

4.1. 

Divergent criteria on eligibility to act as a depositary 

Currently, there is little clarity on the institutions that are eligible to act as a depositary 
for a UCITS fund. According to Article 23(2) UCITS any institution which is subject to 
prudential regulation and ongoing supervision can act as a depositary for a UCITS fund. 
According to Article 23(3) UCITS Member States enjoy significant discretion as to the 
institutions that they can determine as UCITS depositaries20.  

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 protection. This is particularly true as regards the capital that depositaries need 
to set aside to cover liabilities, especially the obligation to return assets that are held in 
custody.  

More specifically, the eligibility criteria referred to in the Article 23(2) UCITS Directive 
permit  Member  States  to  select  the  types  of  entities  are  suitable  to  acts  as  UCITS 
depositaries  at  national  level.  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  for  carrying  out  custody  activities  or  other  related 
UCITS depositary functions.   

The results of the public consultation carried out by the Commission in 2009 indicate the following 
opinions as regards to eligibility criteria: 

66%  of  the  respondents21  agree  with  harmonisation  of  rules  as  to  what  institutions  can  be  eligible  as 
UCITS  depositaries  and  49%  would  like  to  see  only  those  entities  acting  as  UCITS  depositary  that  are 
subject to the Capital Requirements Directive (see replies to questions 24 to 26 in the feedback statement). 

4.2. 

Unclear rules on delegation of custody 

The  fragmentation  of  the  regulatory  framework  applying  to  delegation  of  safe-keeping 
has become more pronounced due to an increased diversification and internationalisation 
of  UCITS  investment  portfolios.  As  more  investment  opportunities  arise  in  different 

19 See Glossary, Annex 10. 

20    Please  refer  to  CESR  mapping  available  at  http://www.esma.europa.eu/system/files/10_175.pdf  .  The 

summary of this CESR mapping is available in Annex 5. 

21 Including 70% of the 10 replies received from public authorities, 55% of the 20 responses received from 
asset  management  organisations,  and  71%  of  the  41  responses  received  from  the  banking  and 
securities industries. 

15 

 
 
                                                 
jurisdictions, the necessity to appoint sub-custodians in these jurisdictions increases (cf. 
the above tables comparing direct custody with custody through delegation).  

Changes to the UCITS directive introduced in 2001 extended the scope of eligible assets 
for UCITS to new classes of assets.22 As a result, UCITS managers now invest in a much 
greater number of countries and in more complex instruments than in 1985.  

4.2.1.  Conditions of delegation 

Despite the enlargement of eligible investment instruments, the UCITS Directive does 
not define the conditions applicable in case a depositary elects to delegate custody to a 
sub-custodian.  

In order to situate the conditions of delegation of custody functions in proper context, 
two important issues must be clarified at the outset.  

First,  custody  depends  on  the  characteristics  of  a  financial  instrument.  Transferable 
securities (e.g. equities, bonds or money market instruments) have to be held in custody 
while  other  assets  (e.g.,  certain  derivative  contracts  or  individually  negotiated 
partnerships in non-listed companies) can only be recorded in a position-keeping book. 

Second, only custody duties and record-keeping duties can be delegated. For prudential 
reasons,  the  depositary's  oversight  duties  (as  contained  in  Article  22(3)  UCITS, 
according  to  which  the  depositary  supervises  compliance  of  the  UCITS  manager  with 
legal provisions and investment policies, cannot be delegated. In exercising these duties, 
the  depositary  acts  as  the  'legal  conscience'  of  the  UCITS  in  ensuring  that  all 
transactions  (sales,  redemptions,  cancellation  of  units)  are  carried  out  in  accordance 
with  applicable  national  laws  and  the  UCITS  instruments  of  incorporation.  This  is  in 
line  with  the  principle  that  quasi-supervisory  functions  should  not  be  subject  to 
delegation. The lack of clarity pertains both to the conditions under which a delegation 
of either custody or record-keeping 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  in  which,  exceptionally,  custody  can  be  delegated  to 
third country custodian who do not match these standards.   

CESR's  submission  to  the  Commission  consultation  in  2009  and  the  CESR  mapping 
exercise published in 2010 both highlight a variety of national regulatory approaches in 
this respect.23 Member States impose various conditions in respect of the sub-custodian 
entity  to  which  a  delegation  of  safe-keeping  can  take  place  (e.g.,  effective  prudential 
regulations,  minimum  capital  requirements  and  supervision).  In  particular,  Member 
States' approaches differ in relation to delegations to third country custodians..   

22  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 

23  Please  refer  to  CESR's  response  to  the  2009  consultation  on  the  UCITS  depositary  function. 
http://www.esma.europa.eu/system/files/09_781.pdf.  Please  also  refer  to  CESR  mapping  available  at: 
http://www.esma.europa.eu/system/files/10_175.pdf. 

16 

 
                                                 
 
4.2.2.  Third country delegations 

Equally, the UCITS Directive is silent on the conditions that apply when a depositary 
has, by virtue of national laws, to delegate custody to a third country custodian.  Rules 
on delegations to third country custodians are important as UCITS increasingly seek to 
invest in third country jurisdictions, primarily in East Asia (Hong Kong, China, Korea). 
In some of these jurisdictions either practical considerations or local rules may mandate 
local  custody  over  the  financial  assets  that  are  issued  in  these  jurisdictions.  For  that 
reason,  recourse  to  a  local  custodian,  based  on  a  delegation  contract,  becomes 
mandatory.  As  the  above  tables  comparing  direct  custody  with  custody  by  means  of 
local sub-custodians demonstrate, local sub-custody is rather the rule and direct custody 
the exception. A local custodian can either be a subsidiary of the principal custodian or 
an independent entity.   

As  explained  in  section  3.2,  the  Madoff  case  shed  some  light  on  the  risks  associated 
with the use of local third country sub-custody networks when they fail to perform their 
duties appropriately or simply default.  

The  results  of  the  public  consultation  carried  out  by  the  Commission  in  2009  indicate  a  clear 
consensus on the following issues with respect to delegation of UCITS depositary duties  

-  The  Commission  consultation  revealed  that  "custody  risks"  associated  with  financial  instruments  ",  i.e. 
the "loss of assets",   are likely to materialize when safekeeping tasks have been delegated to a third party. 
- 82% of respondents24 agree that conditions upon which the depositary shall delegate its activities should 
be clarified (see replies to questions 15 and 17 in the feedback statement). 

4.3. 

Unclear  scope  of  liability  in  case  of  loss  (including  loss  when  custody  has 
been delegated)  

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  the  Member  States  and  thus  differences  in  investor  protection,  most 
notably in the case a custodial instrument is lost after the delegation of custody.    

The potential consequences of these divergences came to the fore with the Madoff fraud. 
In some Member States the depositary was immediately liable to return assets in custody 
as a consequence of fraud at the level of the sub-custodian, in other Member States the 
situation is less clear and still subject to litigation.  

While the liability rules in the UCITS directive haven't changed since 1985, the UCITS 
investment  environment  has  evolved.  UCITS  funds  are  now  able  to  invest  in  a  wider 
range of financial assets, which may be more complex and also may be registered outside 
the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and 
international.  In  particular,  the  fact  that  the  UCITS  Directive  only  contains  high  level 
legal principle has the following consequences: 

Situation  1:  Loss  of  an  instrument  in  custody  with  the  UCITS  fund's  principal 
custodian or a sub-delegate 

24  Including  all    the  10  replies  received  from  public  authorities,  90%  of  the  20  responses  received  from 
asset  management  organisations,  and  78%  of  the  41  responses  received  from  the  banking  and 
securities industries. 

17 

 
                                                 
The  UCITS  rules  are  not  precise  enough  to  avoid  that  the  depositary's  liability  is  dealt 
with  in  a  different  manner  in  different  Member  States25.    As  a  consequence,  the 
obligation to return assets lost in custody is not uniform across the Member States. The 
Madoff case has demonstrated the fundamental difference between the strict liability and 
the diligence approaches.  

Situation 2: Loss of an instrument in custody with a third country sub-custodian 

In addition, the current UCITS rules provide no clarity for the situation when custody is 
delegated  to  third  country  sub-custodians.  Should  the  reformed  UCITS  rules  allow 
delegations of custody, including delegations to third country sub-custodians that do not 
meet the delegation requirements (in terms of effective prudential regulation, minimum 
capital  requirements  and  supervision  in  the  country  where  the  sub-custodian  is 
established), the impact of such delegations on the principal custodian's liability needs to 
be clarified.  

The AIFMD currently allows contractual discharge for all instances in which custody is 
delegated.  In line with the retail profile, it needs to be assesses whether such a general 
discharge is appropriate for a UCITS fund.    

4.4. 

Unclear remuneration practices 

Given  that  remuneration  of  the  UCITS  managers  is,  at  least  partly,  based  on  the 
performance of the fund, there is an incentive to increase the level of risk in the funds's 
portfolio in order to increase the potential returns. However, the higher level of risk can 
expose  the  fund  investors  to  higher  potential  losses.  The  remuneration  structure  is 
typically skewed in the sense that the manager participates in the materialized returns but 
does not participate in the materialized losses. This creates further incentives to pursue 
higher  risk  strategies.  In  addition,  the  remuneration  structure  that  does  not  take  into 
account  performance  over  extended  periods  induces  the  manager  to  pursue  strategies 
with skewed risk return profile, i.e. strategies that are likely to generate higher positive 
returns at the cost of less frequent but much larger possible losses.     

Furthermore,  remuneration  structures  are  seldom  disclosed  in  the  fund's  offering 
documents,  rendering  managers  largely  unaccountable  to  investors  as  far  as  the 
determinants to executive pay in line with fund performance are concerned. 

Another  important  aspect  to  consider  is  expected  market  developments.  Were  UCITS 
funds to be excluded from the scope of the recent international and European standards26, 
a  potential  migration  of  riskier  management  practices  may  occur  from  the  alternative 
investment  into  the  more  risk-averse  retail  fund  industry,  albeit  insofar  as  the  UCITS 
Directive allows27.   

25  Please  refer  to  CESR  mapping  available  at  http://www.esma.europa.eu/system/files/10_175.pdf  .  The 

summary of this CESR mapping is available in Annex 5. 

26  For  an  overview  of  the  Commission's  broader  approach  on  remuneration  on  financial  services,  see 

Annex 6 attached to this report 

27  This  view  was  reflected  by  CESR  in  its  advice  to  the  Commission  in  October  2009  on  the  Level  2 
measures  related  to  the  UCITS  management  company  passport:  remuneration  practices  may  strongly 
hamper sound and effective risk management if oriented towards rewarding short-term profits and giving 

18 

 
                                                 
4.5. 

Divergent sanctioning regimes 

A preliminary mapping exercise of national rules on sanctions for breaches of obligations 
contained  in  the  UCITS  Directive  was  carried  out  in  2010  by  the  Commission  .  The 
results  were  updated  through  a  consecutive  survey  in  the  form  of  a  questionnaire 
addressed to ESMA, as well as to all Members of the ESC, in May 2011. Replies to the 
questionnaire revealed three salient features: (i) differences in the amounts of pecuniary 
sanctions (i.e. fines) applied to the same categories of breaches; (ii) divergences different 
criteria  applicable  to  determining  the  amount  of  administrative  sanctions;  and  (iii) 
variations in the level of enforcement of sanctions. For an overview of the core violations 
to the UCITS Directive, see Annex 8 to this report.  

4.5.1.  Differences in levels of administrative fines across Member States 

Among  the  powers  granted  to  competent  authorities  under  Article  98(2)  of  the  UCITS 
Directive, there is no explicit reference to fines. Rather, they are contemplated under the 
following  Article  99(1)  where  Member  States  shall  ensure,  in  conformity  with  their 
national 
taken  or 
administrative  penalties  be  imposed  against  the  persons  responsible  where  the 
provisions for the implementation of the Directive have not been complied with.  

the  appropriate  administrative  measures  can  be 

law, 

that 

The  results  of  the  Commission's  2011  mapping  exercise  revealed  that  all  UCITS 
transposing legislation in twenty-five Member States foresees a maximum fine for both 
legal  and  natural  persons  alike28.  In  twelve  Member  States  there  are  also  statutory 
minimum amounts. As an alternative, where the amount of the illicit profit or economic 
advantage  from  the  offence  can  be  precisely  quantified,  the  level  of  the  fine  is 
determined  by  multiplying  the  profit  by  a  pre-determined  factor29.  This  approach, 
however, seems to be the exception rather than the rule.  

Overall,  levels  of  fines  vary  greatly  across  the  EU  and  in  some  member  States  those 
levels appear to be too low to ensure sufficient deterrence, given the large gains that may 
be  obtained  from  infringing  the  detailed  "product"  regulations  contained  in  the  UCITS 
Directive.  For  legal  persons,  the  maximum  fines  foreseen  for  offences  range  from 
€100.000  in  one  Member  State30  to  €10  million  in  another.  These  figures  denote 
considerably  wide  spectrum  in  the  application  of  fines  for  identical  or  similar  types  of 

staff  incentives  to  pursue  unduly  risky  activities.  Management  companies  should  establish  remuneration 
policies in a way as to ensure that it does not induce risk taking which is inconsistent with the risk profiles, 
fund rules or instruments of incorporation of the UCITS they manage (…). On this occasion, CESR also 
advised that the remuneration policy applied to UCITS managers be designed in such a way as to avoid 
conflicts  of  interest  and  ensure  the  independence  of  the  persons  involved.  Finally,  CESR  recommended 
that  the  remuneration  and  incentive  structure  for  the  staff  is  consistent  with  principles  related  to  the 
protection  of  the  interests  of  clients  and  investors  in  the  course  of  collective  portfolio  management 
activities and other services provided. 

28 The United Kingdom does not provide for statutory minimum or maximum fines; nor does Denmark 

29 An example is the relative provision under the French Financial and Monetary Code, whereby any illicit 
profit  or  gain  from  the  offence  is  sanctioned  with  a  fine  up  to  ten  times  its  amount  when  the  offence  is 
committed  by  a  legal  person.  See  Article  L621  –  15(3),  paragraphs  (a)  and  (b)  of  the  French  Code 
monétaire et financier.  

30 See German Investment Law or Investmentgesetz (InvG), section 143, paragraph (5).  

19 

 
                                                                                                                                                 
breaches.  While  certain  national  systems  provide  that  maximum  levels  of  sanctions  (or 
ranges) must be commensurate to the type or nature of the infringement, other Member 
States  apply  a  maximum  (or  range)  of  sanctions  without  qualifying  the  type  of 
infringement.  For  example,  in  one  Member  State,  the  rules  on  collective  investment 
schemes  define  three  levels  of  gravity  (each  corresponding  to  a  statutory  maximum 
amount), i.e. very serious (€300.000), serious (€150.000) and minor (€60.000)31. On the 
other  hand,  in  another  Member  State,  a  violation  relating  to  operating  requirements 
triggers a fine ranging from €2.500 to €250.000 for legal and natural persons alike32. For 
violations  of  disclosure/reporting  requirements  (e.g.  the  rules  on  the  offer  of  units  to 
investors),  the  corresponding  fine,  if  the  amount  of  the  economic  damage  remains 
undetermined,  may  range  between  €100.000  and  €2  million.  In  cases  where  economic 
damage  can  be  determined,  the  sanction  may  range  from  one-fourth  of  the  values 
marketed to no more than double their value33. As these examples indicate, especially in 
countries  with  a  maximum  fine  threshold  of  below  €  1  million34,  the  economic  gains 
accruing from a variety of violations can often exceed the potential fine. 

Concerning fines applicable to natural persons, the same kinds of discrepancies persist. 
Certain  jurisdictions  charge  the  same  maximums  for  legal  persons  to  individuals, 
whereas  others  expressly  foresee  tailored  maximums.  Competent  authorities  in  twelve 
Member States are also capable of imposing criminal sanctions. 

However, the fact that some Member States provide for criminal sanctions does not seem 
to  be  the  main  reason  for  the  differences  identified.  Indeed,  the  scope  of  criminal 
sanctions  is  much  narrower:  they  are  usually applied to individuals rather than to legal 
persons and only for some of the most serious violations of UCITS  

4.5.2.  Divergences in criteria for setting the level of administrative sanctions 

The results from the 2011 stock-taking review of national rules transposing the UCITS 
Directive  reveal  that  the  criteria  national  sanctioning  authorities  consider  when 
determining  a  fine  vary  considerably  between  Member  States.  Whereas  all  sanctioning 
regimes  take  into  account  the  'gravity'  of  a violation,  gravity  is  qualified  differently  by 
the national sanctioning authorities, e.g. sometimes in terms of economic damage to fund 
and  investors,  others  in  terms  of  impact  on  domestic  market  stability,  or  sometimes  in 
terms of duration/frequency of the infringement. Moreover, certain laws only account for 
a limited number of additional criteria apart from that of gravity, making administrative 
sanctioning  practices  less  flexible  and  less  proportionate  to  the  offence  committed.  For 
instance, it emerges from the evidence collected that only twenty out of the twenty-seven 
Member States would consider the financial strength of an offender (measured either in 
terms  of  turnover  or  professional  income)  as  a  factor  in  the  calculation  of  a  fine. 

31  See  Spain's  Law  35/2003  on  Collective  Investment  Funds  (Instituciones  de  Inversión  Colectiva), 
Articles 85-87.  

32 See the Italian legislative decree no. 58 of 1998 (Testo Unico della Finanza), Section II, Articles 190(1) 
and 191(1).  

33 Ibid.  

34 With the exception of the United Kingdom and Denmark, where no maximums are specified in the law, 
there are at least six Member States that have a statutory maximum of less than €1 million.  

20 

 
                                                 
Similarly,  few  of  the  applicable  laws  surveyed  by  Member  States  take  into  account 
voluntary cooperation as a mitigating factor. 

4.5.3.  Varying enforcement levels  

The effectiveness, proportionality and dissuasiveness of national sanctioning regimes not 
only depend on those sanctions expressly provided for by law, but also on their effective 
application  and/or  enforcement.  During  an  observation  period  between  2008  and  2010, 
sanctioned violations of the relevant national laws and regulations vary greatly across the 
EU.  This  may  be  partially  explained  by  the  industry  concentration  in  the  jurisdictions 
where a higher number of infringements are detected and sanctioned: most UCITS fund 
providers are domiciled only in a handful of jurisdictions that collectively make up over 
80% of the market35. However, a low level of enforcement in MS with significant UCITS 
market could be symptomatic of a weak enforcement of EU rules. 

Consultations with Member States have confirmed the effectiveness of their cross-border 
cooperation  arrangements  between  competent  authorities.  However,  the  information 
available shows that a majority of Member States do not have in place any mechanism 
encouraging persons who are aware of potential violations of the UCITS to report those 
violations  ("whistle  blowing"  systems),  while  whistle  blowing  can  is  an  important  tool 
which  can  facilitate  detection  of  violations  and  therefore  improve  the  application  of 
sanctions.  For  the  purpose  of  enhancing  enforcement,  measures  to  enhance  national 
supervisory  powers,  among  which,  'whistle-blower'  programmes,  can  be  considered,  in 
parallel to other proposed financial services legislation as part of the European acquis.  

4.6. 

Consequences under the baseline scenario 

4.6.1. 

Impact on investors  

If nothing were done on harmonising depositaries' duties, the delegation of custody and 
the scope of its liability to return financial instruments that are held in custody, investor 
confidence in the safety of assets invested through a collective investment vehicle would 
remain shaken. While the average retail investor certainly has no intimate knowledge of 
legal  proceedings  surrounding  the  loss  of  assets  in  the  Madoff  fraud,  the  image  of 
investors battling for several years to reclaim instruments were lost as part of this affair, 
or the reimbursement for the loss of their assets, lingers.  

The Madoff affair has not just claimed its victims among a few wealthy "high-net-worth" 
individuals,  banks  and  hedge  funds  whose  money  he  apparently  invested.  The  Madoff 
affair threatens to damage small retail investors and cast a spell on the entire collective 
investment business. 

In this context, three of the above mentioned statistics are relevant. First, as almost 10% 
of  European  households  are  invested  in  UCITS  funds,  a  further  incident  in  relation  to 
investor  assets  being  lost  on  account  of  an  unreliable  and  badly  supervised  depositary 
will provide a strong dissuasion for households that invest in mutual fund to accumulate 
savings  or  retirement  benefits.  If  nothing  were  done,  the  role  of  mutual  funds  in 

35  The  Commission  services  however  do  recognise  that  in  certain  Member  States  potential  controversies 
between  parties  are  settled  at  an  early  stage  through  means  of  supervision  or  through  the  offices  of  a 
financial ombudsman (e.g. United Kingdom).  

21 

 
                                                 
provisioning for retirement may be irremediably harmed with negative consequences not 
just for the mutual fund industry but for the level of EU pension income overall.  

Secondly, EU investors overall hold 5,889 billion in UCITS compliant mutual funds. In 
addition,  non-EU  investors  hold  another  3,300  billion  in  UCITS  compliant  funds.  Any 
incident  in  relation  to  the  safety  of  assets  held  in  a  UCITS  funds,  even  in  the  rather 
arcane  sphere  of  assets  in  custody,  will  cause  significant  ripple  effect  on  investor 
confidence.  

Thirdly,  almost  90%  of  the  assets  under  management  in  UCITS  fund  are,  directly  or 
indirectly, held by retail investors. Any incident in this area is therefore bound to mainly 
affect  retail  investors,  an  investor  public  that  is  much  more  vulnerable  than  the 
professional investor group. Often UCITS is (still) perceived as one of the few reliable 
and  well-regulated  and  supervised  investment  tools  available  in  an  uncertain  financial 
environment.  

Any  event  casting  doubt  on  the  "safety"  and  "reliability"  of  the  UCITS  investment 
vehicle  will  therefore  risk  eroding  investor  confidence  and  lead  to  net  outflows  of 
investments in UCITS funds.               

Investors  would continue to  bear the costs of opaque  remuneration  practices  leading  to 
less informed investment choices. Investor would also suffer from misaligned incentives 
of  fund  managers  due  to  skewed  remuneration  practices  which  would  continue  to 
impinge  negatively  on  the  risk  management  of  the  fund.  Investors  would  further  suffer 
from ineffective sanction regimes. 

4.6.2. 

Impact on the UCITS fund and its management company  

A  dramatic  loss  of  assets  that  are  held  in  custody  for  a  UCTS  fund  primarily  affects 
investors. But such an event can have dramatic repercussions on a fund administrator or 
investment manager as well as evidenced in the following short extract: 

BOX – MADOFF AFFAIR: FEEDER FUND WITHDRAWN FROM LIST AND LIQUIDATED  

On  3  February  2009,  in  view  of  the  establishment  of the responsibilities of the various intermediaries in 
relation to Madoff scandal, the following two decisions were taken (1) to withdraw the feeder fund36 from 
the list of authorized UCIs(2) thereafter to request the judicial liquidation of this fund. 

The  decision  to  withdraw  the  fund  from  the  list of  authorized  UCIs is  based  on  the  fact  that  it  does  not 
observe  any  longer  the  provisions  in  relation  to  the  organisation  and  functioning  of  undertakings  of 
collective  investments. This  withdrawal  has  as  consequence the  suspension  of  all  payments  made  by the 
fund and the prohibition to perform any acts other than conservatory acts. The decision of withdrawal will 
become permanent after a period of one month, except in case of appeals. In case of a liquidation decided 
upon by the court, the court will appoint a liquidator to realize the fund assets. 

In  relation  to  remuneration  policy,  if  nothing  were  done,  the  remuneration  practices 
would  continue  to  be  opaque  and  would  encourage  the  managers  to  take  on  excessive 
risks.  As  regards  sanctioning  regime,  the  lack  of  harmonization  would  continue  to 
present  regulatory  arbitrage  opportunities  and  would  render  the  sanctioning  regime 
ineffective on cross-border basis.  

36 This UCITS fund recorded losses of around $ 1.4 billion due to Madoff investments which turned out to 

be fictitious. 

22 

 
                                                 
4.6.3. 

Impact on depositaries  

Depositaries and their reputation would be at stake should a Madoff type incident repeat 
itself.  Naturally,  confidence  in  this  system  is  shaken  when  sub-delegations  of  the  type 
experienced in the Madoff case take away the confidence that a shared domicile between 
fund and depositary intended to create.  

Secondly, the loss of assets in custody can have serious repercussions on the operation of 
a  custodian,  especially  if  the  matter  of  liability  is  not  resolved  quickly.  Apart  from  the 
issue of liability to return assets lost in custody, the risk of litigation is most apparent in 
the  case  of  sub-delegations,  a  phenomenon  that  becomes  increasingly  important  as  the 
range  of  investment  opportunities  available  to  UCITS  funds  increase.  Uniform 
requirements in relation to the sub-custodian are therefore essential to ensure a coherent 
image of the depositary sector and investors' trust.   

Regarding the remuneration policy, there is no direct impact on depositaries. As regards 
sanctioning  regime,  as  mentioned  above,  the  lack  of  harmonization  would  continue  to 
present  regulatory  arbitrage  opportunities  and  would  render  the  sanctioning  regime 
ineffective on cross-border basis. 

4.6.4. 

Impact on other financial service providers 

Litigation  involving  lost  securities  will  not  be  confined  to  fund  administrators, 
investment  managers  or  depositaries.  Litigation  can  also  involve  other  provider  of 
financial services, such as accounting services.   

BOX – PONZI SCHEME LITIGATION SPREADS TO AUDIT FIRMS  

In  the  United  States,  several  accounting  firm  were  served  with  legal  action  has  been  hit  by  lawsuits 
alleging  that  they  failed  to  detect  problems  in  the  Ponzi  schemes  ran  by  New  York  financier  Bernard 
Madoff.  In  a  Connecticut  lawsuit,  the  audit  firm  stands  accused  of  negligence  for  failing  to  detect  the 
Madoff fraud, in which a fund invested all its $280 million assets.  

Legal action against auditors is popular as there is a general feeling among plaintiffs that "auditors are out 
to detect fraud." "In this case, there is reason to be concerned that auditors acted negligently or acted with 
some  level  of  requisite  knowledge  because,  for  the  most  part,  they  appear  to  have  accepted  financial 
statements  generated  by  Madoff's  auditor  from  a  very  small  unknown  accounting  firm,"  he  said"  a 
plaintiff's attorney has told the court.  

Source: The National Law Journal, February 5, 200937 

4.6.5. 

Impact on national authorities 

National  supervisors  are  responsible  for  the  authorisation  and  on-going  supervision  of 
UCITS  funds,  their  management  companies  and  their  depositaries.  On  the  basis  of  the 
fund's  and  management  company's  domiciliation,  the  UCITS  Directive  assigns 
supervisory  functions  to  the  competent  authorities  of  both  the  'UCITS  home'  and 
'management company's home' Member State. These states have to cooperate in order to 
ensure seamless supervisory cooperation. The UCITS Directive requires the depositary to 

37 Found at: http://madofffraud.boomja.com/Legal-Actions-targeting-Madoff-and-Participants-434.html 

23 

 
  
                                                 
be  domiciled  in  the  same  Member  State  as  the  UCITS  fund.  Information  sharing  in 
relation to depositaries, their safekeeping duties, oversight arrangements and delegation 
arrangements will be facilitated if uniform conditions apply in respect of delegations and 
the duties that are triggered by the loss of a custodial instrument, both at depositary and 
sub-custodian levels.   

In addition, if nothing were done in relation to remuneration policy, the efficiency of risk 
management policies would be eroded, which impact negatively on supervisory efforts of 
the  national  authorities  in  the  context  of  sound  risk  management  policy.  As  regards 
sanctioning  regime,  as  mentioned  above,  the  lack  of  harmonization  would  continue  to 
present  regulatory  arbitrage  opportunities  and  would  render  the  sanctioning  regime 
ineffective on cross-border basis. 

4.7. 

Problem tree 

The  following  ‘problem  tree’  visually  summarises  the  problems  and  their  drivers 
identified so far.  

24 

 
 
Problem areas 

Specific problems 

General problems 

Incoherent depositary eligibility 
criteria 

Differences in capital requirements 
and in prudential supervision 

Uncertain definition of 
depositary's rules in case of 
delegation 

Depositary's liability regime: 

(cid:190)  Uncertain liability regime 
for breach of custody 
duties (incl. losses through 
sub-custody) 

Lack of transparency on 
remuneration practices 

Santionning regimes: 

(cid:190)  differences in level of fines 
(cid:190)  divergence in sanctioning 

criteria 

(cid:190)  Varying levels of 
enforcement 

Unequal rules on delegation 
conditions 
Legal uncertainty on depositary 
rules in case of delegation 

No strict liability in case of loss by 
the principal custodian 
Loophole in delegation of custody to 
sub-custodian 
Legal uncertainty on depositaries 
liabilities 

Incentives for higher risk taking 
without investors' knowledge and 
control 

Low deterrence and incentives for 
repeated infringements 

Risks of investor detriment 

 
 
 
26 

 
 
4.8. 

The EU's right to act and justification  

The legal basis  of  the initiative should  be  identical to the legal basis of the original UCITS 
Directive which it intends to amend, namely Article 53(1) TFEU (Article 47(2) of the Treaty 
establishing  the  European  Community).  This  article  of  the  Treaty  concerns  the  freedom  of 
establishment and the freedom to provide services, as well as the coordination of the national 
laws  concerning  their  respective  exercise.  National  laws  governing  the  activities  of  UCITS 
funds  should  moreover  be  coordinated  so  as  to  ensure  an  approximation  of  the  competitive 
conditions  across  the  EU  for  the  removal  of  investment  restrictions,  while  guaranteeing  a 
satisfactory degree of investor protection for unit-holders.  

Given  the  cross-border  nature  of  depositary  services  for  UCITS  funds  and  extent  of  the 
problems analysed in the previous sections, EU action is justified on the following grounds: 

Problem  areas  1,  2  and  3  reflect  the  lack  of  a  common  interpretation  in  relation  to  the 
conditions under which an entity can act as a depositary, the conditions under which certain 
depositary tasks can be delegated and the liability standard that applies when instruments in 
custody  are  lost,  either  at  the  level  of  the  depositary  or  one  of  its  delegates.  As  the  UCITS 
Directive has exhaustively regulated the product portfolio that a UCITS investment manager 
can  invest  in,  the  counterparty  risk  that  applies  to  all  UCITS  transactions  and  the  set  of 
eligible  investment  tools,  it  would  appear  odd  that  the  essential  tasks  and  functions  of  the 
UCITS depositary would remain outside the scope of the harmonised framework. Therefore, 
in  order  to  achieve  consistency  between  the  detailed  product  rules  contained  in  UCITS,  the 
safekeeping  of  the  UCITS'  investment  tools  must  also  be  subject  to  strict  harmonisation 
requirements.    

Problem  area  4  needs  to  be  addressed  in  the  light  of  both  the  EU’s  international  policy 
commitments  and  the  necessity  to  align  the  UCITS  Directive  with  other  Community 
initiatives  in  the  financial  services  sector,  i.e.  the  CRD,  the  Solvency  II  and  the  AIFM 
Directives,  as  part  of  a  growing  acquis  in  this  field;  in  particular  an  alignment  of 
remuneration principles between UCITS and the AIFMD is indispensable to avoid regulatory 
arbitrage:    Now  that  the  AIFMD,  which  entered  into  force  in  June  2011,  contains  detailed 
principles on remuneration, the UCITS rules need to contain remuneration principles as well, 
otherwise  there  is  a  risk  that  certain  risky  investment  strategies  migrate  toward  UCITS, 
although  the  latter  should  be  the  'safer'  vehicle  (AIFMD)  is  only  open  to  professional 
investors.  As action on AIFM remuneration required a European approach, the avoidance of 
regulatory arbitrage between AIFM and UCITS call for a coordinated European approach as 
well. 

Problem area 5 relating to the uneven application of administrative sanctions for violations of 
the  UCITS  would  necessarily  require  the  further  harmonisation  among  national  sanctioning 
regimes.  EU  action  appears  justified  by  the  risk  of  regulatory  arbitrage  in  those  more 
permissive  jurisdictions  as  a  result  of  the  cross-border  nature  of  the  asset  management 
industry. Furthermore, only one EU Member States has introduced whistle-blower protection. 
This  might  lead  to  a  migration  of  UCITS  managers away from  jurisdictions that vigorously 
pursue infringements against the UCITS investment rules (connection with the first sentence 
unclear). Indeed, UCITS funds are most likely the most tightly regulated pooled investment 
vehicle  in  the  EU  (or  even  world-wide)  and  experience  with  national  regulators  show  that 
most irregularities are detected at the pre-sanctioning stage. Nevertheless, effective protection 

27 

 
 
for  whistle-blowers  on  the  European  level  might  be  necessary  to  further  tighten  confidence 
not only into the UCITS rules but also in respect to their vigorous application. The absence of 
effective  whistle-blower  protection  might  lead  to  the  result  that  certain  UCITS  related 
irregularities  remain  below  the  radar.  As  UCITS  are  a  highly  regulated  and  harmonised 
product, enforcement action to keep the integrity of this product intact should equally take a 
harmonised and coherent approach.  

The  ensuing  section  6  shall  lay  out  a  series  of  policy  options  addressing  each  individual 
problem area. Each option shall later be measured against the principle of proportionality, i.e. 
to  establish  if  the  identified  options  are  both  adequate  and  necessary  to  effectively  and 
efficiently meet their purpose. 

5. 

OBJECTIVES 

Table 1: General, specific and operational objectives 

General  

Specific  
enhance investor protection, prudential rules 
and capital requirements applicable to 
depositaries should be uniform across the EU, 
ensuring the same level of protection of 
assets, independent on where the depositary is 
domiciled 

Operational  
Harmonise criteria on eligibility to act as 
depositary  

Introduce a uniform rules on delegation of 
custody 

Investor 
protection, 
financial 
stability and 
transparency 

increase effective recourse against principal 
custodians in case a financial instrument is 
lost in custody  

increase legal certainty on depositaries 
duties and liabilities 

increase legal certainty in case custody 
duties are delegated, including mandatory 
delegations to sub-delegates in third countries 

remuneration practices to be transparent and 
consistent with sound risk management 

clear rules on  administrative sanctions and 
their consistent enforcement 

Introduce a uniform level of depositaries' 
liability for the loss of an instrument held 
in custody 

Introduce a uniform level of liability for 
cases when the loss occurs at the level of 
the sub-custodian in the EU 

Introduce a uniform level of liability in 
cases when the loss occurs at the level of 
the sub-custodian in a third country    
Risk alignment and transparency of 
remuneration practices; introduce 
principles of sound remuneration policies 
Uniform UCITS sanctioning regime 

5.1. 

Coherence of objectives with other Commission policies 

All of the objectives identified above are coherent with the scope of achieving the completion 
of  the  Single  Market  by  guaranteeing  a  high  level  of  consumer  protection  while  ensuring  a 
harmonious  and  sustainable  development  of  economic  activities.  The  above  objectives  are 
furthermore  consistent  with  the  European  Commission’s  reform  programme,  as  endorsed  in 
the  Communication  of  March  2009  ‘Driving  the  European  Recovery’.  In  this  programme, 
new  regulations  for  the  asset  management  industry  will  play  an  important  role,  alongside 
those mentioned in section 2.2.  

28 

 
 
 
 
 
 
 
 
 
 
 
 
Finally,  the  objectives  pursued  in  this  impact  assessment  are  consistent  with  a  number  of 
proposals outlined in the recently published Commission Communication ‘Towards a Single 
Market Act’ of November 201038. Here, a sound regulatory environment is instrumental to the 
proper  functioning  of  financial  markets  in  allocating  long-term  capital  and  in  mobilizing 
private savings.  

The overarching aim of the current review of UCITS directive is to ensure clarity  regarding 
the rules governing UCITS depositaries  also taking into account the provisions relating to the 
depositary  function  in  the  AIFM  Directive.  However,  the  review  of  the  liability  provisions 
applicable to the UCITS depositary will also take into consideration specificities linked to the 
UCITS investment environment and its suitability for retail investors. 

In  view  of  G20  commitments,  the  EU  aims  to  introduce  consistent  requirements  governing 
remuneration  policies  in  all  financial  services  sectors,  as  set  out  in  the  Commission 
Recommendation  of  April  2009.  The  adoption  of  CRD  III,  the  AIFM  Directive,  and  the 
ongoing  work  on  the  level  2  measures  under  Solvency  II  confirms  the  determination  of  the 
EU to fulfil these commitments. Extending this work to also cover the managers of UCITS is 
consistent with this process. 

In its Communication of 9 December 2010 "Reinforcing sanctioning regimes in the financial 
sector"39 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 consistent with this process. 

6. 

 POLICY OPTIONS 

6.1. 

Problem No 1: Divergent criteria on eligibility to act as depositary  

The eligibility to act as a depositary normally requires that the entity that wishes to act in this 
role  meets  certain  criteria  in  relation  to  effective  prudential  regulation,  the  existence  of  a 
minimum  capital  requirements  and  supervision.  At  a  minimum,  a  depositary  needs  to  have 
own funds sufficient to allow for continued operations. The minimum level of own funds for 
the purposes of operational continuity is set at € 125.000 – this amount is applicable to any 
investment  firm  that  operates  under  MiFID.  This  minimum  amount  applies  to  all  other 
investment service providers that operate on behalf of a UCITS fund, such as the investment 
manager, the broker or the fund administrator. In these circumstances, it appears justified not 
to assess any further modulations in capital requirements for depositaries only.  

Option 1  

Option 2 

Option 3 

Option 4 

Eligible  Rely on Article 

Establish a closed list 

Same as Option 2 but with  Only allow credit 

38 See the Commission Communication ‘Towards a Single Market Act. For a highly competitive social market 
economy’, 
http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0608:REV1:EN:PDF#page=2  

available 

at: 

39 COM(2010)716 final. 

29 

 
 
                                                 
entities  

Capital 
require
ments 

23(2): any 
institution which 
is subject to 
prudential 
regulation and 
ongoing 
supervision, as 
chosen by 
Member States.  
Subject to 
national laws, no 
harmonised 
threshold  

of eligible entities:  
(1) credit institutions; 
(2) investment firms 
registered in the EU.  

Credit institution (at 
least € 5 million in own 
funds) or an investment 
firm (at least € 
125.000). Minimum 
threshold is therefore € 
125.000.   

a 'grandfathering clause' 
allowing all UCITS 
depositaries that are not in 
the closed list, but which 
were operating lawfully on 
21 July 2011, to continue 
operations for e.g., two 
years before becoming a 
licensed investment firm.  
At least € 125.000 in own 
funds.   

institutions to act 
as depositaries for 
a UCITS fund. 

At least € 5 million 
in 
funds. 
own 
Minimum 
threshold increases 
to €5 million.   

6.2. 

Problem No 2:  Unclear rules on delegation of safe-keeping duties  

The premise underlying Options 2 and 3 is that only two depositary duties can be delegated: 
custody and recordkeeping40. The scope of both duties is harmonised across the EU.41  

Option 1 

Option 2 

Delegation 
in general  

Delegation 
to third 
countries 

No specific 
requirements 
for 
delegation of 
custody or 
safe-
keeping.  

Delegations 
to all third 
country 
custodians 
without any 
restrictions.  

Delegations only if sub-custodian is subject to prudential 
regulation, minimum capital requirements and effective 
supervision. Sub-custodian has to comply with the conflict 
of interest and conduct provisions. Delegations have to be 
justified. The sub-custodian has to be skilfully selected, 
must remain subject to periodic review by the principal 
custodian and must be equipped to hold these assets in 
custody.   
Permit delegations to third parties even if the third country 
sub-custodian does not comply with the minimum capital 
and supervision requirements stipulated for delegations in 
general. In this case, impose three conditions: prior 
approval of the delegation by the UCITS manager; prior 
information of the UCITS' investors;  and mandatory local 
custody in the third country.   

Option 3 

Same as Option 
2. 

No delegation 
of safekeeping 
duties to non-
compliant 
entities in third 
countries.  

40 As specified in Section 4.2, for prudential reasons, the depositary's oversight duties (as contained in Article 
22(3) UCITS, according to which the depositary supervises compliance of the UCITS manager with legal 
provisions and investment policies, cannot be delegated. 

41 Custody, in line with the policy chosen by Article 21(8) AIFMD, would pertain to all transferable securities, 
i.e., all standardised financial instruments that are nowadays registered in the form of electronic book entry 
(and have to be returned when lost in custody). Recordkeeping would apply to all "other assets" which are 
not  standardised  and  are  not  suitable  to  be  held  in  custody,  but  where  the  depositary  has  to  compile  and 
regularly update ownership records. 

30 

 
   
 
 
                                                 
6.3. 

Problem No 3: Unclear scope of depositary's liability 

Option 1 

Option 2 

Option 3 

Option 4  

Standard 
of liability 

Negligence based 
standard: Liability for 
loss only in case of 
'unjustifiable failure to 
perform obligations' or 
'improper performance' 
of these duties 

Strict liability to return all 
instruments lost in custody.  
Obligation to return a 
financial instrument of 
identical type without undue 
delay. 

Burden of 
proof  

Failure in performance 
of duties has to be 
proven by the claimant 

Exception to the duty to return 
instruments of identical type 
in case the depositary can 
prove that the loss is due to an 
'external events beyond its 
reasonable control'.   

Same as Option 2  

Same as 
Option 2. 

Same as Option 2.  

Same as 
Option 2. 

Liability 
in case of 
delegation 

Rely on the general rule 
expressed in UCITS 
(Article 22(2)): 
Delegation does not 
affect liability. 

Contractu
al 
discharge 

Principal custodian remains 
liable for the return of the 
instrument.  

Same as Option 2.  

Same as 
Option 2. 

Discharge applies to all 
situations in which custody is 
delegated (i.e., voluntary 
delegation or mandatory 
delegation to non-compliant 
sub-custodians). 

Discharge only in 
case of mandatory 
delegation to non-
compliant sub-
custodians  

No 
discharge 
possible  

6.4. 

Problem No 4: Unclear remuneration practices 

Option 1 

Option 2  

Option 3 

Remuneration 
policies 

No 
requirements 
UCITS 
managers  

specific 
for 
investment 

Require  remuneration  policies 
for all staff that can impact the 
UCITS' risk profile.   

the 

Introduce  detailed  guidance 
on 
remuneration  of 
UCITS  investment managers, 
provide  for  uniform  rules  on 
base 
and 
remuneration 
bonuses.    

Disclosure 

No disclosure 

of 
disclosure 
Require 
remuneration  policies 
and 
actual  remuneration  for  all 
managers  that  determine  the 
UCITS' risk profile.  

Require  disclosure  of  actual 
all 
remuneration 
investment  managers 
that 
determine  the  UCITS'  risk 
profile  

for 

31 

 
 
 
 
 
 
 
 
 
 
6.5. 

Problem No 5: Divergent sanctioning regimes  

Option 1 

Option 2 

Option 3 

No  specific 
requirements 

Introduce minimum rules on type and level of 
administrative measures and administrative 
sanctions. Administrative sanctions and measures 
would have to satisfy certain essential requirements 
in relation to addressees, criteria to be taken into 
account when applying a sanction or measure, 
publication of sanctions or measures, key 
sanctioning powers and minimum levels of fines. 
Introduce whistle-blower provisions.   

Introduce uniform types and 
levels of administrative measures 
and administrative sanctions 
across the EU. Introduce whistle-
blower provisions.  

7. 

COMPARISON OF POLICY OPTIONS 

7.1. 

Problem No 1: Divergent criteria on eligibility to act as depositary  

The consequences of keeping the status quo (Option 1) are evaluated against current practice 
in  the  Member  States,  as  permitted  by  Article  23(2).  This  Article,  which  allows      Member 
States  to  choose  any  institution  which  is  subject  to  prudential  regulation  and  ongoing 
supervision, has not led to major divergences in who can act as a depositary in the different 
Member States. All major jurisdictions where UCITS funds are domiciled already require that 
a depositary is either a credit institution or a firm regulated in accordance with the standard 
applied to MiFID investment firms. This means that depositaries in those jurisdictions have to 
have own funds amounting to either € 5 million or at least € 125.000. In these circumstances, 
the main differences between Option 1 and the three other options pertaining to the eligibility 
to  act  as  a  depositary  are  that  the  latter  three  options  clarify  matters  of  eligibility  and  thus 
increase legal certainty.  

Options 2, 3 and 4 are all based on the approach of establishing a closed list of entities that 
can act as depositaries. If Options 2 and 3 were chosen, all depositaries would have to have 
own  funds  of  at  least  €  125.000.  With  Option  4,  the  minimum  requirement  for  own  funds 
would be that applicable to credit institutions, i.e., € 5 million.  

The introduction of a closed list of eligible entities comprising credit institutions and MifID 
regulated investment firms has met considerable support among stakeholders. The need to be 
either a credit institution or an investment firm would address the issue of minimum capital 
requirements  and  effective  regulation  and  supervision,  aspects  which  are  currently  not 
harmonised for UCITS depositaries. 

Option  3  can  also  be  considered  as  an  Option  that  builds  on  a  closed  list,  even  though  it 
allows  certain  institutions  to  continue  their  services  under  a  ‘grandfathering’  arrangement. 
Option  3  is  introduced  because  in  one  Member  State  (Malta),  depositary  services  are 
performed by a third category of institutions that are neither credit institutions nor investment 
firms, e.g. insurance companies, national subsidiaries of EU and non-EU banks, etc. The latter 
are  licensed  to  operate  provided  they  comply  with  specific  requirements  established  by  the 
relevant national laws42. Option 3 would allow these entities to continue to provide depositary 

42 In this respect, the 2010 CESR mapping exercise identifies Malta as a clear outlier, where eligible depositaries 
can  either  be  a  credit  institution,  constituted  and  licensed  under  the  laws  of  Malta;  or  a  branch  established  in 
Malta, of a credit institution authorised in an EU or EEA Member State; or a branch established in Malta of an 

32 

 
 
                                                 
services,  although  subject  them  to  an  ad  hoc  grandfathering  clause  that  would  oblige  these 
institutions  to  transform  themselves  into  eligible  entities  within  a  two  year  period  starting 
from  the  entry  into  force  of  the  amended  UCITS  Directive.  As  the  minimum  capital 
requirements  for  MiFID  investment  firms  is  very  low,  €  125.000,  none  of  the  above 
mentioned  entities  would  find  it  difficult  to  obtain  a  MiFID  authorisation.  Most  of  these 
institutions, being subsidiaries of credit institutions, would exceed this minimum threshold in 
any case. The only compliance cost would thus appear the need to seek an authorisation as a 
MiFID firm.  The legal certainty to be obtained from a harmonised minimum range of capital 
requirement  would  therefore  justify  that  these  operators  obtain  a  MiFID  license.  This  is 
especially  true  in  light  of  the  fact  that  all  other  UCITS  service  providers  to  a  UCITS  fund, 
investment  managers,  brokers  and  the  fund  administrator,  are  subject  to  the  identical 
requirement.  

Option  4  would  build  upon  Options  2  and  3  to  require  all  UCITS  depositaries  to  be  credit 
institutions.  With  this  option,  the  minimum  capital  requirement  applicable  to  a  depositary 
would dramatically increase from € 125.000 to € 5 million. In terms of prudential rules and 
continuity, this would be a clear advantage for UCITS investors.  

Option 4 would, on the other hand, inevitably disregard an entire sector of depositary services 
providers that currently provide these services in at least ten different Member States. Option 
4  would  essentially  preclude  investment  firms  covered  by  the  MiFID  rules  from  acting  as 
UCITS depositaries.  Eliminating these firms from the role to act as depositaries thus appears 
to go beyond what is reasonable to ensure that depositaries are subject to effective prudential 
supervision and minimum capital requirements.   

In  these  circumstances,  Option  3  appears  the  most  suitable  option  to,  on  the  one  hand, 
maintain  competition  between  service  providers and, on the other hand, offering the certain 
residual service providers sufficient time to obtain an authorisation as a credit institution or an 
investment  firm.  As  the  conversion  into  licensed  MiFID  firms  should  not  raise  particular 
problems for these entities, the grandfathering arrangements seem an acceptable compromise 
between  prudential  supervision  and  operational  continuity.    Nevertheless,  their  gradual 
phasing out seems justifiable in order to introduce a coherent set of rules and ensure uniform 
levels  of  investor  protection  that  is  not  dependent  on  where  the  investment  assets  are  listed 
and, in consequence, held in custody.   

Option  3  would  therefore  best  accommodate  the  need  to  establish  a  harmonised  and 
exhaustive list of eligible depositaries, while at the same time avoiding undue disruptions of 
established market patterns. Therefore, the preferred option is Option 3. 

The  economic  impact  of  Option  3  would  therefore  be  limited  to  the  very  small  minority  of 
firms that presently are not licensed as service providers under the CRD or the MiFID rules. 
Seeking  the  relevant  license  would  probably  imply  one-off  costs,  coupled  with  a  series  of 
adjustment costs. Overall, given that in a majority of Member States  depositaries are already 
either  accredited  banking  institutions  or  investment  firms  and  that  the  few  exceptions  to 

overseas  credit  institution  which  is  subject  to  prudential  requirements  at  least  equivalent  to  the  requirements 
applicable to Maltese credit institutions; or a company incorporated in Malta which is wholly owned by a credit 
institution, provided that the liabilities of the license holder are guaranteed by the credit institution and the credit 
institution is either a Maltese credit institution or is an overseas credit institution which is subject to prudential 
requirements  at  least  equivalent  to  the  requirements  applicable  to  Maltese  credit  institutions;  or  a  company 
incorporated in Malta which is wholly owned by a Maltese or foreign institution or company which is deemed 
by  the  Maltese  Financial  Services  Authority  (MFSA)  to  be  an  institution  or  company  which  provides  unit-
holders with protection equivalent to that provided by a license holder fulfilling the certain requirements. 

33 

 
                                                                                                                                                         
whom the grandfathering clause would apply are already subject to similar (albeit not equal) 
requirements, the Commission services consider the adjustment costs to be manageable.  

                      Op. objective  
Policy options 

Option 1 : baseline scenario 
Option 2: credit institutions, 
investment firms  
Option 3: same as Option 2 but 
grandfathering for certain 
operators 
Option 3: credit institutions only  

Investor protection and 
transparency  

Efficiency 

Coherence 

Consistent criteria on eligibility   

0 

+ 

+ 

++ 

0 

+ 

++ 

0 

0 

+ 

++ 

0 

7.2. 

Problem No 2: Unclear rules on delegation of custody 

Option  1,  which  allows  delegations  of  all  depositary  tasks  and  imposes  no  conditions  on 
delegations to third country custodians, is seen as too risky for UCITS investors. Especially 
the Madoff scenario, where EU investors monies where invested by a manger whose custodial 
arrangements were not subject to effective supervision in a third country, pleads in favour of a 
higher  level  of  harmonisation  in  respect  of  rules  that  apply  to  delegations,  including 
delegations to third countries.     

During  the  consultations,  the  distinction  between  financial  instruments  held  in  custody  and 
other  assets  to  which  record-keeping  applies,  was  very  well  received  and  almost  90%  of 
respondents  agreed  that  safekeeping  duties  should  be  further  differentiated  according  to  the 
financial  type  of  assets  to  be  safe-kept.  There  was  unanimity  as  to  the  desirable  EU-wide 
approximation  of  depositary  duties.  The  drive  towards  approximation  also  derives  from  the 
fact  that  depositary  institutions  perform  their  tasks  by  splitting  custody  and  recordkeeping 
tasks  not  just  in  relation  to  UCITS  funds  but  that  this  distinction  prevails  in  relation  to  the 
wider range of alternative investment funds; notably the description of depositary's duties in 
the  AIFMD  relies  on  the  same  bifurcation  of  depositary  custody  and  record-keeping  tasks. 
The  split  between  (electronic)  custody  and  recordkeeping  also  reflects  the  trend  toward 
dematerialised  securities  that  exist  almost  exclusively  in  an  electronic  book  entry  (see 
description in Section 4 above).  

Options 2 and 3 are therefore built on the premise that only custody and safekeeping duties 
can be delegated and that all delegations require that the sub-custodian is subject to prudential 
regulation, minimum capital requirements and effective supervision. The sub-custodian has to 
comply with the conflict of interest and conduct provisions. Delegations have to be justified 
by  objective  reasons  (e.g.,  on  account  of  a  gap  in  the  principal  custodians'  geographical 
coverage).  The  sub-custodian  has  to  be  skilfully  selected,  must  remain  subject  to  periodic 
review by the principal custodian and must be equipped to hold these assets in custody.   

As  these  delegation  criteria  and  conditions  are  universally  accepted  –  as  reflected  in  the 
AIFMD – no further sub-options or modulations of these criteria are assessed.    

34 

 
 
 
 
 
On the other hand, the rules on delegation would also need to reflect the specificities of both 
industries and well as the fact that UCITS funds are open and used to a large extent43 by retail 
investors. This issue comes to the fore when examining the conditions for sub-delegations to 
custodians located in third countries that cannot meet the above delegation requirements. 

In  this  scenario,  Option  2  would  permit  delegations  to  third  parties  in  certain  jurisdictions 
even  if  the  third  country  sub-custodian  does  not  comply  with  the  minimum  capital  and 
supervision requirements stipulated for delegations in general. In this case, Option 2 would, 
however, impose two conditions: prior approval of the delegation by the UCITS manager and 
prior  information  of  the  investors  in  the  UCITS  fund.  Option  2  would  also  be  limited  to  a 
situation when local custody is mandatory in the third country.      

In this respect Option 2, while being coherent with the policy choice reflected in the AIFMD, 
would  ensure  a  lower  level  of  investor  protection  than  Option  3,  because  in  Option  3  the 
principal  EU-domiciled  depositary  would  not  be  entitled  to  delegate  safekeeping  duties  to 
non-compliant  entities  in  third  countries  under  any circumstances.  Option  3 would ensure a 
higher  standard  of  custodial  safety  as  delegation  of  safekeeping  would  only  be  permitted  if 
the  third  party  sub-custodian  would  be  subject  to  effective  prudential  oversight,  minimum 
capital requirements and supervision in its country of establishment or domicile.  

The  distinction  between  Option  2  and  3  would  not  come  to  the  fore  as  long  as  the  UCITS 
manager invests within the European Union. As the scope of custodial duties and liability will 
be  harmonised  across  the  EU,  all  EU-based  custodians  would  comply  with  the  proposed 
delegation rules. The difference between Options 2 and 3 would, however, arise in case the 
UCITS fund manager wishes to invest in a third country whose laws require that safekeeping 
of locally issued financial instruments is transferred to a local sub-custodian. In that case, the 
UCITS fund's principal custodian will be obliged to elect a local sub-custodian that does not 
comply  with  the  above  mentioned  standards  on  delegation.  For  this  scenario,  Option  3 
prohibits  delegation  to  a  non-compliant  depositary  in  a  third  country  while  Option  2  would 
allow delegation, under the above mentioned circumstances.  

Essentially,  the  practical  consequence  of  Option  3  is  that  a  UCITS  fund  manager  can  no 
longer  invest  in  certain  third  country  jurisdictions  where  recourse  to  a  local  depositary  is 
mandatory and where no local depositary exits that fulfils the delegation requirements (e.g., 
capital  requirements,  effective  prudential  regulation  and  supervision).  The  consideration 
behind this bar against delegations to non-compliant third country depositaries is essentially 
linked to the retail nature of a UCITS fund and the need to ensure that small investors should 
not  be  exposed  to  the  risk  that  a  financial  instrument  of  the  UCITS  fund  is  lost  while  in 
custody in those third countries.  Furthermore, Option 3 would appear coherent with a more 
general  aim  pursued  with  the  UCITS  depositary  reform,  which  is  to  increase  investor 
protection.  

On the other hand, Option 3 proposes a remedy, namely the total prohibition of investments in 
certain  third  country  jurisdictions  that  might  well  exceed  the  scope  of  the  problem.  Third 
country jurisdictions that impose local custody without providing for a custodian that fulfils 
the  delegation  requirements  (e.g.,  capital  requirements,  effective  prudential  regulation  and 
supervision)  are  rare.  A  survey  of  relevant  custodians  conducted  by  the  Commission's 

43 As mentioned in Section 3.1, based on data from statistical offices of six Member States, it is estimated that 

about 22.9 million (i.e. 10 %) of EU households have investments in mutual funds.  

35 

 
                                                 
services  has  identified  only  two  jurisdictions  where  this  scenario  could  arise.  And  even  in 
these two cases, the exact conditions of local custody could not be verified completely, so that 
a margin of doubt remains even in these cases (which is why these jurisdictions shall not be 
referred to in this impact assessment).  

As  mentioned  above,  a  UCITS  fund  manager,  if  it  were  not  allowed  to  delegate  custody  to 
certain  third  country  depositaries,  would  be  barred  from  investing  in  financial  instruments 
that, by law, have to be held in custody locally. Option 3 would therefore seriously curtail the 
investment opportunities of a UCITS fund in respect to such third countries, especially since 
such  countries  appear  to  be  rare.  This  prohibition  therefore  appears  disproportionate  to  the 
aim of investor protection.   

On balance, therefore, the preferred option is Option 2.  

From  a  cost  perspective,  as  corroborated  by  the  investigations  carried  out  by  the 
Commission's services (see Section 3.2), the contemplated changes, even in Option 3, are not 
expected  to  significantly  impact  pre-existing  operating  cost  structures  of  depositary  service 
providers.  This  is  because  the  provision  of  custody  services  is  typically  a  low  margin 
product.  Depositaries do not obtain significant fees from the provision of custody -- prices in 
Europe  are  often  not  more  than  0.2  to  1.0  bp.  Therefore,  custody  is  regularly  coupled  with 
other value added services like cash management and fund accounting and margins associated 
with the total bundled service offering can become higher.  

Second, price differentials between EU Member States seem a question of max. 1 bp.  On the 
other  hand,  price  differentials  between  Europe  and  certain  emerging  markets  can  become 
quite  significant.  Evidence  reflected  in  Section  3.2  indicates  that  the  difference  between 
Europe  and  certain  emerging  markets  can  exceed  59  bp.  The  overall  rate  of  custody  is 
therefore  heavily  influenced  by  the  composition  of  a  fund's  portfolio  (e.g.,  the  share  of 
instruments  issued  in  emerging  markets).  As  fund  clients  are  generally  charged  on  a  per 
market basis, with emerging markets attracting higher fees, large emerging markets portfolios 
will usually have a higher blended rate. The main driver in the cost of custody is therefore not 
a  change  in  the  regulatory  environment  in  Europe  but  the  extent  to  which  a  fund  invests  in 
emerging markets.  

In this context, it is also relevant that the survey reflected in Section 3.2 appears to indicate 
that  the  cost  of  holding  a  financial  instrument  in  custody  is  lower  than  the  cost  of 
recordkeeping.  The  cost  of  record-keeping  (checking  ownership  records  and  recording 
individual contracts that are not suitable for custody) amounts, on average, to between 1 and 
1.25  bp.    The  cost  of  custody  in  Europe  varies  between  0.25  and  1.25  bp.  and,  in  most 
Member  States  examined,  rarely  exceeds  1  bp.  This  is  due  to  the  fact  that  custody  is 
nowadays  based  on  electronic  data  entries  reflecting  the  existence  of  a  security.  Therefore, 
moving to a broader scope of instruments to be held in (electronic) custody might entail cost 
savings of, on average, between 0.5 and 0.75 bp.   

Therefore,  even  if  the  harmonisation  of  financial  instruments  that  must  be  held  in  custody 
would  entail  that  some  depositaries  must  shift  these  instruments  from  recordkeeping  to 
custody,  there  should  not  be  a  major  negative  impact  either  on  cost  or  on  the  fees  that  are 
charged for the custodial services.  

Investor protection and 
transparency 

Efficiency 

Coherence 

36 

 
 
                      Op. objective 
Policy options 

Option 1 : baseline scenario 
Option 2: Delegation limited to 
safekeeping with opportunity to 
delegate to non-compliant third 
country custodians 

Option 3: Delegation limited to 
safekeeping with no opportunity to 
delegate to non-compliant third 
country custodians 

0 

++ 

+++ 

Consistent rules on delegation of custody  

0 

+++ 

+ 

0 

++ 

+ 

7.3. 

Problem No 3: Unclear scope of a depositary's liability 

Option 1, by maintaining a standard based on the failure to perform certain duties, is unable to 
achieve  the  requisite  a  level  of  harmonisation.  The  Madoff  scandal  indicates  that  the 
"negligence-based"  standard  leads  to  more  uncertain  results  and  long  court  proceedings 
before the obligation to return certain instruments that were lost in custody is ascertained.  

All other options, Options 2, 3 and 4 rely on a strict obligation to return all instruments lost in 
custody with a narrow exception to the duty to return instruments of identical type in case the 
depositary can prove that the loss is due to an 'external events beyond its reasonable control'.  
This reversion of the burden of proof would avoid lengthy litigation as to the negligence of 
the  depositary  who  lost  the  instruments  in  custody  or  who  delegated  custody  to  a  sub-
custodian that subsequently lost the instruments.  

Options 2,3 and 4 would therefore improve the degree of legal certainty and align the liability 
standards among the Member States. The reversion of the burden of proof inherent in these 
options would also facilitate legal redress sought by UCITS investors.   

In  terms  of  the  ability  to  discharge  liability,  Option  2  would  allow  for  the  emergence  of  a 
uniform  policy  on  liability  in  case  custody  is  delegated  (either  voluntarily  or  due  to  legal 
requirements)  to  a  third  party.  This  is  because  Option  2  essentially  aligns  the  discharge 
provisions in UCITS with those already existing in AIFMD. 44  
However,  the  "transversal"  approach  to  liability  proposed  in  Option  2  would  not  make  any 
distinction with respect to the liability standard, depending on whether a fund is open to retail 
investors  or  not.    Only  Options  3  and  4  would  allow  taking  into  account  the  fact  that  more 
essentially  90%  of  the  UCITS  investor  base  is  (directly  or  indirectly)  made  up  of  private 
households (see pie-chart in Section 3.1.).  

In  addition,  the  approach  proposed  in  Option  2  appears  not  suitable  for  retail-oriented 
investment  funds  because,  even  if  the  discharge  of  liability  in  case  of  either  voluntary  or 
mandatory  delegation  would  be  disclosed  to  retail  investors,  the  latter  are  unable  to 
understand the legal repercussions that such a general discharge may have on their ability to 
seek  redress  against  the  depositary  when  the  instrument  is  lost  at  the  level  of  the  sub-

44  cf.  Article  21(13)  and  (14)  of  Directive  2011/61.  Article  21(13)  deals  with  the  discharge  in  case  the  third 
country depositary complies with the delegation requirements set out in Article 21(11) while Article 21(14) 
deals  with  the  situation  where  the  third  country  depositary  does  not  comply  with  the  delegation 
requirements of Article 21(11).   

37 

 
 
 
 
 
                                                 
custodian.  Most  investors,  while  they  understand  that  he  custody  risk  (and  corresponding 
cost)  is  different  according  to  jurisdiction,  would  not  understand  the  legal  principle  of 
discharge  and  the  result  that  the  fund  might  be  left  with  a  relatively  worthless  direct  claim 
against a third country sub-custodian who is either bankrupt or in financial difficulties. Also, 
investors  would  face  the  onus  of  pursuing  that  claim  in  a  third  country  jurisdiction  in  an 
unfamiliar legal environment.  

A choice has thus to be made between Options 3 and 4.  

The choice between Options 3 and 4 must essentially be made by considering that the issue of 
delegation of custody  and the issue  of  liability in  case  custody is  delegated are  intrinsically 
linked.   

On  the  issue  of  delegations,  this  IA  examined  two  choices:  allow  delegations  of  custody, 
including  delegations  to  third  country  sub-custodians  that  do  not  meet  stringent  delegation 
requirements  (in  terms  of  prudential  regulation,  minimum  capital  requirements  and 
supervision in the country where the sub-custodian is established).  The other choice would 
be  only  to  allow  delegations  to  third  country  sub-custodians  in  jurisdictions  that  meet  the 
above requirements.  

In order not to curtail a UCITS investment opportunities, this IA chose to allow delegations to 
non-compliant  third  country  sub  custodians  under  two  conditions:  (1)  local  custody  in  the 
country  of  the  sub-custodian  is  mandatory  and  the  UCITS  depositary  must  receive  a  clear 
instruction  from  the  fund  manager  that  he  wishes  to  invest  in  the  relevant  third  country 
jurisdiction.   This approach reflects the current approach as taken in the AIFMD in relation 
to professional investors.   

The  choice  to  allow  third  country  delegations  in  case  the  local  custodian  does  not  meet  the 
delegation requirements leads to two basic options when liability in such cases is examined: 
(1)  allow  discharge  only  in  case  such  delegation  is  mandatory  under  the  relevant  third 
country's laws (Option 3); or (2) not to allow contractual discharge of liability at all (Option 
4).  

Option 4, as opposed to Option 3 would not allow for a discharge in all cases where custody 
is delegated, either voluntarily or by virtue of legal requirements in the third country. Option 
3 would limit the option of a discharge to the case where delegation of custody is mandatory 
in the third country jurisdiction where the financial instrument is issued.   

Option  3  would  therefore  expose  retail  investors  to  significant  recovery  risk.  These  risks 
result from the above-mentioned fact that retail investors, while being able to appreciate the 
risk  of  custody  related  to  third  countries,  are  nevertheless  not  in  a  position  (in  terms  of 
financial  resources  and  expertise)  to  pursue  recovery  claims  directly  against  a  third  party 
custodian and in accordance with the laws and procedures that prevail in these third countries.  

While  prospectuses  and  key  investor  information  documents  that  are  mandatory  under  the 
UCITS  Directive  may  address  risks  linked  to  the  investment  profile  of  certain  securities, 
investors are not, except for the very wealthy, in a position to recover assets that are lost in a 
third country jurisdiction.  

In these circumstances, the stricter standard proposed in Option 4 (no discharge of liability, 
even  if  delegation  is  mandatory)  appears  more  aligned  to  a  general  policy  orientation  that 
focuses on the best possible protection of the retail investor community.  

38 

 
In addition, the absence of a contractual discharge entails that UCITS investors, unit-holders 
and  shareholder  alike,  will  benefit  from  legal  certainty  when  seeking  redress  for  financial 
instruments  lost  in  custody.  The  strict  standard essentially avoids any litigation focusing  on 
the  precise  scope  of  discharge  possibilities  in  case  of  mandatory  sub-delegation  to  non-
compliant third country custodians and this litigation takes place in their own jurisdiction.   

Representatives  of  the  depositary  industry  have  pointed  that  any  move  towards  a  strict 
liability standard (and the absence of a discharge option) leads to an increased cost and capital 
requirements  incumbent  on  the  depositary  sector.  The  industry  fears  that  any  form  of  strict 
liability  increases  the  costs  and  fees  for  depositary  services,  leads  to  even  further 
concentration  in  this  industry  and  will  force  smaller  suppliers  of  depositary  services  to  exit 
this market.   

According to stakeholders, the costs inherent with a higher standard of liability are essentially 
of two types: (i) costs associated with the need to return financial instruments lost in custody, 
and  (ii)  costs  associated  with  higher  capital  requirements  that  result  from  the  need  to  cover 
the costs specified in (i). These arguments need to be placed into perspective and evaluated 
against the evidence gathered by the Commission's services.  

First, the depositary industry has not been able to document such additional costs, their origin 
and the impact that a return obligation has on capital requirements. Quite to the contrary, the 
investigation  conducted  by  the  Commission's  services  (as  evidenced  in  Section  3.2)  shows 
that there is no clear correlation between the level of liability and the amount of depositary 
costs.  The  study  rather  shows  that  the  depositary  fees  in  France  are  within  the  European 
average of between 0.25 and 1.25 bp, despite the fact that the depositary liability standard in 
France is based on a strict obligation to return all instruments lost in custody, irrespective of 
whether  custody  was  delegated  or  not.  In  addition,  there  is  no  evidence  that  would 
demonstrate that the same institution that acts as depositary in France and in another Member 
State, where lower liability standard prevails, would face differences in capital requirements 
on account of different liability standard.  

Second, the fees for custody seem more driven by the asset class that is held in custody, rather 
than by the liability standard that prevails in a particular Member State. This is evidenced by 
the fact that certain stakeholders estimate the custody fees for a UCITS fund at, on average 
between 0.4 and 0.8 bp while the more heterogeneous range of instruments held by alternative 
investment funds leads to safe-keeping fees of between 1.75 and 2.0 bp45.  

Third,  the  evidence  presented  in  Section  3.1  indicates  that  industry  consolidation  has  been 
underway for some time. As the major providers of custody services enumerated in Section 
3.1  imply,  consolidation  seems  more  driven  by  other  reasons  not  linked  to  the  national 
liability standards.  

Fourth,  more  relevant  cost  drivers  are,  for  example,  the  necessity  to  incur  considerable 
expenditure on technology (linked to dematerialisation of securities accounts) and the trend to 
increase the range of depositary services to incorporate neighbouring back-office tasks (e.g. 
fund  accounting,  corporate  actions,  cash  management  and  legal  reporting).    Especially  the 
latter  trend  toward  fully  integrated  "packages"  comprising  a  large  portfolio  of  custody  and 

45 Confidential source. 

39 

 
                                                 
other linked services requires depositaries to become large and integrated "full line" service 
providers, an option that is not available to smaller players.    

Fifth, the list of major depositaries in Section 3.1 demonstrates that only the biggest market 
incumbents above a certain size in terms of balance sheet and assets under custody are able to 
reap economies of scale, whereas smaller players have already been forced to exit the custody 
services market or bought up altogether46.  

Sixth,  fees  extracted  by  providing  pure  custody  services  constitute  a  small  percentage  of  a 
depositaries  overall  revenue  stream,  making  custody  a  low-margin  business.  Should  higher 
fees be demanded by depositaries to their fund clients as a result of the need to ensure losses 
deriving from the tighter liability regime defined above, it is by no means automatic that the 
industry  will  be  in  a  position  to  'pass-on'  these  costs  to  their  clients,  especially  given  the 
competitive market environment47.   

Seventh,  the  Commission  services  own  analysis  does  not  support  the  view  that  the 
instruments held in custody would count as credit exposure under the CRD.  Instruments held 
in  custody,  regardless  whether  the  custody  was  delegated  or  not,  are  not  included  in  the 
calculating credit exposure. Similarly, potential losses are not considered within the scope of 
the  credit  risk  exposure  and  therefore  no  capital  charge  for  credit  risk  is  applied. 
Consequently, no effect on capital charge for credit risk can be expected.48  This analysis is 
also supported by a consultation that was specifically conducted by ESMA with the European 
Banking Authority49. 

Therefore, the preferred option is the Option 4. 

Investor protection and 
transparency 

Efficiency 

Coherence 

                      Op. objective 
Policy options 

Option 1 : baseline scenario 
Option 2: Strict liability with 

Clarify rules on depositary liability   

0 
+ 

+ 

++ 

46 See article by Kristina West, 'Smaller players risk being squeezed out of market' in Financial News, issue of 
13 June 2011, p. 24.  

47 See article by Giles Turner, 'Custodians swamped by growing list of directives' in ibid., p. 28.  

48  Following  the  CRD,  credit  institutions  need  to  hold  capital  against  their  operational  risk  arising  from  the 
provision  of  safekeeping  services.  For  the  calculation  of  the  capital  requirement,  they  can  either  use  the 
Basic Indicator, Standardise or Advanced Measurement Approach (AMA). Under the first two approaches, 
the capital requirement is calculated on the basis of the relevant indicator, which is calculated gross of any 
provisions and other expenses (e.g. expenses related to lost instruments). Thus, the indicator and the capital 
requirement  will  not  be  affected  by  the  higher  liability  regime.  For  example,  both  credit  institutions  and 
investment  firms  would,  under  the  CRD,  need  to  calculate  capital  requirements  for  custody  at  15%  of 
interest  and  on-interest  income.  As  income  related  to  the  custody  service  is  very  low,  15%  of  the  net 
earnings does not seem to be a disproportionate charge.  

49 According to the EBA, it can be expected that the number of high impact/low frequency losses, which drive 
the  capital  charge,  will  not  be  affected  significantly  compared  to  the  already  existing  legal  liabilities.  In 
addition, the capital charge for operational risk is relatively low (on average less of 10% of the total capital 
requirement); thus no major effects on the capital charge can be expected. 

40 

 
 
 
 
 
                                                 
option of contractual discharge 
in case of delegation   

Option 3: Strict liability with 
option of contractual discharge 
limited to mandatory delegation 
of custody 

Option 4: Strict liability with no 
option of contractual discharge 
in case of delegation  

++ 

+++ 

+ 

+ 

+ 

+ 

7.4. 

Problem No 4: Unclear remuneration practices 

 The baseline scenario under option 1 would needlessly stifle transparency in a domain where 
distorted  remuneration  practices  were  identified  as  one  of  the  main  causes  of  the  excesses 
leading up to the recent financial crisis. Option 1 would not achieve the objective of aligning 
the  risk  taking  incentives  of  the  UCITS  manager  with  the  obligation  to  management  risk 
adequately.  In  the  replies  to  the  Public  consultation,  stakeholders  highlighted  the  need  to 
consider  provisions  that  further  align  asset  managers’  interests  with  investors  and  to  adopt 
sound remuneration rules that take into account the business model of UCITS. 
Furthermore, the adoption of new remuneration policies in the UCITS Directive would ensure 
a  level  playing  concerning  the  principles  for  remuneration  policies  in  the  financial  services 
sector.  Indeed,  as  remuneration  requirements  and  disclosures  are  already  included  in  AIFM 
directive, the absence of consistent requirements for UCITS manager would create incentive 
for  regulatory  arbitrage.  The  managers  would  use  the  UCITS  framework  in  order  to 
circumvent  the  AIFMD  requirements  on  remuneration.    The  inconsistency  between  the 
UCITS  and  the  AIFM  directives  would  encourage  the  managers  to  implement  risky  and 
complex  strategies  in  UCITS  funds  in  order  to  increase  the  fund  potential  returns  (and 
consequently their fees). The absence of remuneration requirements that limit the risk taking 
and  ensure  coherence  between  remuneration  structure  and  the  UCITS  risk  profile,  would 
induce the migration of alternative investment strategies into the UCITS framework. 

In  this  respect,  option  2  would  already  carry  a  decisive  step  forward  by  introducing 
remuneration  principles  proportionate  to  the  UCITS  business  model  within  the  UCITS 
Directive  for  the  first  time.  This  would  also  be  consistent  with  the  respective  provisions  of 
AIFM  Directive  and  reduce  the  possibility  of  regulatory  arbitrage.50  A  majority  of 
respondents to the 2010 public consultation supported the insertion of remuneration principles 
from  the  AIFM  Directive  into  the  UCITS  framework.  Investors  would  benefit  from  higher 
transparency of the remuneration policy adopted by the management company which enable 
them  to  better  understand  the  drivers  of  the  remuneration  packages  and  ultimately  to  make 
more informed comparison between various UCITS.  

Under option 3, rules on remuneration would actually specify the remuneration policy for all 
UCITS management companies. This option would represent a uniform remuneration policy 
for  all  UCITS  management  companies.  This  would  increase  transparency  of  remuneration 
policy  even  higher  than  option  2  as  there  would  not  be  any  differences  between  the 

50 For instance, consistency and greater disclosure on remuneration rules would be achieved where the UCITS 
fund annual report reveals the total amount of remuneration for a determined financial year, split into fixed 
and variable pay components paid and broken down by staff members.  

41 

 
 
 
 
 
                                                 
remuneration policies of various UCITS management companies. However, this option would 
be  very  intrusive  and  disproportionate  as  it  would  not  take  into  account  differences  in  the 
business models of UCITS management companies, their sizes and managerial practices.  

In  terms  of  effectiveness,  efficiency  and  coherence  with  other  initiatives,  option  2  is 
preferable. From an economic cost perspective, the impact of the preferred option is deemed 
negligible.  

                       Op. objective 
Policy options 

Option 1 : baseline scenario 
Option 2: remuneration policy 
based on  harmonized principles 
and coherent with  UCITS business 
Option 3 : uniform and detailed 
remuneration policy 

Investor protection and 
transparency 

Efficiency 

Coherence 

Transparency of remuneration practices (related to performance) 

0 

+ 

+ 

0 

+ 

- 

0 

+ 

0 

7.5. 

Problem No 6: Divergent sanctioning regimes 

Replies  to  the  Commission's  questionnaire  on  administrative  sanctions  have  confirmed  the 
disparity  of  maximum  and  minimum  administrative  fines  applying  to  legal  and  natural 
persons  alike,  even  in  those  few  jurisdictions  that  account  over  80%  of  UCITS  fund 
domiciliation.  Where  in  one  Member  State  fines  are  lowest,  31%  of  the  European  UCITS 
funds  have  chosen  its  jurisdiction  as  a  domicile,  thus  demonstrating  that  low  levels  of 
sanctions may to a certain extent explain regulatory arbitrage.  

Despite  a  certain  convergence  of  national  legislation  towards  a  list  of  common  reference 
criteria  for  the  determination  of  an  infringement's  gravity,  the  replies  to  the  Commission's 
stock-taking questionnaire on sanctions reveal that other important factors are seldom taken 
into  account.  For  example,  while  five  of  the  six  main  UCITS  domicile  jurisdictions  already 
apply the diffuse catalogue of minimum criteria identified by the Commission's services in the 
questionnaire,  seven  Member  States  still  do  not  consider  the  financial  strength  of  the 
perpetrator to be of sufficient weight when their authorities opt for a sanction.  

The EU's renewed drive to approximate sanctioning rules in line with the EU's international 
commitments must therefore move beyond the baseline scenario represented by option 1.  

Option  2  would  ensure  that  administrative  sanctions  applied  across  the  different  Member 
States are effective to end any breach of the provisions of the national measures and also deter 
future  breach  of  these  provisions.  It  would  also  limit  the  possibility  of  cross-border 
infringements  from  countries  with  lower  standards.  In  addition,  the  setting  of  appropriate 
whistle  blowing  mechanisms  would  help  protect  those  persons  providing  information  on 
infringements and provide incentives for whistleblowers to cooperate.   

As  regards  the  administrative  measures  and  amounts  of  the  administrative  fines,  this  option 
would insert a minimum common rule on the maximum level of administrative fines, where 
the  maximum  level  in  national  legislation  cannot  be  lower  than  a  common  EU  level.  Their 
level should exceed the benefits derived from the violations and be sufficiently high to ensure 
the fine's dissuasiveness. The maximum level would be either referenced to a fixed amount or 
to the annual turnover/compensation of the author of the infringement, depending on whether 
the economic benefit or damage from the misconduct can be quantified. Member States would 
be  prevented  from  setting  maximum  levels  lower  that  those  established  at  the  EU  level, 
although  remain  free  to  set  higher  maximum  levels  or  provide  for  an  unlimited  maximum 

42 

 
 
 
level. They would also remain free to decide whether or not an eventual lower minimum level 
has to be set in a proportionate manner depending on the case at hand. Finally, as a further 
mean to ensure that proportionality is met and for certain national regime specificities to be 
recognised, option 2 shall not impinge on a competent authority's liberty to seek out an early 
settlement with offenders.  

Replies  to  the  Commission's  questionnaire  on  administrative  sanctions  confirmed  the 
effectiveness of applying a maximum fine threshold, subject to certain important conditions, 
i.e. that violations be clearly identified, that they reflect the gravity of the infringement, and 
considerably exceed the potential gains, or eventual damages, caused to clients. Similarly, the 
majority of replies greeted a minimum list that is inclusive of the financial strength criterion 
would be less prescriptive and require only a minor adjustment to the rules of those Member 
States  that  presently  do  not  account  for  this  important  factor.  Also,  it  would  ensure  that 
eventual  fines  not  be  too  low  compared  to  the  financial  strength  of  the  offender,  thereby 
improving the sanction's proportionality.  

As regards whistle-blower mechanisms, at the EU level, replies to the questionnaire confirm 
that only one Member State currently has such a regime in place51. Option 2 would extend 
this  requirement  to  all  national  regimes  by  demanding  that  internal  whistle-blower 
mechanisms  are  put  in  place    allowing  informed  individuals  to  report  misdeeds  to  an 
appointed  independent  body  that  guarantees  confidentiality  and  protection  of  the  whistle-
blower's, as well as the alleged perpetrator's presumption of innocence and right of defence. 
The so-called  'whistle-blower'  programmes  are an additional and effective mean to discover 
illegal  behaviour  within  fund  management  firms  and  a  worthy  step  forward  towards  an 
effective  EU-wide  sanctioning  regime.  They  would  allow  a  better  application  of  the  new 
sanctioning  regime.  In  hindsight,  evidence  suggests  that  had  these  been  effectively 
implemented prior to the discovery of the Madoff fraud in December 2008, the gravity of the 
crime  could  have  been  significantly  mitigated.  Under  the  revamped  powers  of  the  United 
States Securities and Exchange Commission (SEC) following the Dodd-Frank Act, new rules 
expressly  envisage  an  ad  hoc  programme  offering  both  pecuniary  rewards  (i.e.  bounty 
programme)  and  protection  to  those  individuals  that  provide  the  SEC  with  original 
information about a violation of federal securities laws, leading to a successful enforcement 
action52.  
This option would also require national supervisors to establish specific procedures to receive 
outside alerts from individuals and exercise the necessary investigative powers to follow their 
leads and protect their identity in conformity with the respective articles of the EU Charter. 
Under  this  option,  Member  States  shall  have  sufficient  leeway  to  introduce  programmes 
tailored to their legal traditions and in harmony with their respective judicial procedures and 
application of criminal law.  

51 The Member State concerned is the United Kingdom under the Public Interest Disclosure Act (PIDA) of 1999, 
encouraging financial services/fund employees to raise concerns internally at first instance.  

52 These require the SEC and Commodities Futures Trading Commission (CFTC) to implement rules to pay cash 
awards  of  up  to  30%  in  settlements  over  $1  million  to  whistle-blowers  who  voluntarily  provide  original 
information  about  violations  of  the  Securities  Exchange  Act  and  Commodity  Exchange  Act,  respectively.  For 
further  information,  refer  to  Sections  922  and  748  of  the  US  Dodd-Frank  Act.,  or  to  the  relative  SEC  press 
release, available at: http://www.sec.gov/news/press/2011/2011-116.htm.  

43 

 
 
                                                 
Assessment of fundamental rights 

For this policy option the following fundamental rights are of particular relevance: freedom to 
conduct  business  (Article  7),  protection  of  personal  data  (Article  8),  Title  VI  Justice, 
particularly the right to an effective remedy and fair trial (Art. 47), presumption of innocence 
and  right  of  defence  (Art  48).  Introducing  common  minimum  rules  for  administrative 
measures  and  sanctions  will  improve  the  coherent  application  of  sanctions  within  the  EU 
which is necessary and proportionate to ensure that comparable breaches of UCITS Directive 
are  sanctioned  with  comparable  administrative  sanctions  and  measures.  These  rules  will 
particularly  ensure  that  the  administrative  measures  and  sanctions  which  are  imposed  are 
proportionate  to  the  breach  of  the  offence.  As  the  rules  under  this  option  will  introduce 
minimum rules for administrative measures and sanctions only, they will preserve the "right 
to an effective remedy and to a fair trial" (Article 47 of the charter of fundamental rights) as 
well as the principle of innocence and right of defence (Article 48). In view of the above, this 
policy option is considered in compliance with the charter of fundamental rights. 

Regarding  the  introduction  of  "whistle  blowing  schemes",  this  raises  issues  regarding  the 
protection  of  personal  data  (Art  8  of  the  EU  Charter  and  Art.  16  of  the  TFEU)  and  the 
presumption  of  innocence  and  right  of  defence  (Art.  48)  of  the  EU  Charter.  Therefore,  any 
implementation  of  whistle  blowing  schemes  should  comply  and  integrate  data  protection 
principles  and  criteria  indicated  by  EU  data  protection  authorities  and  ensure  safeguards  in 
compliance with the Charter of fundamental rights. 

Option  3  would  entail  harmonising,  across  Member  States,  the  range  of  administrative 
measures and amount of administrative fines that could be imposed. The advantage would be 
a  significantly  harmonised  playing-field  in  EU  financial  markets  in  terms  of  threat  of 
sanctions.  While  this  option  is  highly  effective  in  achieving  the  policy  objectives  of 
deterrence,  it  is  not  sure  that  this  option  is  efficient  as  market  situations,  legal  systems  and 
traditions  differ  among  Member  States.  To  have  exactly  the  same  types  and  levels  of 
sanctions might not be reasonable and proportionate to ensure deterrent sanctions. In addition, 
the  unification  of  administrative  measures  and  the  amounts  of  administrative  fines  would 
necessitate unification of sanctioning criteria. However, the prescription of an exhaustive list 
of sanctioning criteria accordingly would similarly appear to be too far-fetched, depriving the 
sanctioning  authorities  of  the  necessary  flexibility  in  determining  sanctions  that  are 
proportionate to the specific case at hand.  Therefore this option is considered less efficient 
then introducing minimum rules for administrative sanctions. 

Assessment of fundamental rights 

For this policy option the following fundamental rights are of particular relevance: freedom to 
conduct  business  (Article  7),  protection  of  personal  data  (Article  8),  Title  VI  Justice, 
particularly the right to an effective remedy and fair trial (Art. 47), presumption of innocence 
and right of defence (Art 48).  

This option would ensure that the same offence would be subject to the same type and level of 
administrative  sanction  across  the  EU.  This  option  will  contribute  to  "right  to  an  effective 
remedy  and  to  a  fair  trial"  (Article  47  of  the  charter  of  fundamental  rights)  as  rules  will  be 
uniform across all Member States and the principle of innocence and right of defence (Article 
48)  will  be  preserved.  In  light  of  the  above,  this  policy  option  is  considered  in  compliance 
with the charter of fundamental rights. However, designing uniform administrative measures 
and sanctions against the breach of UCITS Directive across all Member States with different 
sized  markets  is  disproportionate.  Regarding  the  introduction  of  "whistleblowing  schemes", 

44 

 
 
this raises issues regarding the protection of personal data (Art 8 of the EU Charter and Art. 
16 of the TFEU) and the presumption of innocence and right of defence (Art. 48) of the EU 
Charter.  Therefore,  any  implementation  of  whistle  blowing  schemes  should  comply  and 
integrate  data  protection  principles  and  criteria  indicated  by  EU  data  protection  authorities 
and ensure safeguards in compliance with the Charter of fundamental rights. 

To summarize, option 2 offers clear benefits in terms of effectiveness and efficiency and there 
are  limited  drawbacks  involved.  Compliance  costs  are  deemed  negligible  for  national 
legislators  and  the  coherence  of  the  presented  options  should  be  compared  with  analogous 
changes to other bodies of EU financial law (i.e. CRD and MiFID). Establishment of internal 
whistle-blower  mechanisms  would  involve  costs  for  the  in-house  training  programmes  or 
eventual consultancy fees. It is deemed that these are one-off costs whose benefits outweigh 
the disadvantages of lengthy and costly litigation with a lasting impact on a firm's reputation.  

In  contrast,  a  maximum  harmonisation  of  administrative  measures  (option  3)  while  being 
highly effective as measures and sanctions for similar offences across the EU would be more 
comparable  and  stricter,  which  should  reduce  the  scope  for  regulatory  arbitrage.  However 
such an option would not be efficient as market situations, legal systems and traditions differ 
across Europe. Therefore, to have exactly the same types and levels of sanctions might not be 
reasonable  and  proportionate  to  ensure  deterrent  sanctions  across  Europe.  As  a  result  the 
preferred policy option is to insert common minimum rules for administrative measures and 
sanctions  at  EU  level,  accompanied  by  necessary  principles  and  safeguards  to  ensure  the 
respect of fundamental rights.  

                       Op. objective 
Policy options 

Option 1 : baseline scenario 
Option 2 : minimum harmonisation 
of the sanctioning regimes 
Option 3 : maximum harmonisation 
of the sanctioning regimes 

Investor protection and 
transparency 
Approximation and consistent enforcement of admin. sanctions /  
Introduce minimum sanctioning standards 
0 

Coherence 

Efficiency 

0 

0 

+ 

++ 

+ 

- 

+ 

- 

7.6. 

Choice of preferred legal instrument 

Due to the fact that the proposed changes need to be introduced in an existing directive, an 
amending act of the same nature would be the most appropriate instrument. The Commission 
services believe that a certain degree of flexibility should be left to the national legislator as to 
the form and methods of implementation, albeit without compromising the objectives of the 
proposal.  As  this  report  has  highlighted,  the  underlying  purpose  of  the  UCITS  review  is  to 
improve  investor  protection  and  transparency  by  (i)  strengthening  and  harmonizing  the 
depositary  and  remuneration  rules  and  (ii)  introducing  minimum  standards  for  a  common 
administrative  sanctions  regime  as  in  other  areas  of  the  EU  financial  services  acquis. 
Alternative  instruments,  as  for  instance  voluntary  agreements  among  industry  participants, 
Commission  recommendations  or  even  regulations,  would  not  be  proportionate  to  meet  the 
purpose of the review defined by the report's stated objectives. Rather, the choice of the legal 
instrument on this occasion reflects the desire to reinforce an already solid existing tool with a 
few targeted interventions in the midst of the recent financial crisis regulatory debate.  

45 

 
 
 
8. 

CUMULATIVE AND OTHER IMPACTS 

8.1. 

Social and environmental impacts 

The above impact assessment has highlighted no significant social or environmental impacts 
from  the  envisaged  proposals.  The  package  of  measures  as  a  whole  has  an  indirect  social 
impact only on certain categories of investors, namely those consumers of financial services 
offered under the UCITS label. Broader and positive social effects are nevertheless expected 
from  the  significance  of  more  robust,  transparent  and  efficient  capital  markets,  for  instance 
through  better  liquidity  and  by  ensuring  that  unit-holders'  savings  are  allocated  efficiently, 
thereby reducing the burden on public social safety-nets for the future. Greater harmonisation 
of depositary rules is expected to increase the attractiveness of UCITS funds, further investor 
confidence,  while  contributing  to  the  further  integration  of  the  asset  management  industry 
EU-wide.  As  a  consequence  a  net  expansion  of  this  market  is  foreseeable,  accompanied  by 
positive spill-over effects on industry employment. No environmental impacts can be derived 
from the proposed measures.  

8.2. 

Cumulative impacts of the proposal 

Investors are expected to benefit from higher investor protection when putting their savings 
into  UCITS  funds.  The  clear  eligibility  criteria  will  ensure  that  the  depositary  entrusted  to 
safe  keep  the  assets  of  the  fund  is  covered  by  a  harmonized  standard  of  regulation  and 
supervision. The higher liability standard and the reversal of burden of proof should make it 
easier to recover financial instruments that are lost while held in custody by the depositary.  
The detailed conditions for delegation custody should limit the possibility of a recurrence of 
incidents similar to the Madoff case. As a result, while still exposed to investment risks, retail 
investors in UCITS funds will be better shielded from failures that occur in custody networks 
(custody  risk).  Furthermore,  the  depositor's  liability  rules  are  only  focused  on  their 
responsibility in case of loss of assets held in custody. These specific rules do not affect the 
general tort law. 

Investors  should  also  benefit  from  more  transparency  of  remuneration  practices  leading  to 
more informed investment choices. Better alignment of incentives of fund managers through 
sounder  remuneration  practices  should  improve  the  risk  management  of  the  fund.  Investors 
should further benefit from fewer breaches of the UCITS rules as a result of a more dissuasive 
sanction regime that limits regulatory arbitrage. 

These  investor  benefits  are  not  expected  to  come  at  a  great  cost  to  investors.  The 
implementation of requirements with respect to remuneration policies and sanctioning regime 
will be borne by the UCITS management companies but the associated implementation costs 
are deemed to be negligible. The management companies that manage both UCITS and AIFs 
should further benefit from coherent requirements in both sectors which should decrease their 
compliance cost.  

The assessment of costs of the higher liability regime is complex and can only be performed 
after the implementation. On the one hand, the higher liability could mean that higher number 
of lost instruments must be returned by the depositary which could hit the depositary profits. 
On the other hand, the higher liability regime is expected to induce higher level of diligence 
and care from the depositary and consequently decrease the occurrence of losses. The current 
evidence  from  one  Member  State  shows  that  depositary  fees  can  be  below  the  EU  average 
despite a comparatively higher liability standard. Further, the analysis in this report concluded 
that no major impacts on depositaries' capital requirements can be expected. 

46 

 
The  depositaries  should  further  benefit  from  higher  legal  clarity  as  regards  their  duties  and 
liabilities.  The  depositaries  that  are  credit  institutions  and  MiFID  firms  should  also  benefit 
from  clear  eligibility  criteria.  The  current  depositaries  other  than  credit  institutions  and 
MiFID  firms  will  need  to  transform  themselves  into  one  of  the  two  eligible  categories  and 
will incur associated one-off costs. 

Impacts on competent authorities are deemed to be negligible. 

8.3. 

Impact on third countries 

Since the UCITS framework applies to funds domiciled in the EU and in the countries of the 
European  Economic  Area  (EEA),  the  envisaged  proposals  will  have  no  direct  impacts  on 
other third country fund providers, regardless of whether based in the EU or not. Indirectly, 
however, given the global appetite for investment in European UCITS funds, as confirmed by 
strong  extra-EU  demand  for  investment  in  UCITS  (particularly  from  a  number  of  Latin 
American fund managers), clearer rules and tighter regulatory standards on depositaries are to 
have an evident knock-on effect through a stream of further sales. In fact, according to data 
published  by  a  leading  financial  market  monitor,  extra-EU  fund  managers  accounted  for  a 
quarter  of  the  overall  sale  of  UCITS  units  in  2010,  led  by  foreign  wealth  managers  in  the 
United States and Chile, and accompanied by growing demand in Asia53. In view of the high 
demand for UCITS products coming from the US market, a tighter regulation on depositaries, 
remuneration and sanctions are to further enhance the attractiveness of the UCITS brand vis-
à-vis  non-EU/EEA  investors,  while  contributing  to  a  closer  approximation  of  international 
rules for the global fund industry. 

9. 

MONITORING AND EVALUATION 

In  its  role  as  the  guardian  of  the  Treaties,  the  Commission's  services  shall  duly  monitor 
Member States’ implementation of the proposed amendments to the UCITS Directive. Failing 
this, the Commission shall pursue Article 258 TFEU against those Member States that fail to 
fulfil  their  obligations  under  the  Treaties.  For  the  purpose  of  a  smooth  and  timely 
implementation,  the  Commission's  services  shall  offer  their  assistance  in  the  form  of 
transposition workshops for all Member States national authorities to attend, or via bilateral 
meetings  at  the  request  of  any  of  them.  Successive  monitoring  as  to  its  correct  application 
shall  rely  on  a  constant  dialogue  with  Member  States  through  ESMA  and  with  a  vast 
stakeholder  network  including  market  participants  (i.e.  fund  management  companies, 
depositaries,  and  their  relative  industry  associations)  and  investors  via  their  representative 
bodies.  

The evaluation of the impacts from the changes envisaged above shall take place three years 
after the entry into force of the amended directive and whose final content shall be presented 
in the form of a Commission report to the Council and European Parliament. The evaluation 
shall  be  performed  on  the  basis  of  the  general  objective  identified  in  section  4:  to  increase 

53  The  results  from  the  survey,  as  published  by  the  market  monitoring  firm  Lipper,  are  quoted  by  Financial 
News.  See  article  by  Kit  Chellel  and  Elizabeth  Pfeuti,  'Emerging  market  investors  answer  Ucits  call',  in 
Financial News, issue of 29 December 2010, available online at: http://www.efinancialnews.com/story/2010-12-
29/ucits-cross-border-sales-grow-2010.   

47 

 
                                                 
 
investor protection, financial stability, especially in the retail sector and transparency for all 
investors that have invested in assets held by a UCITS fund. 

It shall be carried out by the Commission's services, in cooperation with ESMA and/or with 
the aid of external consultants for the purpose of measuring those more specific aspects tied to 
the  directive’s  implementation.    The  review  shall  concentrate  its  attention  on  the  following 
aspects in particular:  

•  Estimates  for  cost  savings  (in  terms  of  bp)  deriving  from  a  clearer  and  harmonised 
liability regime for depositaries (Preferred options mentioned in sub-section 7.1.); 

•  Estimate  of  a  depositary's  cost  in  transferring  financial  instruments  from  record-

keeping to electronic custody (in terms of bp);  

•  Estimate  of  a  depositary’s  operating  costs  resulting  from  the  conditions  on  custody 

delegation (Preferred options mentioned in sub-section 7.2.); 

•  Estimate of a depositary’s operating costs resulting from the ‘strict’ liability approach, 
especially in the event of third party sub-custody losses (Preferred options mentioned 
in sub-section 7.3.); 

•  Estimate  of  costs  resulting  from  introducing  harmonized  remuneration  policies  and 

whistle-blowing mechanism. 

The above results shall preciously supplement the scarce figures available with respect to an 
industry,  whose  importance  was  often  overlooked  and  that  cases  of  financial  fraud,  most 
notably the Madoff case, have recently brought to the fore.  

48 

 
 
10. 

ANNEXES 

10.1.  ANNEX 1: Related initiatives 

There are a number of ongoing Commission initiatives that have impact on investment fund 
industry  in  Europe  and  that  are  related  to  the  proposed  changes  to  the  UCITS  legal 
framework. 

•  Initiatives aimed at improving investor protection.  

AIFM Directive 

On 8 June 2011 the European Parliament and the Council adopted the Directive 2011/61/EU 
on  Alternative  Investment  Fund  Managers  (AIFM  Directive).  The  objective  of  AIFM 
Directive  is  to  create  a  comprehensive  and  effective  regulatory  and  supervisory  framework 
for AIFM at the Community level. This directive covers investment products that are mainly 
structured for professional investors. It includes detailed provisions relating to the function of 
depositaries and their liability in case of loss of the funds assets. It also contains principles of 
the  Commission 
sound  remuneration  policy  for  managers  of  AIFs 
Recommendation  of  April  2009.  Measures  implementing  the  AIFM  Directives  will  be 
adopted in 2012 by the Commission. 

line  with 

in 

PRIPS 

In  spring  2012  the  Commission  intends  to  come  forward  with  the  legislative  initiative 
concerning  investor  disclosure  for  Packaged  Retail  Investment  Products  (PRIPS).  PRIPs 
represent  the  core  of  the  retail  market  for  investment  products,  encompassing  structured 
products,  insurance  investment  products  and  investment  funds  including  UCITS.  This 
initiative aims at making sure that retail investors receive similar pre-contractual information 
(similar to the Key Investor Information Document provided by the UCITS Directive) before 
they invest in any of the packaged retail investment products at stake. 

MIFID review 

On  20  October  2011  the  Commission  adopted  proposals  for  a  Directive  on  markets  in 
financial  instruments  repealing  Directive  2004/39/EC  (MiFID),  and  for  a  Regulation  on 
markets in financial instruments (MiFIR). According to this proposal, the safekeeping and the 
administration of financial instruments for the account of clients, including custodianship and 
related  services  such  as  cash  or  collateral  management  has  been  included  into  the  list  of 
services and activities of investment firms. In the current version of MiFID these services are 
considered  to  be  ancillary  services.  The  intention  of  the  present  proposal  is  to  allow  these 
MiFID to become eligible depositaries for UCITS 

Investor Compensation Scheme Directive 

The  Commission  adopted  the  proposal  for  amendments  to  the  Investor  Compensation 
Schemes  Directive  (ICSD,  1997/9/EC)54  on  12  July  2010.  It  proposed  to  include  UCITS 

54   http://ec.europa.eu/internal_market/securities/isd/investor_en.htm 

49 

 
                                                 
depositaries under the scope of the ICSD, in order to protect UCITS holders in the case where 
the  value  of  the  UCITS  units  or  shares  has  been  affected  due  to  the  failure  of  a  UCITS 
depository  or  its  sub  custodian  to  return  the  financial  instruments  held  in  custody.55  The 
negotiations on this proposal in the EP and Council are pending.  

•  Initiatives related to remuneration structures in investment fund sector 

On the 2nd June 2010, the Commission issued a Green Paper, launching a public consultation 
on  possible  ways  for  improving  corporate  governance  in  financial  institutions  and 
remuneration  policies.  The  financial  crisis  revealed  that  inadequate  remuneration  structures 
for both directors and traders in financial institutions led to excessive risk-taking and short-
termism.  Since  the  Green  Paper,  several  important  pieces  of  financial  services  legislations, 
including  the  AIFM  Directive,  have  been  amended  in  order  to  include  provisions  on 
remuneration.  

•  Other proposal related to depositaries duties, in particular to safe-keeping 

Law on legal certainty of securities holding and transactions 

Addressing the legal barriers identified by the Giovannini Report of 2003, the Commission is 
preparing draft legislation on the legal certainty of securities holding and transactions56. This 
proposal is expected to address the legal aspects of holding and disposition of securities (who 
is the legal owner? when and where is the ownership transferred?) as well as the activity of 
safekeeping  and  administration  (who  is  the  account  provider?  how  does  he  record  the 
securities?).  The  Commission  will  seek  to  coordinate  its  work  on  UCITS  depositaries  with 
this work on the legal certainty of securities holding and transactions, since a depositary may 
act  as  a  security  account  provider,  thereby  raising  similar  technical  issues.  However 
specificities arise in relation to custody functions in the case of UCITS which require specific 
legal solutions. 

Legislation on Central Securities Depositories  

The Commission has announced legislation on Central Securities Depositories ("CSDs") for 
February 2012. The Commission services are working on a legislative proposal that aims to 
establish a common prudential framework that ensures safety and soundness of CSDs and to 
create a uniform framework for settlement activity in the European Union. 

The scope of application of these two legislative instruments covers potentially all financial 
instruments.  However  certain  provisions  such  as  the  ones  concerning  settlement  discipline 
will be limited to transferable securities traded on organised venues. 

External expertise 

In parallel, the Committee for European Securities Regulators (CESR) – as of 1 January 2011, 
replaced by the European Securities and Markets Authority (ESMA) - had begun work on an 

55  The protection granted under the ICSD benefits essentially retail investors. 

56 http://ec.europa.eu/internal_market/consultations/2010/securities_en.htm 

50 

 
                                                 
important  mapping  exercise  providing  a  snapshot  of  depositary  rules  across  each  Member 
State  and  later  published  in  January  201057  (See  Annex  5  for  summary).  Additional  key 
recommendations  from  CESR  were  delivered  with  its  advice  on  the  'Level  2'  measures 
relative to the UCITS management company passport, which also included a list of principles 
governing UCITS managers' remuneration58.  

ESMA has provided further clarification on the scope depositaries duty and their liability by 
means of its technical advice on the Level 2 measures to accompany the AIFM Directive, as 
submitted to the Commission on 16 November 2011.  

INITIATIVES AND STUDIES ON THE UCITS DEPOSITARY (2004-2008) 

COMMISSION COMMUNICATION IN 2004 

In 200459, the Commission analysed applicable UCITS depositary regulations as implemented 
in  Member  States  and  identified  some  important  areas  where  progress  was  needed.  It 
highlighted four areas were additional measures were warranted, in the view of approximating 
and updating the legislative framework applicable to the UCITS depositary: 

(1) 

(2) 

Prevent  conflicts  of  interests  by  including a  list  of functions that a depositary (or  an 
entity of its group) can receive from the fund manager by delegation, as well as a list 
of the depositary’s activities which may be delegated;  

Clarify  the  extent  of  the  depositary's  liability  to  promote  clarity  and  convergence  of 
the  depositary's  liability  regimes  across  Member  States,  together  with  a  common 
interpretation of asset “safekeeping" and of the specific control duties assigned to the 
depositary;  

(3) 

Promote  convergence  of  initial  and  operating  conditions  and,  in  particular,  capital 
requirements, and clarify the typology of eligible depositary institutions; 

(4) 

Enhance transparency standards and investor information. 

Extract from the Communication from the Commission to the Council and to the European 
Parliament  on  the  regulation  of  ucits  depositaries  in  the  Member  States:  review  and 
possible developments - March 2004  

Field of action:  

57 Available at: http://www.cesr-eu.org/index.php?page=contenu_groups&id=28&docmore=1 

58 Available at: http://www.cesr-eu.org/index.php?page=document_details&id=6150&from_id=28 

59 Available at : http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52004DC0207:FR:NOT 

51 

 
 
 
 
                                                 
In the Commission's view, the following areas will require additional harmonization:  

i/ 

ii/ 

iii/ 

Promote  better  prevention  of  conflicts  of  interests:  In  light  of  diverging 
regulatory and supervisory approaches, progress is needed on convergence of the 
prudential frameworks, regarding in particular a common typology of conflicts of 
interests  and  the  necessary  prevention  and  redress  measures.  This  convergence 
should  include  the  list  of  the  functions  that  the  depositary  (or  an  entity  of  its 
group) can receive from the fund manager by delegation and, conversely, the list 
of the depositary activities which may be delegated.  

Clarify  the  extent  of  the  depositary's  liability:  Promoting  clarity  and 
convergence  of  the  depositary's  liability  regimes  across  Member  States  will 
require  a  common  reading  of  the  concept  of  "asset  safekeeping"  and  of  the 
specific control duties assigned to the depositary.  

Promote  convergence  of  initial  and  operating  conditions  and,  in  particular, 
capital requirements: The typology of eligible depositary institutions should be 
made  to  converge  by  identifying  a  specific  group  of  relevant  institutions.  This 
might  consist  of  credit  institutions  and  investment  firms,  subject  to  additional 
organisational and resource requirements where appropriate, plus relevant public 
institutions (Central Banks). 

Enhance transparency standards and investor information: This should be the 
iv/ 
highest  short-term  priority  and  help  put  pressure  on  existing  discrepancies.  Enhanced 
public  information  standards  should  cover:  the  organisation  of  the  depositary's  tasks; 
measures  taken  against  conflicts  of  interest;  the  depositary's  liability;  all  the  costs 
connected to the depositary's services.” 
GREEN PAPER 2005 

In 2005, the Commission issued a Green Paper60 launching a discussion as to whether fund 
custody  and  depositary  services  could  benefit  from  further  rationalisation.  At  that  time,  the 
UCITS Directive required the management company and the depositary to be located in the 
same  Member  State.  In  this  context,  the  Commission  proposed  to  examine  the  implications 
for effective supervision and investor protection as a result of splitting the responsibility for 
supervision  of  the  fund,  of  the  depositary,  and  of  asset-custody  functions  across  Member 
States via sub-custody arrangements. 

Extract  form 
for investment funds - July 2005 

the  Green  Paper  on 

the  enhancement  of 

the  EU  framework

“Fund  custody  and  depositary  services  could  benefit  also 
further 
rationalisation.  The  UCITS  Directive  requires  the  management  company  and  the 
depositary to be located in the same Member State. In the past, proximity and integrated 
to  ensure  effective  performance  of  fund 
supervision  were  considered  essential 
administration, depositary and custody functions. More recently, a number of stakeholders 

from 

Paper 

60  Green 
http://www.cc.cec/home/dgserv/sg/sgvista/i/sgv2/repo/repo.cfm?institution=COMM&doc_to_browse=COM/20
05/0314&refresh_session=YES  

enhancement 

framework 

investment 

the  EU 

the 

for 

on 

of 

funds. 

52 

 
                                                 
have advocated greater freedom in the choice of the depositary. As previously noted by the 
Commission61,  moving  in  this  direction  will  require  further  harmonisation  of  the  status, 
mission and responsibilities of these actors. The comparative costs and benefits of changes 
to the legislative framework will need further analysis – not least compared to what can be 
achieved through delegation and/or sub-custody arrangements. The Commission proposes 
to examine the implications for effective supervision and investor protection arising from 
splitting responsibility for supervision of the fund and depositary and asset-custody. 

(…)  Q11:  Which  are  the  advantages  and  disadvantages  (supervisory  or  commercial 
risks) steaming from the possibility to choose a depositary in another Member State? To 
what extent does delegation or other arrangements obviate the need for legislative action 
on these issues?”  

Expert Group on investment market efficiency 

The  Expert  Group  concluded  that  the  UCITS  framework  artificially  imposes  a  geographic 
organization  of  the  value  chain,  as  all  funds  must  have  a  local  depositary/custodian  and  a 
local  management  presence62.  As  a  result,  costs  are  unnecessarily  duplicated  across  fund 
domiciles,  the  industry  is  prevented  from  reaping  specialization  and  efficiency  gains  and 
operational risk is increased. More flexibility is needed to provide management company and 
custody  services  across  borders.  However,  the  Expert  Group  believed  that  several  pre-
conditions  must  be  met  prior  to  establishing  any  EU  depositary  passport,  given  the 
depositary’s essential function for investor protection. 

Extract form the Report of the Expert Group on Investment Fund Market Efficiency - 
July 2006  

"(…)  Following  the  Green  Paper  on  investment  funds,  the  European  Commission 
established an Expert Group on Investment Fund Market Efficiency to gather the views of 
market  practitioners  on  how  to  make  the  EU  framework  more  relevant.  This  Expert 
Group  was  mandated  to  advise  the  Commission  on  cost-effective  ways  to  support  a 
more  efficient  organisation  of  the  European  fund  value-chain.  This  group  has  not 
looked  at  issues  regarding  the  scope  of  the  product  passport  or  rules  relating  to  fund 
composition  and  investment  policy,  as  these  issues  are  under  examination  by  competent 
authorities. 

There is a wide-ranging consensus on the obstacles to the further successful development 
of European fund markets. The Expert Group report provides the first set of clear, detailed 
and workable recommendations on 'how' to remove those barriers. (…)"  

"(…) Provide more freedoms for the depositary: The Expert Group believes that several 
pre-conditions  must  be  met  prior  to  establishing  any  EU  depositary  passport,  given  the 
depositary’s essential function for investor protection. Pending further work on this front, 

61 Communication COM(2004) 207 from the Commission to the Council and the European Parliament of 30 March 2004. 

Report 

62 
http://ec.europa.eu/internal_market/investment/docs/other_docs/reports/efficiency_en.pdf 

Investment 

expert 

group 

the 

on 

of 

Fund  Market 

Efficiency: 

53 

 
 
                                                                                                                                                         
the Group recommends: 

•  Enabling branches of banks from other Member States to act as a depositary; 

•  Allowing  the  depositary  to  be  free  to  delegate  asset-safekeeping  to  custodians  in 
another  EU  Member  State,  subject  to  the  custodian  complying  with  the  depositary's 
local regulations on a contractual basis; 

•  In  a  longer  term,  the  Commission  should  1)  harmonise  the  capital  requirements  of 
depositaries and 2) study the barriers to further harmonising the role and responsibilities 
of the depositary." 

*** 

(…) "V. More freedoms for the Depositary  -  V.1 The role of the Depositary 

The  depositary  function  was  enshrined  in  the  original  UCITS  Directive,  dating  back  to 
1985. This text involved the creation of a special function to oversee the activities of the 
fund  manager  and  protect  unit  holders  against  the  improper  sequestration  of  assets.  The 
Directive entrusted the depositary with two distinct missions:  

1)   Safekeeping of the assets of the UCITS, 

2)  An  oversight  function  that  involves  controlling  the  assets  (for  both  mission  of 
safekeeping and trustee monitoring). 

In some Member States, depositaries have been charged with additional responsibilities of 
a fiduciary nature.  

No common definition of depositary's role and responsibilities: The EU legal framework 
governing  the  activities  of  the  depositary  has  been  left  untouched  since  1985.  The 
Directive  does  not  require  that  the  depositary  be  a  separate  legal  entity  from  the  fund 
manager  –  only  that  it  should  be  functionally  separate.  The  Directive  requires  that  the 
depositary  be  domiciled  in  the  same  country  as  the  management  company  (and  by 
extension  of  the  fund).  This  reflects  the  view  that  there  is  a  need  for  close  proximity 
between  the  depositary  and  fund  to  allow  the  depositary  to  perform  effective  real-time 
monitoring in respect of the activities of the fund. 

Depositary  has  a  key  role  re-investor  confidence:  The  depositary  function  plays  an 
important  role  in  sustaining  a  high  level  of  investor  confidence.  It  has  been  particularly 
important in winning investor acceptance for products domiciled in other Member States 
by building in a common structural safeguard against fraud or operational error. Given the 
increased complexity and heterogeneity of funds, the role of the depositary becomes even 
more important control on the way in which the fund manager conducts its business. 

(For example, in Austria, the depositaries are required to calculate the NAV; in Italy, the 
depositaries are required to review and to approve the NAV; in Germany, the depositaries 
are required to provide (and to take responsibility for) the portfolio prices that go into the 
NAV).  

V.2 Where do we stand?  

Custody  function  practically  harmonised,  control  function  differs  widely…  The 

54 

 
safekeeping  (often  known  as  “custody  function”)  is  already  very  similar  across  EU 
Member  States.  The  principal  area  of  divergence  relates  to  the  absence  of  a  harmonised 
definition of asset safekeeping definition – particularly regarding the extent of obligations 
to  return  assets.  Conversely,  the  control/trustee  function”  differs  widely  across  Member 
States,  each  national  regulator  imposing  different  type  of  controls.  In  the  absence  of  a 
precise  EU-level  definition,  the  depositary  has  been  assigned  different  roles  and 
responsibilities at national level. Those differences are widening as a result of new national 
legislative initiatives triggered by the development of the fund industry and the increasing 
complexity of products.  

A long-running debate in the fund industry is whether fund managers should be forced to 
rely  on  the  services  of  depositaries  located  in  the  same  jurisdiction.  The  Commission 
Green Paper of 2005 asks whether depositaries should be free to provide services to funds 
in  other  Member  States  –  which  roughly  translates  into  a  European  depositary  passport. 
The  intuition  behind  this  proposal  probably  reflects  the  fact  that  all  Member  States 
recognise  that  depositary  functions  are  carried  out,  inter  alia,  by  financial  institutions 
which are authorised and supervised in accordance with EU financial services legislation 
and otherwise capable of operating cross-border.  

…  but  harmonisation  of  some  elements  will  support  the  development  of  the  industry, 
facilitate cross-border business, risk mitigation and reduce costs. A shared understanding 
of  the  role  of  the  depositary  –  based  on  deeper  harmonisation  is  first  needed  to  sustain 
investor  confidence  in  UCITS.    Harmonising  the  role  and  responsibilities  of  depositaries 
will  contribute  to  the  stability  and  strength  of  the  UCITS  label.    Harmonisation  –  and 
ultimately a depositary passport - will also support the facilitate development of the fund 
industry on a pan-European basis since it will:  

- 

- 

- 

facilitate cross-border fund distribution; 

increase investor acceptance of UCITS across the EU and globally; 

improve risk mitigation 

-  contribute  to  confidence  between  regulators:  regulators  rely  significantly  on  the 
depositary  function  to  ensure  investor  protection.  Some  harmonisation  of  the  rule 
and  functions  of  the  depositary  will  contribute  to  build  trust  among  regulators 
which will facilitate cross border business; 

- 

reduce costs as the ability to implement a common business model on a European 
scale  will  enable  the  depositaries  to  maximise  economies  of  scale  and  minimise 
operational costs. 

There  are  many  obstacles  in  the  way  to  harmonisation...  As  a  precondition  to  a 
depositary  passport,  the  Group  believes  that  further  work  is  needed  to  determine  the 
features of the regulatory landscape which need to be harmonised and the conditions under 
which this can be best achieved. The  Commission Communication on the “regulation of 
UCITS depositaries in the Member States” provides a largely up-to-date inventory of the 
principal  features  of  depositary  activity  which  would  warrant  harmonisation.  Business 
practices have revealed some additional issues.  

…That  need  to  be  tackled.  The  following  include  some  of  the  principal  areas  of 
divergence that would need to be tackled:  

55 

 
Different  capital  requirements  create  an  unlevelled  playing  field.  Member  States  allow 
different  types  of  entities  to  perform  depositary  services,  including  but  not  limited  to 
investment firms, credit institutions and insurance companies. This means that depositaries 
are subject to very different prudential rules – particularly regarding capital requirements 
with  minimum  capital  requirements  varying  from  €  5  million  to  €  100  million.  
Harmonisation  of  the  capital  requirements,  as  a  first  step  on  the  road  to  the  depositary 
statute harmonisation, is necessary to create a level playing field.  Definitions terms and 
responsibilities pertaining to the depositary function should be harmonised. 

Different  approaches  lead  to  legal  uncertainty.  Legal  uncertainty  can  result  from  the 
commingling  of  depositary-specific  legal  obligations  and  broad  civil  case  law.  This  is 
especially true in jurisdictions where the principle of the depositary's liability according to 
the Directive ("unjustifiable failure to perform … or improper performance") is, explicitly 
or  not,  subject  to  limitations  or  derogations.  Only  three  Member  States  seem  to  exclude 
"force  majeure"  as  an  extreme  waiver  of  responsibility.  Under  such  conditions,  retail 
investors actually bear a risk (and costs) which are a priori hidden to them.  

Definition  of  depositary  functions  not  harmonised.  The  absence  of  a  common 
understanding of 'asset safekeeping' is an important drawback. Safekeeping the assets of a 
UCITS  is  the  first  raison  d'être  of  the depositary. But the  Directive does  not specify  the 
content  of  its  responsibility:  is  it  only  in  charge  of  prudential  controls  over  possible 
external  custodians  or  is  it  a  full-fledged  "keeper"  bound  by  obligations  towards  the 
manager  and  the  investors,  independently  from  its  controls?  To  achieve  the  potential 
economies of scale on the custody side, the definition of asset safekeeping for all types of 
assets  need  to  be  studied  and  harmonized  across  the  EU.  This  is  partly  achieved  for 
classical types of assets such as equities and bonds but not for other asset classes which w 
ill become an increasing part of UCITS assets. The underlying obligations will also need to 
be studied, in order to determine if harmonization would allow the custodians to rationalize 
their custody platform across the EU including the type of reporting required and to ensure 
a level playing field between custodians. 

Depending on the Member State, the mission of asset safekeeping may, or not, necessarily 
involve a custodian sub-function. Custody is subject to significant economies of scale and 
requires  considerable  investments  in  computer  systems  distinct  from  those  of  depositary 
control.  A  second  issue  which  differentiates  Member  States  is  whether  or  not  the 
depositary is really subject to an obligation to return the assets, or may limit its liability. 

Harmonisation  of  these  regulatory  features  remains  a  long-term  goal.  It  will  require  a 
thorough  reworking  of  existing  Directive  provisions.  Some  initial  steps  could  be  taken 
quickly  on  the  basis  of  existing  UCITS  provisions,  which  would  provide  some 
improvements  in  the  competitive  sourcing  of  custodian  and  depositary  services.  These 
incremental  improvements  would  already  constitute  a  significant  step  towards  realising 
tangible benefits at this step of the value chain. In the short term, Member States should 
make  use  of  the  discretion  available  to  broaden  the  range  of  entities  who  are  allowed  to 
provide  depositary  services.  A  case  in  point  concerns  the  recognition  of  the  right  of 
branches of  EU banks to act as a depositary. For example, the UCITS Directive remains 
silent  regarding  the  statute  of  branches  of  EU  banks  that  can  act  in  another  EU  country. 
Certain  Member  States  do  not  allow  bank  branches  to  be  registered  as  a  depositary.  A 
second  'quick  win'  would be for  Member States to allow the depositary to delegate safe-
keeping  to  a  custodian  located  in  another  EU  country.  The  delegate  custodian  should 

56 

 
nevertheless  contractually  agree  to  comply  with  the  depositary's  local  regulations,  with 
regards  to  asset  safe-keeping  and  restitution.  This  would  insure  protection  even  if  assets 
are  held  in  another  EU  jurisdiction  and  a  level  playing  filed  for  custodians.  At  present, 
certain  Member  States  (such  as  Luxembourg)  implement  restrictive  practices  in  this 
regard.  The  group  encourages  all  jurisdictions  to  implement  enlightened  practices,  and 
drawing  comfort  from  the  experience  of  regulators  and  supervisors  that  currently 
implement such an approach. 

V.3 How can we improve the situation? A two-stage approach: In light of the above, the 
Group recommends following: 

1) in the short-term, on more easily achievable but effective measures,  

2)  in  the  longer-term,  analyse  the  main  legal  barriers  in  order  to  have  a  further 
harmonisation of the role and responsibilities of the depositary. The proposed measures are 
summarised below." 

In the short-term, the Group recommends that: 

i)  Member  States  allow  branches  of  EU  established  banks  to  act  as  depositary  for 
locally domiciled funds. 

ii)  Member  States  allow  the  depositary  to  delegate  custodial  functions  to  licensed 
custodians  located  elsewhere  in  the  EU:  This  would  allow  important  scale  effects 
resulting in lower units costs for safekeeping/custody functions. To allow implementation 
of this proposal while maintaining the existing level of investor protection, the delegated 
custodian  should  contractually  agree  to  comply  with  the  depositary's  local  regulations, 
with regards to asset safekeeping and restitution. 

In the long-term, the Group recommends that the Commission undertake: 

i)  A  harmonisation  of  the  capital  requirements  for  depositaries:  Depositaries  do  not 
have  the  same  status  across  the  different  Member  States.  Some  or  all  of  the  following  - 
investment  firms,  credit  institutions,  insurance  companies,  other  firms  -  may  qualify  for 
authorisation  as  depositary  in  different  Member  States.  A  harmonisation  of  the  capital 
requirements,  and  more  broadly  of  the  status  of  the  depositary,  is  necessary  in  order  to 
support the sound management of risks and continued investor confidence. 

ii)  An  investigation  to  remove  legal  barriers:  Further  study  is  needed  regarding  the 
impact of differences between depositary obligations which are couched as "obligations as 
to  result",  or  as  'obligation  of  (prudential)  means'.  To  realize  scale  economies  on  the 
custody side, the definition of asset safekeeping for all types of assets need to be studied 
across  the  EU.  Differences  in  liabilities  regarding  the  safekeeping  of  assets  (e.g.: 
restitution obligation in France, an obligation that does not exist or is more limited in other 
member countries) should be removed." 

Impact  assessment  of  the  White  Paper  on  “Enhancing the  Single  Market  Framework for 
Investment Funds”  

57 

 
 
In  light  of  the  previous  analysis,  an  impact  assessment63  was  focused  on  the  freedom  of 
depositaries  to  offer  their  services  cross-border  without  the  need  for  a  local  presence  (i.e.  a 
depositary  'passport').  To  this  end,  it  considered  three  different  options.  These  options  were 
designed  to  address  not  only  the  flexibility  of  the  organisational  arrangements  for 
depositaries,  but  also  the  related  regulatory  problems  as  already  identified  in  the 
Commission's Communication of 2004. 

The  first  option  considered  amending  the  directive  to  enable  depositaries  to  passport  their 
services, including harmonised provisions on the role and responsibilities of depositaries. The 
second option considered amending the directive to introduce a passport for custody services 
only, with oversight functions to be performed in the fund's domicile. The third option, a non-
legislative  one  (e.g.  a  recommendation  or  CESR  Level  3  guidelines),  considered  incentives 
for depositaries to organise their business on a pan- European basis.  

However, the public consultations on the Green Paper failed to demonstrate that there were 
significant  missed  opportunities  requiring  EU  action  in  this  area.  Therefore,  the  first  and 
second  options  seemed  disproportionate.  It  was  concluded  that  no  legislative  changes  were 
necessary and that non-legislative initiatives would be more cost-efficient and effective. 

Impact Assessment of the legislative proposal amending the “UCITS IV” Directive  

The  White  Paper  and  supporting  impact  assessment64  concluded  that  the  Management 
Company Passport (MCP) passport was a worthwhile objective, and that the directive should 
be amended to that end. In this regard, the Commission considered that it was important that 
any new mechanisms required to ensure the proper supervision of funds managed on a cross-
border  basis  should  not  lead  to  disproportionate compliance costs and increased complexity 
for business operators.  

However,  practical  solutions  for  an  effective  supervision  did  not  materialise  at  the  time  of 
finalisation of the impact assessment for the 'UCITS IV' review. In parallel, the Commission 
asked CESR for its advice on robust yet effective solutions to the identified challenges. CESR 
members were pragmatic in identifying solutions necessary for establishing a well functioning 
MCP65,  and  on  this  basis,  the  co-legislators  opted  to  use  the  'UCITS  IV'  framework  to  this 
end.  The  new  regime  clearly  limited  the  respective  responsibilities  of  competent  authorities 
where the authorisation and supervision of a fund is performed in a different Member State 
from the authorisation and supervision of its management company.  

The  new  framework  put  in  place  as  a  result  of  the  legislative  changes  clearly  distinguishes 
between provisions that apply to the management company and those which apply at the level 

63 SEC (2006) 1450  

http://ec.europa.eu/internal_market/investment/docs/legal_texts/whitepaper/impact_assessment_en.pdf  

64  SEC (2008) 2263 

 http://ec.europa.eu/internal_market/investment/docs/legal_texts/framework/ia_report_en.pdf  

65 CESR/08-867,http://www.cesreu.org/index.php?page=document_details&from_title=Documents&id=5367 

58 

 
                                                 
 
of the fund only. The supervisory responsibilities for compliance with the relevant provisions 
of the 'UCITS IV' Directive can thus be clearly allocated. 

59 

 
 
10.2.  ANNEX 2: Feed-back statements to the public consultations 

CONSULTATION ON THE UCITS DEPOSITARY FUNCTION (2009) 

General remarks on consultation procedure and feedback  

As  announced  by  Commissioner  McCreevy  on  28th  May,66  the  European  Commission 
launched a wide-ranging public consultation on the UCITS depositary function in July 2009.  

The Madoff fraud and the Lehman Brothers default revealed divergences in interpretation of 
the  existence  of  UCITS  depositary  risks  and  liabilities,  and  a  number  of  questions  arose 
relating to the need to harmonise and strengthen UCITS requirements.  The objective of the 
consultation  paper  was  to  gather  evidence  and  experienced  opinion  in  order  to  clarify  and 
strengthen the regulation and supervision of UCITS depositaries, with a view to consolidate 
the  level  of  protection  of  UCITS  investors.    It  also  aimed  at  playing  an  important  role  in 
identifying and shaping the European response to vulnerabilities emanating from the UCITS 
depositary sector.  

The issues on which the Commission invited views and evidence included:  

•  Depositary’s  duties:  The  consultation  invited  views  on  whether  depositary  safe-keeping 
and supervisory duties should be better harmonised, and if so, how.  It sought clarification 
on  the  depositary  safe-keeping  duties  for  each  class  of  assets  that  are  eligible  for  being 
held  within  a  UCITS  portfolio,  and  invited  views  on  whether  the  existing  list  of 
supervisory duties should also be further clarified or extended.   

•  Liability  regime:  The  consultation  invited  views  on  how  to  improve  UCITS  investor 
protection  if  a  depositary  performs  its  duties  "improperly".  To  that  end,  an  attempt  was 
made through this consultation to identify when the risks associated with the safe keeping 
of assets might materialise, especially where assets are entrusted for safe-keeping through 
a  network  of  sub-custodians.    It  also  sought  views  on  the  form  of  liability  regime  which 
would allow investors to adequately mitigate any losses.   

•  Organisational requirements: The consultation invited views on the introduction of rules 

on organisation and conflicts of interest, based on existing EU rules. 

•  Eligibility criteria and supervision: The consultation asked whether and to what extent 
eligibility  criteria  and  supervisory  rules  applicable  to  the  UCITS  depositary  could  be 
harmonised.  

66   Midday Express EXME09 published on 28th May 2009. 

60 

 
 
 
 
 
                                                 
The consultation also covered issues not directly linked to the duties of depositaries but which 
are  particularly  relevant  for  ensuring  an  increased  level  of  investor  protection  within  the 
UCITS framework (for example on the valuation process).   
The deadline for responses to this consultation paper was 15th September 2009.  Seventy nine 
answers have been received: 86 % from organisations, including representative bodies from 
across  the  banking  and  securities  sectors,  asset  managers  and  investors'  representatives,  1% 
from citizens and 13% from public authorities. It should be noted, when drawing conclusions 
from this feedback statement,  that the largest proportion of opinions stated, reflects the views 
of  banking  and  securities  industries    (86  %)  whilst  investor  organisations  and  associations 
represent a much smaller proportion, amounting to a mere 4% of the total opinions. 

Responses to the consultation highlighted the following messages: 

•  The  appropriate  starting  point  for  any  possible  UCITS  amendments  and 
clarifications  is  the  current  UCITS  Directive,67  which  has  worked  well  over  many 
years. The proposed Directive on Alternative Investment Fund Managers (AIFM) should 
not be used as the only basis for reviewing the UCITS Directive;  

•  There is a critical need to clarify depositary duties. UCITS legislation was adopted in 
1985  and  depositary  rules  have  remained  mostly  unchanged  since  then.  However, 
circumstances  have  changed  –  assets  eligible  for  inclusion  in  the  UCITS  portfolio  are 
increasing  in  number,  complexity  and  in  addition,  management  of  company's  activities 
now extends cross border;   

•  Uncertainty regarding the liability regime does not necessarily arise from imprecision with 
regard  to  liability  in  the  UCITS  Directive,  but  rather  from  imprecision  with  regard  to 
proper  performance  of  duties  and  the  fact  that  the  Directive  leaves  it  for  national 
legislation to define the liability regime;  

•  Maintaining  investor  confidence  in  the  UCITS  label  is  a  high  priority  and  a  UCITS 
depositary  should  be  liable  so  as  to  mitigate  investor's  losses  when  it  is  negligent  in 
performing its duties. 

•  There are special circumstances where the risk associated with the safekeeping of assets is 
not under the control of a UCITS depositary, and it is now essential to define if and how 
these  risks  can  be  acceptable  for  UCITS  and  UCITS  investors.    Focus  should  be  on  the 
appropriate management of these risks in a manner which is sustainable for industry and 
UCITS investors and would allow greater consistency within the EU collective investment 
regulatory  framework,  including  with  the  proposal  on  alternative  investment  funds  and 
managers. 

67 Directive 2009/65/EC 

61 

 
 
 
 
 
 
                                                 
•  Finally, if additional rules such as organisational requirements are to be introduced, they 
should  be  aligned  and  be  consistent  with  existing  EU  rules  such  as  MiFID,  where 
appropriate. 

Responses  to  this  consultation  serve  as  a  basis  for  an  on-going  review  of  the  existing 
European  regulatory  principles  by  the  European  Commission.  The  goal  is  to  clarify  the 
regulation  and  supervision  of  UCITS  depositaries;  if  a  need  is  identified  to  strengthen  this 
regulation,  the  Commission  will  consider  the  necessary  proposals  to  achieve  this 
strengthening.  

* 

* 

*

62 

 
 
 
 
 
 
 
 
OVERVIEW OF RESPONSES TO THE CONSULTATION 

The consultation was launched on 3rd July 2009 and closed on 15th September 2009.  

Responses were invited from all interested parties including representatives from the banking 
and securities industries, asset managers, legal service providers and investors. Seventy nine 
answers were received from a wide range of professional representatives, citizens and public 
authorities.  

Figure  1  provides  a  general  presentation  of  the  spread  of  the  responses  received,  from 
organisations, public authorities and citizens.   

Figure  2  provides  a  more  detailed  presentation  of  the  status  of  organisational  respondents, 
broken  down  into  four  categories:    asset  managers,  banking  and  securities  industries,  legal 
services  and  investor  associations.      Figure  3  lists  the  sixty  eight  answers  received  from 
organisations  according  to  their  nationality:  sixty  two  responses  were  received  from  EU-
domiciled organisations and six answers were received from non-EU domiciled organisations 
(US, Switzerland and Norway).    

A  list  of  all  the  organisations,  citizens  and  public  authorities,  who  have  accepted  for  their 
answers to the consultation to be published, is attached in annex 1.  

Figure 1: 

Organisations 

Public Authorities 

Citizens 

Total Contributions 

68 

10 

1 

79 

86% 

13% 

1% 

100% 

Answers per type of respondent

Public Authorities 
13%

Citizens 1%

Organisations

Public Authorities

Citizens

Organisations 
86%

63 

 
 
 
 
 
 
Figure 2:   

For the purposes of this feedback statement, answers from respondents have been classified 
into four sub-groups: asset managers and their associations (including one asset management 
research centre), institutions and associations from the banking and securities industry, legal 
service practionners and investors associations. 

BANKING AND SECURITIES INDUSTRY   41 

INVESTMENT MANAGEMENT  

20 

INVESTORS REPRESENTATIVES  

LEGAL SERVICES 

TOTAL  

3 

4 

68 

60% 

29% 

4% 

6% 

100% 

ANSWERS FROM ORGANISATIONS BY TYPE OF INSTITUTION

LEGAL SERVICES
6%

INVESTORS 
REPRESENTATIVES 
4%

INVESTMENT 
MANAGEMENT 
29%

BANKING AND 
SECURITIES 
INDUSTRIES 
61%

BANKING AND SECURITIES INDUSTRY 
INVESTMENT MANAGEMENT 
INVESTORS REPRESENTATIVES 
LEGAL SERVICES

Figure 3:  

List the sixty eight answers received from organisations according to their nationality.  

United Kingdom 

EU 
level 
associations  

organisations 

and 

15 

13 

22% 

20% 

64 

 
 
 
 
 
 
France 

Spain 

Luxembourg 

Germany 

Italy 

Netherland 

Sweden 

9 

5 

4 

3 

2 

2 

2 

13% 

7% 

6% 

4% 

3% 

3% 

3% 

65 

 
United Kingdom

European Union 

France

Spain

Luxembourg

Germany

Italy

Netherland

Sweden

Non-EU (US, Swizterland,
Norway)
One answer per country
(AT,BE,CZ,DK,EE,IE,SI)

Non-EU 
Norway) 

(US, 

Swizterland, 

One 
answer 
(AT,BE,CZ,DK,EE,IE,SI) 

per 

country 

TOTAL 

6 

7 

68 

9% 

10% 

100% 

Answers from organisations per countries

Non-EU (US, Swizterland, 
Norway)
9%

One answer per country 
(AT,BE,CZ,DK,EE,IE,SI)
10%

Sweden
3%

Netherland
3%

United Kingdom
23%

Italy
3%

Germany
4%

Luxembourg
6%

Spain
7%

France
13%

EU level organisations and 
associations  
19%

66 

 
 
 
 
 
 
DETAILED ANALYSIS OF THE RESPONSES  

The  feedback  statement  presents  a  broad  summary  of  responses  to  each  of  the  thirty  one 
questions  raised  in  the  consultation  paper.    It  should  be  noted,  when  drawing  conclusions 
from this feedback statement,  that the largest proportion of opinions stated, reflects the views 
of  banking  and  securities  industries    (86  %)  whilst  investor  organisations  and  associations 
represent a much smaller proportion, amounting to a mere 4% of the total opinions. 

The  tables  provide  a  quick  overview  of  the balance of respondent  opinions. These opinions 
have been categorized into 'yes/no' categories of answers where possible.  Some respondents 
have also provided qualitative commentaries to supplement or nuance their 'yes/no' answers. 
In such cases, the explanations have been grouped under a number of sub-headings ("For one 
or  more  of  the  following  reasons  :")  to  enable  a  more  detailed  analysis  of  the  respondents' 
views.  

Please  note  that  some  respondents  have  expressed  more  than  one  opinion  in  answer  to  a 
question.  Therefore  the  cumulative  total  of  answers  to  a  question  may  exceed  100%  of 
answers received. 

QUESTION 1 

Do  you  agree  that  safe-keeping  (and  administration)  duties  of  depositaries  should  be 
clarified? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes, the safekeeping and the administration 
duties should be clarified and harmonized 

77

97%

41

100%

18

90%

3

100%

4

100% 10

100%

1

100%

Nearly 100% of the respondents, including the banking and securities industry, investors and 
public  authorities  considered  that  there  is  a  strong  need  to  clarify  the  safe-keeping  and 
administration duties of UCITS depositaries.  The main reasons highlighted are as follows:  

1)  The  harmonisation  of  the  depositary  function  is  a  key  means  for  restoring 

investor confidence   

The  depositary  is  an  institution  in  which  investors  can  place  their  trust  for  keeping  their 
savings safe.  

Some participants insisted that retail investors should never have to face losses as a result of 
failures  in  depositary  safe-keeping;  they  should  they  have  to  worry  about  losses  associated 
with  the  safekeeping  of  assets  when  they  invest  in  UCITS.  Investor  should  not  face  higher 
'custody' risk when they invest in UCITS compared with when they invest in saving accounts. 
The fact that UCITS assets are kept safe was deemed to be essential in ensuring a high level 
of investor confidence in UCITS. 

67 

 
 
 
 
2)  There is a need  to clarify and harmonise the depositary functions  

Respondents  highlighted  a  crucial  need  to  clarify  UCITS  depositary  safekeeping  and 
supervisory functions for the following reasons:  

-  UCITS  legislation  was  adopted  in  1985  and  depositary  rules  have  remained  mostly 
unchanged  since  then.  However,  there  are  more  and  increasingly  complex  assets  which  are 
now eligible for inclusion in UCITS portfolios and management of company's activities can 
now be done cross border. New UCITS eligible assets are subject to detailed investment risk 
management  rules  which  do  not  necessarily  aim  at  addressing  safe-keeping  constraints  and 
custody risks. 

-  Differences  and  inconsistencies  in  the  application  of  UCITS  depositary  rules  at  national 
level create legal and technical uncertainties for the industry and are detrimental to the single 
market.  Therefore,  participants  strongly  encouraged  a  higher  degree  of  harmonisation  of 
technical rules, for example through implementing measures.  

- There is a need for a consistent approach between the fund's depositary rules and other EU 
regulations,  such  as  MiFID  and/or  banking  regulation.  Participants  noted  that  it  was  often 
practically difficult to assess the consistency of EU rules and grasp their interaction with each 
other.  

Some  respondents  also  pointed  out  that  the  review  of  the  depositary  function  should  be 
distinguished  from  the  causes  of  the  financial  crisis  and  the  aftermath  of  the  Madoff  fraud. 
The UCITS depositary industry already works to high standards. Depositary institutions have 
played a crucial role in the European funds industry since 1985 and have contributed to the 
UCITS regulatory model becoming the global benchmark for sound fund regulation and the 
cornerstone  of  a  fully  integrated  European  fund  market.  Therefore,  some  participants 
considered that the Madoff fraud should not cause the EU legislator to overreact.   

3)  There  is  a  need  to  appropriately  address  the  risks  relating  to  custody  of 

financial instruments 

UCITS  investors  should  be  aware  and  understand  that  they  are  not  only  exposed  to 
investment  risks  but  also  to  other  risks  such  as  liquidity,  operational,  and  custody  risks.  As 
brought  to  light  by  the  recent  Madoff  fraud,  some  investment  strategies  do  imply  custody 
constraints  which  are  dealt  with  according  to  the  level  of  risk  that  is  considered  to  be 
acceptable  for  the  fund.  To  that  end,  some  participants  underlined  that  once  identified,  the 
levels of custody risk acceptable for retail or more sophisticated investors could be different, 
and handled in different ways.   

4)  Reviewing of the UCITS standards in line with the AIFM proposal 

A  majority  of  participants  insisted  on  the  critical  need  for  a  consistent  approach  in  dealing 
with depositaries across the EU regulatory framework - including UCITS and AIFM. There 
seems to be similarities for both UCITS and non-UCITS depositary functions as depositaries 
often  faces  similar  technical  constraints  for  example  when  they  safe-keep  a  derivative 
contract  or  a  security.  Therefore,  the  technical  findings  of  this  consultation  could  also  be 
applied to depositary arrangements in the AIFM Directive.  

68 

 
However, for some respondents the proposed AIFM Directive should not be used as the only 
basis  for  reviewing  UCITS.  The  appropriate  starting  point  for  any  possible  UCITS 
amendments and clarifications should be the current UCITS Directive, which has worked well 
over  many  years.  The  reference  to  liability  standards  mentioned  in  the  AIFM  proposal  was 
also felt to be inappropriate because the AIFM Directive proposal is a draft, currently under 
discussion  within  the  Council  and  European  Parliament  and  hence  may  still  be  amended. 
From  a  similar  perspective,  some  participants  expressed  the  view  that  they  do  not  feel 
confident  with  the  idea  of  extending  AIFM  provisions  -  that  should  primarily  address 
professional funds depositaries - to UCITS.  

QUESTIONS 2 & 3  

Do you agree that these duties should be clarified for each class of assets eligible for UCITS 
portfolios? Are there any other appropriate approaches? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

No, there is no need to clarify the 
safekeeping duties per asset type

Yes, the depositary duties should be 
differenciated according to the type of assets 
to be safekept. Safekeeping duties should 
include at least : 
(i) The Custody of the fund's securities 

(ii)  An oversight of the other eligible assets 

No specific opinion expressed 

4

5%

1

2%

1

5%

69

87%

38

93%

17

85%

50

43

6

63%

54%

8%

29

26

2

71%

63%

5%

13

10

2

65%

50%

10%

0

3

2

1

0

0%

100%

67%

33%

0%

1

1

0

0

2

25%

25%

0%

0%

50%

1

9

6

6

0

10%

0

0%

90%

1

100%

60%

60%

0%

0

0

0

0%

0%

0%

Article 22 of the UCITS Directive provides: "The assets of a common fund shall be entrusted 
to a depositary for safe-keeping".68 

Less  than  10  %  of  respondents  either  did  not  express  any  opinion  as  to  how  safe-keeping 
should be clarified or disagreed with any further clarification of safe-keeping duties by asset 
type at EU level because they considered existing national regulations and industry guidelines 
to be explicit enough.   

Over 3/4 of the other respondents, including investors' associations and representatives from 
the  banking  industry,  agreed  with  the  fact  that  the  safe-keeping  duties  and  administration 
duties  of  a  UCITS  depositary  should  be  further  clarified  and  clearly  distinguished  for  each 
class  of  assets  eligible  for  UCITS  portfolios.  This  large  majority  of  respondents  generally 
defined  safe-keeping  as  an  overall  control  that  the  depositary  should  have  over  UCITS 
assets. The depositary should be in a position to know where and how the UCITS assets are 
held at all times.   

Most  respondents  recognized  a  need  to  further  define  what  exact  duties  a  depositary  is 
supposed  to  perform  when  it  safe-keeps  the  funds  assets  -  depending  on  the  legal 
characteristics and safe-keeping constraints which are associated with the financial assets that 

68 A similar provision for the depositary obligations for Investment Company can be found under article 32 of the UCITS Directive. 

69 

 
 
                                                 
are  eligible  for  being  held  in  a  UCITS.  According  to  the  broad  type  of  eligible  asset,  most 
participants summed up safe keeping constraints as follows: 

- Custody duties: It is a registration in the UCITS depositary's books that reflects the fund's 
right of ownership of the asset.  According to some securities professionals, a depositary can 
only  hold  registered  securities  on  its  books  (e.g.  keep  in  custody)  -  the  two  most  common 
being  those  in  bearer  form  and  those  registered  with  a  (International)  Central  Securities 
Depositary  ((I)CSD).    Most  respondents,  including  securities  organisations  stressed  that 
further reflection should determine the exact scope of the custody duties and what should be 
the nature of depositary custody duties relating to cash kept by the depositary on behalf of the 
UCITS. 

- Monitoring duties:  Other assets eligible for holding in a UCITS portfolio cannot be kept in 
custody  by  the  UCITS  depositary  (they  "cannot  be  "physically"  kept  in  custody  by  a 
depositary"). In such cases, the depositary should keep an inventory (through a 'mirror record' 
or  a  'position  keeping'  record)  so  as  to  have  an  exhaustive  view  over  all  the  assets  of  the 
fund.69  These assets include: 

(5) 

(6) 

(7) 

Other  forms  of  securities  that  cannot  be keep in custody  by  the  UCITS depositary – 
the  ownership  of  these  securities  is  determined  through  registration  either  in  the 
issuer's book, with a registrar, or sometimes in the (I)CSD's book;  

Other forms of financial instrument70 such as derivatives contracts,   

Other  forms  of  eligible  assets  such  as  cash  placed  on  deposit  with  one  of  the  fund's 
counterparties.  

QUESTION 4 

Do you agree to a common horizontal and functional approach of the custody duties on the 
listed financial instruments, to be applied to UCITS depositaries? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes, Custody  issues are highly transversal 
issues

No, introducing to much uniformity at any  
EU level may create further problems.

54

68%

30

73%

12

60%

2

3%

0

0%

2

0

1

67%

0%

1

0

25%

0%

8

1

80%

10%

1

0

100%

0%

33%

3

75%

1

10%

0

0%

1

7

5%

35%

No opinion, the concept of "common 
horizontal approach" is unclear.

23

29%

11

27%

69 Most respondents, including UCITS depositaries, believed that it is essential in order to enable the UCITS depositary to 
perform its supervisory duties in an appropriate way.  

70 As defined in Section C of annex I of the Mifid Directive 2004/39/EC.  

70 

 
 
 
                                                 
A majority of participants considered that the custody duties of UCITS depositaries should be 
consistent  with  the  MiFID  Directive  (2004/39/EC)71  and  highlighted  a  crucial  need  to 
harmonise  the  interaction  of  EU  safe-keeping  regulations.  At the  present time  an  institution 
which safe-keeps financial instruments can be subject to different sets of rules - depending on 
whether  the  safe-keeping  applies  to  an  investment  service  (provisions  of  Directives 
2004/39/EEC  2005/34/EC  and  2006/73/EC)  or  to  collective  investment  services  (provisions 
of  Directive  2009/65/EC).    Similarly,  most  participants  urged  the  Commission  to  be 
consistent  when  clarifying  the  rules  applicable  to  safe-keeping  of  assets  for  UCITS  and 
alternative funds, even if the scope of duties may vary.   

QUESTION 5 

Is  there  some  specificity  that  may  be  applicable  to  the  custody  functions  of  a  UCITS 
depositary that should be taken into account? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

Yes, some  elements  are specific to the 
custody of UCITS assets shall be taken into 
consideration.  
No, they are no specific elements to take 
into consideration. 

48

61%

28

68%

7

9%

3

7%

No opinion expressed

24

30%

10

24%

9

3

8

45%

15%

40%

2

0

1

67%

0%

33%

The following elements have been stressed: 

LEGAL 
SERVICES 
(4)

1

0

3

25%

0%

75%

8

0

2

80%

0%

20%

0

1

0

0%

100%

0%

- UCITS depositaries are subject to specific administrative constraints (including in relation to 
corporate actions and tax duties). Therefore technical clarifications over administration duties 
would be welcome. 

- Special considerations should be taken for the safe-keeping of the fund's liquidity (cash held 
by  the  depositary  on  behalf  of  the  UCITS).  Some  professionals  consider  that  this  liquidity 
should be held by the depositary in a regular cash account. This approach implies that as soon 
as liquidity is transferred into collateral or deposited in another institution, it falls outside the 
scope  of  the  depositaries  custody  duties.  Uncertainties  also  remain  where  a  depositary 
finances a fund's overdraft (e.g. when the funds' account is temporarily in cash debit).  

QUESTIONS 6, 7& 8 

Do  you  agree  that  the  existing  supervisory  duties  of  the  UCITS  depositary  should  be 
clarified?  If so, what clarification do you suggest? To what extent does the list of supervisory 
duties need to be extended? 

71  Mifid  Directive  (2004/39/EC)  Annex  I.  Section  B:"Ancillary  services:  (1)  Safekeeping  and  administration  of  financial 
instruments for the account of clients, including custodianship and related services such as cash/collateral management." 

71 

 
 
                                                 
Yes, the list of the supervisory duties  needs 
to be clarified

No, the list of the supervisory duties is clear 
enough

No opinion expressed

53

13

13

67%

16%

16%

BANKING & 
SECURITY 
INDUSTRY 
(41) 

31

76%

4

6

10%

15%

But the list  of the supervisory does not 
need to be extended 

39

49%

27

66%

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

14

70%

1

5

6

5%

25%

30%

3

0

0

0

100%

0%

0%

0%

1

1

2

1

25%

25%

50%

25%

4

6

0

4

40%

60%

0%

40%

0

1

0

1

0%

100%

0%

100%

Article  25.2  and  article  22  of  the  UCITS  Directive  state:  "(…)  In  the  context  of  their 
respective  roles,  the  management  company  and  the  depositary  shall  act  independently  and 
solely in the interest of the unit-holders." 

" (…) 3. A depositary shall: 

(a) ensure that the sale, issue, re-purchase, redemption and cancellation of units effected on 
behalf of a common fund or by a management company are carried out in accordance with 
the applicable national law and the fund rules; 

(b) ensure that the value of units is calculated in accordance with the applicable national law 
and the fund rules; 

(c)  carry  out  the  instructions  of  the  management  company,  unless  they  conflict  with  the 
applicable national law or the fund rules; 

(d) ensure that in transactions involving a common fund's assets any consideration is remitted 
to it within the usual time limits; 

(e) ensure that a common fund's income is applied in accordance with the applicable national 
law and the fund rules (…) ".72 

A majority of participants felt that the current list of supervisory duties mentioned in article 
22 of the UCITS directive is satisfactory and does not need to be extended. However, an even 
larger majority of respondents considered that this list should nonetheless be clarified. They 
underlined a need to harmonise and reach a common understanding as to supervisory duties. 
Amongst  the  elements  to  be  harmonised  at  EU  level,  respondents  made  the  following 
comments:  

-  Depositary  supervisory  duties  should  not  constitute  unnecessary  duplication  of  work 
already accomplished by the asset manager. Supervisory duties should vary according to 
the  complexity  and  risk  levels  attached  to  the  fund  and  should  only  consist  of 
"independent" compliance controls.  

-  Even  if  there  is  global  consensus  on  the  list  of  supervisory  duties,  there  are  however 
substantial  differences  in  national  transposition  of  these  provisions.  Some  respondents 
reported  that  the  supervision  of  a  UCITS  covers  the  verification  that  the  investment 
decisions made by the management company are in compliance with the fund regulation 

72 A similar provision for the depositary obligations for Investment Company can be found under article 32 of the UCITS Directive. 

72 

 
 
                                                 
and  the  fund  prospectus,  whilst  for  others  supervision  merely  consists  in  checking  the 
investment limits applicable to the fund following the execution and reporting of trades.  

-  Existing  national  differences  on  the  depositary's  supervisory  duties  relating  to  the 

calculation of net asset values should be removed; 

-  There  is  a  need  to  clarify  the  role  of  the  depositary  in  the  subscription  and  redemption 

process;  

-  The wording used in the UCITS Directive should be more explicit. The use of expressions 
such as "shall ensure" seem not to be interpreted in the same way across Members States 
and  respondents  believe  that  the  UCITS  Directive  should  use  more  straightforward 
wording;   

-  The UCITS Directive should also be clear as to the Ex Post control duties that should be 

performed.   

QUESTION 9 

Do you agree that the 'only one depositary' requirement should be clarified? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITY 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes

No 

No opinion expressed

55

6

18

70%

8%

23%

31

76%

12

2

8

5%

20%

2

6

60%

10%

30%

2

1

0

67%

33%

0%

0

0

4

0%

0%

100%

9

1

0

90%

10%

0%

1

0

0

100%

0%

0%

Some  respondents  pointed  out  that  the  existing  text  does  not  expressly  mention  that  a  fund 
may  only  have  one  depositary  and  most  participants  recommended  a  clarification  on  this 
point.  

The existence of a single depositary for safe-keeping is perceived by most professionals as the 
only  way  to  guarantee  that  the  depositary  has  an  exhaustive  and  complete  overview  of  the 
fund’s assets (e.g. one depositary for an umbrella structure or an individual fund). This was 
believed to be a key element to ensure investor protection.   

including  from 

Nonetheless,  most  participants, 
investors 
representatives,  were  in  support  of  an  express  recognition  allowing  a  UCITS  depositary  to 
delegate its safe-keeping to multiple local sub-custodians.  To that end, the requirement of a 
single depositary should not be an obstacle for widespread use of sub-custodians, which are 
necessary when taking the global character of UCITS into consideration and the impossibility 
for  depositaries  to  have  representations  in  all  countries.  Most  participants  believed  that  a 
clarifying legal statement in this respect would be useful to remove any uncertainty. 

the  securities 

industry  or 

73 

 
 
QUESTION 10 & 11 

Do you think that the risks related to improper performance have been correctly identified?  
Do  you  foresee  other  situations  where  a  risk  associated  with  improper  performance  of  the 
depositary duties might materialise? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

49

62%

25

61%

12

60%

1

33%

2

50%

8

80%

1

100%

29

37%

24

56%

2

11%

1

33%

0

0%

2

22%

0

0%

Yes, the main risks associated with the 
depositary function has been broadly  
identified  in the consultation paper.

But other substancial risks should be taken 
into consideration, especialy in the case 
where custody of the assets are delegated to 
a third entity

Even  though  a  majority  of  respondents  believed  that  the  main  risks  associated  with  the 
depositary function have been broadly identified in the consultation paper, some respondents 
raised other risks inherent to the depositary function requiring due consideration in order to  
clarify  the liability regime applicable to the UCITS depositary: 

(1) 

Risk associated with the safe keeping duties  

●   Risk associated with the custody of the funds assets:  the risks associated with assets 
held  directly  in  custody  on  the  depositary's  books  seemed  to  respondents  to  be  correctly 
identified.73 In such cases for most respondents, introducing a segregation requirement at EU 
level would greatly contribute to secure safe-keeping of assets.  Securities could only be lost 
in  cases  of  improper  performance  or  negligence  when performing  the custody  duties and in 
the case of fraud.  

●   Risk associated with the sub-custody of the funds assets:  Financial markets and UCITS 
have now become global in nature, and the use of global or local custodians is now a reality 
which  often  goes  beyond  the  choice  of  the  fund's  depositary.  In  most  countries,  securities 
registered  with  a  local  Central  Security  Depositary  must  be  held  in  custody  locally  by  a 
custodian that is affiliated to the local Central Security Depositary. No institutions can today 
ensure  a  worldwide  physical  presence  and  depositaries  must  rely  on  a  network  of  local 
custodians  in  order  to  settle  a  fund's  transactions  and  deal  with  post-market  processes.   
Therefore, safe-keeping of UCITS assets requires the use of a network of sub-custodians.  

these  circumstances,  respondents  stressed 

Given 
that  depositaries  face  unavoidable 
operational  and  legal  constraints  associated  with  local  rules  applying  to  the  custody  of 
securities:  

-  There  are,  for  example,  cases  where  a  fund  is  investing  in  certain  jurisdictions  (for 
example in emerging markets). Investments in emerging market can imply that it is the 
fund's  strategy  to  deliberately  take  on  the  additional  risks  that  arise  due  to  the  poor 

73 It is however worth mentioning that the depositary may also face risks related to operational and settlement issues.  

74 

 
 
                                                 
 
local  post-market  infrastructure  (for  example,  there  may  be  no  segregation 
requirements  and  insolvency  protection  rules  may  not  exist)  or  high  political 
uncertainties  (for  example,  nationalisation  of  assets).    These  risks  could  lead  to  the 
loss of the fund's assets;   

-  There can also be, for example, cases where local rules do not impose any segregation 

requirements so as to protect the fund's assets from being lost; 

-  Sometimes, even  if  assets are  duly  segregated, insolvency  rules  do not allow  for  the 
assets  to  be  immediately  identified,  isolated  and  returned  to  their  beneficial  owner. 
There is therefore a risk, if the sub-custodian goes bankrupt, that the fund's assets will 
only be identified, isolated and returned to their owners, once insolvency proceedings 
are completed. This can take months or even years.  

These examples highlight the fact that once assets are transferred to sub-custody, there can be 
circumstances  where,  even  if  the  depositary  performs  its  due  diligence  properly,  the  assets 
cannot immediately be returned to their owners.   

●      Risk  associated  with  monitored  assets:    the  depositary  may  experience  difficulties  in 
getting  access  to  accurate  and  up-to-date  information  in  a  timely  manner  (for  example  the 
confirmation  of  derivative  transactions),  which  may  ultimately  prevent  the  depositary  from 
performing its safekeeping duties and appropriately monitoring the inventory of the assets.  

(2) 

Risk associated with the supervisory duties  

Most professionals stressed that the liability of the depositary towards the fund's investors can 
only  be  established  through  national  standards  of  “improper  performance”  -  if  a  causal  link 
between the supervisory failure and the loss incurred by the investors can be established.   

QUESTION 12 

Do  you  agree  that  safeguards  against  the  risk  associated  with  improper  performance  of 
depositary  duties,  such  as  requiring  that  UCITS  assets  be  segregated  from  the  depositary’s 
and sub-custodian's assets, should be introduced? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

Yes,  introducing additional requirements to 
secure assets holding  are strongly 
encouraged  
No, safeguards should be dealt with at 
national and industry level  

No opinion expressed

18

23%

2

3%

0

8

0%

20%

1

7

5%

35%

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

59

75%

33

80%

12

60%

LEGAL 
SERVICES 
(4)

2

0

2

50%

0%

50%

9

1

0

90%

1

100%

10%

0%

0

0

0%

0%

2

0

1

67%

0%

33%

•  For  a  large  majority  of  respondents,  introducing  a  segregation  requirement  at  EU  level 
would  greatly  contribute  to  secure  safe-keeping  of  assets.    Segregation  requirements  are 
designed  to  enhance  investor  protection  and  a  large  majority  of  participants  not  only 
agreed  but  are  also  strongly  in  favour  of  the  introduction  of  general  segregation 
requirements  for  UCITS  safe-keeping  rules  at  EU  level,  with  implementing  measures  to 
complement such requirements.   

75 

 
 
•  However, respondents felt that a segregation of assets cannot provide for a total ring-fence 

in the context of insolvency.  

•  Respondents  also  believed  that  additional  requirements,  such  as  preventing  depositaries 
and sub-custodians from re-using assets they keep safe could also be introduced to further 
secure the funds asset holdings at sub-custody level.  

QUESTIONS 13 & 14  

Do you agree there should be a general clarification of the liability regime applicable to the 
UCITS depositary in cases of improper performance of custody duties? What adjustments to 
the  liability  regime  associated  with  custody  duties  of  the  UCITS  depositary  would  be 
appropriate and under what conditions? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

56

71%

26

63%

16

80%

3

100%

3

75%

8

80%

0

0%

The provisions contained in the Directive  
already aims at a high standards.The 
existing reference to the unjustifiable failure 
and improper performance should remain 
and the liability regime needs to be based on 
evidence of failure to perform. 

Nevertheless a more 'harmonised regime' of 
liability is  a desirable outcome... 

46

58%

24

59%

... And it is a priority to maintain (retail) 
investors' confidence in the UCITS label, in 
all circumstances, including in 
circumstances where a 'custody' risk may 
materialise.  

21

27%

9

22%

8

7

40%

35%

3

2

100%

67%

2

0

50%

0%

8

3

80%

1

100%

30%

0

0%

•  As  a  preliminary  remark,  it  should  be  noted  that  the  reference  to  liability  standards 
mentioned in the proposal for the AIFM Directive was felt to be inappropriate because the 
proposal for the AIFM Directive is a draft, designed to address the specific issues faced by 
non-UCITS  funds.  They  insisted  on  the  fact  that  the  appropriate  starting  point  for  any 
possible  UCITS  amendments  and  clarifications  should  be  the  current  UCITS  Directive, 
which has worked well over many years. According to Article 24 of the UCITS Directive: 
"A  depositary  shall,  in  accordance  with  the  national  law  of  the  UCITS  home  Member 
State, be liable to the management company and the unit-holders for any loss suffered by 
them  as  a  result  of  its  unjustifiable  failure  to  perform  its  obligations  or  its  improper 
performance of them.   (…) Liability to unit-holders may be invoked 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."    For  many 
respondents,  the  existing  high  level  wording  of  the  UCITS  Directive  should  not  be 
modified.  Uncertainty  regarding  the  liability  regime  arises  mainly  from  the  Directive's 
imprecision  with  regard  to  proper  performance  of  depositary  duties,  rather  than 
imprecision on liability.  

•  The  reference  to  "performance"  in  the  definition  of  liability  should  be  clarified.  For  a 
majority  of  respondents,  it  was  deemed  necessary  to  keep  a  liability  regime  based  on 
"negligence"  or  "improper  performance"  of  well-defined  safe-keeping  and  supervisory 
duties. The duties of the depositary need first to be clarified if an effective liability regime 

76 

 
 
is  to  be  developed  and  the  liability  regime  should  be  based  on  evidence  of  failure  to 
perform.  

•  Most representatives of the securities and banking industry also considered it important to 
maintain  the  existing  wording  relating  to  'unjustifiable  failure'  as  there  are  always 
existing  risks  which  may  materialise  under  unforeseeable  circumstances  –  for  example 
where  assets  are  lost  or  become  unavailable  –  even  if  due  diligence  has  been  correctly 
performed.  Many  of  them  warned  that  strengthening  liability  regime  of  the  UCITS 
depositary in such circumstances could have substantial negative impact on the industry: 

-  There  are  no  other  investment  products  which  fully  protect  investors  from  risks  of 
criminal  fraud  or  delays  in  the  release  of  securities  as  a  result  of  insolvency 
procedures,  (although  there  may  be  some  limited  protection  via  capped  deposit 
guarantee schemes or other insurance schemes);  

- 

Imposing a stricter liability standard on depositaries is very likely to result in higher 
costs being borne by final investors; however this would not remove the 'custody' risks 
that  may  be  inherent  within  some  UCITS  investment  strategies  -  where  a  fund  is 
invested in an emerging market, for example; 

-  An immediate mitigation of the investor's losses would put UCITS depositaries in the 
position of delivering a function that is similar to that of being “insurers,” and would 
also  create  some  exposure  to  market  risks  related  to  the  value  of  assets  that  may  be 
returned to the depositary, but at a later stage;  

- 

Immediate  mitigation  would  also  require  that  industry  allocate  substantial  capital 
against potential losses, to an extent that would not be sustainable; 

-  A  depositary  may  not  meet  its  liability  to  repay  lost  assets  to  investors  and  default.  
Introducing  a  strict  liability  regime,  may  increase  the  risk  of  depositary  default  and 
may introduce additional systemic risk to the banking system.  

As  a  result,  a  majority  of  participants  considered  'unconditional'  liability  not  to  be 
appropriate;  any  regulatory  changes  introduced  to  the  depositary  framework  should  be 
proportionate to the benefits derived.   

•  Nonetheless, maintaining retail investor's confidence in the UCITS label is a priority.   

Any  regulatory  attempt  to  review  the  existing  provisions  must  be  done  in  a  sustainable 
manner  -  both  for  industry  and  investors.    To  reconcile  the  priorities  of  asset  management 
professionals  and  investors,  some  participants  encouraged  the  Commission  to  focus  on 
appropriate  management  of  all  identified  risks  (in  particular  the  risks  associated  with  local 
sub-custody of a fund's assets) rather than proceeding with a reallocation which would be an 
artificial attempt to remove the risk. A global management risk process could include an in-
depth  analysis  of  local  custody  risk  and  insolvency  rules,  to  determine  under  what 
circumstances assets could be lost or would no longer be immediately available to funds and 
how likely these circumstances would be to materialise.  

Once such risks are identified, some respondents also considered that it would be essential to 
define  what  level  of  risk  should  be  considered  as  acceptable  for  UCITS  investors.  In  that 
respect, for some participants a distinction needs to be made between the level of protection 

77 

 
offered to UCITS investors and that for other non-harmonised collective investment vehicles, 
such as alternative investments funds, which generally target sophisticated investors that have 
chosen to invest in un-harmonised products.  

Some respondents also came forward with alternative propositions to reconcile a high level of 
UCITS investor protection with asset management and securities industry constraints: 

-  Unconditional  liability  but  with  a  well  defined  scope  -  for  example,  where 
assets  remain  in  custody  and  sub-custody  with  companies  affiliated  with  the 
UCITS depositary; 

- 

indemnification 
Introducing  due  diligence  measures  for 
arrangements  in  sub-custody  contracts  to  ensure  that  the  fund  would  be 
adequately protected against the risk of loss;74  

insurance  or 

-  An assessment of investment strategies and eligible assets to identify at what 

point the custody risk would become unacceptable for UCITS investors; 

- 

Introducing  side  pockets  to  isolate  assets  that  are  temporarily  unavailable  to 
the fund (but which would ultimately be returned to the fund, for example once 
insolvency proceedings are complete), should the custody risk materialise.  

Finally, some participants considered that an inversion of the burden of proof would enhance 
investor protection because it would oblige depositaries to be more transparent on their use of 
sub-custodian  networks.  Without  such  an  inversion,  management  companies  and  investors 
lack  the  necessary  expertise  to  investigate  the  network  of  providers  appointed  by  their 
depositary. However, others disagreed with placing the burden of proof on the depositary in 
that  it  may  add  unnecessary  legal  uncertainties  for  the  depositary  business.  The  appropriate 
principles  relating  to  the  burden  of  proof  will  depend  on  the  nature  of  the  depositary's 
obligations and so such burdens should not be imposed without an underlying clarification of 
the nature of the duties to be performed. In the absence of such preliminary work, the reversal 
of burden of the proof is perceived to be “unconditional performance” in disguise. 

QUESTIONS 15 to 17 

Do you agree that the conditions under which the UCITS depositary shall be able to delegate 
its duties to a third party should be clarified? Under which conditions should the depositary 
be allowed to delegate the performance of its duties to a third party? Do you agree that the 
depositary  should  be  subject  to  additional  ongoing  due  diligence  requirements  when 
delegating the performance of its duties to a third party? 

74 Please refer to Rules 17f-5 of the US investment company Act. 

78 

 
                                                 
TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes,  the conditions upon which the 
depositary shall delegate its activities, 
should  be clarifed. 

(Including : depositaries should do due 
diligence on an ongoing base)

65

82%

32

78%

18

90%

53

67%

28

68%

13

65%

No, it is not necessary since it is already 
clarified at national level or through 
industry guidelines. 
No specific opinon 

4

5%

10

13%

3

6

7%

15%

0

2

0%

10%

2

1

1

0

67%

2

50%

10

100%

1

100%

33%

1

25%

9

90%

1

100%

33%

0%

0

2

0%

50%

0

0

0%

0%

0

0

0%

0%

Article 22 of the UCITS directive provides: "A depositary's liability as referred to in Article 
24  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".75 Most participants were indeed of the opinion that the delegation 
of depositary duties should not affect the depositary's liability. 

However, there is also a crucial need to clarify and strengthen the conditions under which a 
UCITS  depositary  may  delegate  its  custody  functions  and  to  harmonise  on-going  due 
diligence.  For  instance  some  respondents  insisted  on  the  need  to  introduce  segregation 
requirements - at the level of the sub-custodian. In addition the need to prevent the right of re-
use of the transferred assets was raised.  

The  initial  and  ongoing  (or  ‘periodic’)  due  diligence  should,  in  so  far  as  possible,  be 
consistent with existing EU and US76 requirements. 

The  conditions  described  in  the  Commission  Consultation  paper  were  believed  to  be 
acceptable, though some other criteria were also mentioned: 

•  Criteria relating to the scope of activity to delegate: With regard to delegation, the 
UCITS  Directive  should  expressly  provide  that  only  safe-keeping  duties  can  be 
delegated.  Additional  criteria  that  define  under  what  circumstances  delegation  is 
allowed77  should  be  incorporated  into  the  Directive.  Some  respondents  thought  that 
delegation  should  be  subject  to  risk  analysis,  in  line  with  the  rules  applicable  to 
segregation  and  insolvency.  Any  sub-custody  risk  should  be  measured  accordingly 
and included as an additional element to the risk profile of the funds, in the Directive.  

75 A similar provision for the depositary obligations for Investment Company can be found under article 32 of the UCITS Directive. 

76 Please refer to Rules 17f-5 of the US investment company Act. 

77 ). J. De Larosière report, 25th February 2009:"The Madoff case has illustrated the importance of better controlling the quality of 
processes and functions in the case of funds, funds of funds and delegations of responsibilities. Several measures seem appropriate: 

- delegation of investment management functions should only take place after proper due diligence and continuous monitoring by 
the  "delegator";    -  an  independent  depository  should  be  appointed,  preferably  a  third  party;  -  The  depository  institution,  as 
custodians,  should  remain  responsible  for  safe-keeping  duties  of  all  the  funds  assets  at  all  times,  in  order  to  be  able  to  perform 
effectively  its  compliance-control  functions.  Delegation  of  depository  functions  to  a  third  party  should  therefore  be  forbidden. 
Nevertheless,  the  depositary  institution  may  have  to  use  sub-custodians  to  safe-keep  foreign  assets.  Sub-custodians  must  be 
completely  independent  of  the  fund  or  the  manager.  The  depositary  must  continue  to  perform  effective  duties  as  is  presently 
requested.  The  quality  of  this  duties  should  be  the  object  of  supervision;  -  Delegation  practices  to  institutions  outside  of  the  EU 
should  not  be  used  to  pervert  EU  legislation  (UCITS  provides  strict  "Chinese  walls"  between  asset  management  functions  and 
depositary-safe-keeping functions. This segregation should be respected whatever the delegation model is used. " 

79 

 
 
                                                 
•  Criteria relating to the type of entity to appoint as a UCITS' sub custodian: this 
list should define the type of eligible institutions and take into account criteria such as 
reputation, organisation, expertise, financial resources and supervisory requirements.78  

QUESTIONS 18 & 19 

Do you share the Commission services approach to reviewing the ICSD, to allow UCITS to 
benefit from a compensation scheme where the depositary defaults?  

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

6%

94%

1

40

2%

98%

0

20

0%

100%

61%

26

63%

11

55%

33%

14

34%

9

45%

2

1

0

1

67%

33%

0%

33%

0

4

2

2

0%

100%

50%

50%

1

9

9

0

10%

90%

90%

0%

1

0

0

0

100%

0%

0%

0%

Yes

No, UCITS should not be entitled to the 
ICSD compenstation scheme; It is an issue 
to be adressed within the  review of the 
ISCD
No, UCITS should not be entitle to ICSD 
compenstaion scheme 

No opinion,  it is  is an issue to be adressed 
within the ISCD review consultation

5

74

48

26

Do  you  agree  that  UCITS  holders  should  also  benefit  from  compensation  if  their  custodian 
defaults and these assets are lost? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

11

14%

5

12%

1

5%

68

86%

36

88%

19

95%

31

39%

17

41%

8

40%

37

47%

19

46%

11

55%

2

1

0

1

67%

33%

0%

33%

1

3

0

3

25%

75%

0%

75%

1

9

6

3

10%

1

100%

90%

60%

30%

0

0

0

0%

0%

0%

Yes, all investors in financial instruments 
should be entitled to mitigate their losses 
under the ISCD. 

No, that should not necessarely be the case 
and  it is anyway  a  issue to be dealt with by 
the ISCD review consultation.

No opinion expressed. This is a specific 
issue whcih shall be dealt with within the 
ISCD review consultation
No opinion expressed. This is a specific 
issue whcih shall be dealt with within the 
ISCD review consultation

Nearly one third of respondents considered that these are not issues to be addressed within a 
UCITS  depositary  review  and  believe  that  these  issues  should  be  best  dealt  with  within  the 
Directive  97/9/EC  (ICSD)  review  process.  The  other  two  thirds  of  those  who  expressed 
opinions argued that the extension of the ICSD would be neither necessary nor relevant, for a 
variety of reasons:  

•  The  purpose  of  ICSD  is  to  mitigate  investor  loss  once  a  firm  has  gone  bankrupt.  A 
review of the ICSD to allow UCITS to benefit from a compensation scheme where a 
depositary defaults was perceived as inappropriate for addressing issues relating to a 
firm's liability.  

78 Special criteria should also be introduced when securities are registered with an (I) Central Securities Depositary. 

80 

 
 
 
                                                 
•  The  purpose  of  the  ICSD  is  to  cover  the  risk  associated  with  investment  services. 
Those risks are of a different nature to the risk associated with collective investment 
services. 

•  The  ICSD's  objectives  are  to  offer  protection  to  retail  investors.  Even  though  they 
invest on behalf of retail investors, UCITS are themselves professional investors when 
they trade on the market. 

•  The level of UCITS losses to be mitigated through the ICSD would be very marginal 
where  a  segregation  principle  has  been  introduced.  Furthermore,  the  level  of 
compensation  offered  through  the  ICSD  (a  few  thousand  euros)  would  be 
disproportionate  to  the  average  value  of  a  UCITS  portfolio  (122  million  euros  in 
average79).  Furthermore,  the  cost  of  organising  such  compensation  for  UCITS  funds 
would exceed the level of profit investors could derive. 

QUESTIONS 20 to 23  

Do  you  agree  that  the  general  organisation  requirements  that  are  applicable  to  a  UCITS 
depositary  should  be  clarified?  If  so,  to  what  extent?  Do  you  agree  that  requirements  on 
conflicts of interest applicable to UCITS depositaries should be clarified? if so, to what extent 
? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes, a clarification on the general 
organisational requirements is encouraged.

No, general organisational  requirements do 
not need to be clarified at EU level.

No opinion expressed

34

28

17

43%

12

29%

35%

21

51%

22%

9

22%

8

5

6

40%

25%

30%

Yes,  Requirements relating to conflict of 
interest should be clarified, particularly 
when the asset manager and  depositary 
and asset manager belong to the the same 
group

48

61%

23

56%

11

55%

3

0

0

2

100%

0%

0%

2

0

2

50%

0%

50%

9

1

0

90%

10%

0%

67%

4

100%

8

80%

0

1

0

0

0%

100%

0%

0%

Some participants considered that existing organisational requirements at national level or in 
industry  guidelines  are  clear  enough.  However,  if  organisational  requirements  were  to  be 
harmonised,  they  should  be  aligned  and  consistent  with  existing  MiFID  organisational 
requirements,  where  appropriate.  With  regard  to  conflicts  of  interest,  a  majority  of 
participants  considered  that  these  rules  should  be  clarified  where  the  asset  manager  and  the 
depositary  belong  to  the  same  group.  Moreover,  respondents  believed  that  transparency  for 
final investors should be enhanced. 

QUESTIONS 24 to 26  

Do you agree that there is a need for clarifying the type of institutions that should be eligible 
to act as UCITS depositaries?  

79 Source : Efama Fact book 2008  

81 

 
 
                                                 
TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes, harmonisation of the eligibility criteria 
is encouraged.

No, existing criteria in the UCITS Directive  
are clear enough and no further 
harmonisation is needed. 
No opinion expressed

52

66%

29

71%

11

55%

12

15%

2

5%

16

20%

10

24%

5

4

25%

20%

2

0

1

67%

0%

33%

3

1

1

75%

25%

25%

7

3

0

70%

30%

0%

0

1

0

0%

100%

0%

Do  you  agree  that  only  institutions  subject  to  the  CRD  should  be  eligible  to  act  as  UCITS 
depositaries?  If  not,  which  types  of  institutions  should  be  eligible  to  act  as  UCITS 
depositaries, and why? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

9

23

22%

56%

16

39

20%

49%

17

22%

9

22%

5

7

4

25%

35%

20%

24

30%

9

22%

8

40%

1

1

0

1

33%

33%

0%

1

0

0

25%

0%

0%

0

7

4

0%

70%

40%

0

1

0

0%

100%

0%

33%

3

75%

3

30%

0

0%

No opinion 

Yes, Only CRD institutions should be 
eligible.  

Including :  Only Credit institution (and 
non EU credit institutions branches) should 
be eligible. 

No, it is necessary to establish a larger list 
of eligible entities according to the risk and 
liabilities associated with the depositary 
activities.

Article 23 of the UCITS Directive provides: "(…) A depositary shall be an institution which is 
subject  to  prudential  regulation  and  on-going  supervision.  It  shall  also  furnish  sufficient 
financial  and  professional  guarantees  to  be  able  effectively  to  pursue  its  business  as 
depositary  and  meet  the  commitments  inherent  in  that  function.  (….)  Member  States  shall 
determine which of the categories of institutions referred to in paragraph 2 shall be eligible 
to be depositaries. (…) " 

A  majority  of  participants  considered  that  the  status  of  the  UCITS  depositary  should  be 
clarified and harmonised.  

Institutions subject to the Capital Requirements Directive 2006/48/EC (which includes credit 
institutions and investment firms) are generally considered as being the most suitable entities 
to fulfil UCITS depositary requirements, in light of their sound organisation and expertise in 
investment  services  and  safe-keeping.  These  institutions  are  also  subject  to  strong  EU 
mechanisms that protect clients' interests in case of default. Some participants even insisted 
that  the  existing  annex  of  the  CRD  should  be  clarified  with  regard  to  the  necessary  capital 
requirements  associated  with  depositary  activities  (which  include  safe-keeping  but  also 
supervisory duties). A minority also expressed the view that harmonisation of the eligibility 
criteria  of  the  UCITS  depositary  should  only  be undertaken so long  as credit institution are 
made  eligible,  as  is  already  the  case  in  some  Member  States.    However,  many  participants 
also expressed diverging views on the latter. Introducing restrictions based on CRD eligibility 
criteria could significantly reduce the number of depositaries and thus reduce managers' and 
investors'  choices,  leading  to  an  unnecessary  market  concentration.  They  believed  that  the 

82 

 
 
 
appropriate  approach  would  be  to  define  criteria  based  on  the  operational  risk  and  liability 
constraints associated with depositary activities.  

QUESTION 27 

Do  you  agree  that  additional  auditing  requirements  should  be  imposed,  such  as  an  annual 
certification of the depositary's accounts by independent auditors? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes, depositary should be subject to proper 
auditing requirements  
No, depositary are already subejct to 
autiding requirement  
No opinion expressed  

20

39

20

25%

6

15%

49%

25%

25

10

61%

24%

6

7

7

30%

35%

35%

2

0

1

67%

0%

33%

0

2

2

0%

50%

50%

5

5

0

50%

50%

0%

1

0

0

100%

0%

0%

The respondents indicated that most EU depositaries are already subject to annual audit (such 
as  SAS  70)  according  to  banking  or  investment  services  regulations.  Introducing  additional 
requirements was perceived as an unnecessary and costly measure.  

However,  it  is  important  to  stress  that  for  most participants the certification  not only of the 
depositary's own assets but also of the assets held on behalf of its clients, would ascertain the 
actual existence of assets. This was perceived to be a key element in the prevention of fraud. 
This  certification  could  be  required  at  the  sub-custodian  level  and  referred  to  in  the 
accounting  documents  of  the  funds.  Some  respondents  also  mentioned  that  additional 
eligibility  criteria  could  be  introduced  –  for  example  systematic  replacement  of  auditors  at 
regular intervals.  

QUESTION 28 

Do you agree that UCITS depositaries should be subject to a specific 'depositary' approval by 
national regulators? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

20

11

10

49%

27%

24%

40

18

21

51%

23%

27%

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

7

6

7

35%

30%

35%

2

0

1

67%

0%

33%

2

0

2

50%

0%

50%

8

1

1

80%

10%

10%

1

0

0

100%

0%

0%

Yes   

No 

No opinion expressed

According  to  the  CESR  mapping,  there  is  currently  an  uneven  approach  to  supervision  of 
UCITS depositaries across Europe. This includes situations where in some Member States, a 
specific authorisation is already granted by competent authorities to credit institutions or other 
eligible institutions to act as UCITS depositaries.   

For a majority of participants, specific approval should be granted by the national competent 
authorities to UCITS depositaries, in addition to the licence for providing custody duties.  

QUESTIONS 29  

83 

 
 
 
Do  you  believe  that  there  is  need  to  promote  further  harmonisation  of  the  supervision  and 
cooperation  by  European  regulators  of  depositary  activities?  What  are  your  views  on  the 
creation of an EU passport for UCITS depositaries? 

TOTAL 

ORGANISATIONS

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

47

4

28

42

59%

5%

35%

53%

25

0

16

21

61%

0%

39%

11

2

7

51%

10

55%

10%

35%

50%

2

0

1

2

67%

0%

33%

67%

1

0

3

1

25%

0%

75%

25%

7

2

1

8

70%

20%

10%

80%

1

0

0

0

100%

0%

0%

0%

Yes 

No 

No opinion expressed

However a Depositary Passport  would  
only be feasible  if  the  activities of UCITS 
depositaries were further harmonised 

A large majority of respondents viewed the harmonisation of the supervision of depositaries 
by  national  authorities  and  the  harmonisation  of  the  national  supervisor's  administrative 
powers,  as  necessary.  Full  harmonisation  of  the  rules  applicable  in  the  supervision  of  the 
UCITS  depositaries  is  indeed  crucial  to  the  positive  development  of  the  European  single 
market.  

A  majority  of  respondents,  including  the  banking  and  securities  industry  and  investors 
considered  that  harmonisation  of  the  status,  role and liability regime of UCITS depositaries 
should be an unconditional pre-requisite for a UCITS depositary passport. 

QUESTIONS 30 & 31 

As far as the UCITS portfolio and UCITS units or shares are concerned, do you agree that 
their  value  should  be  assessed  by  an  independent  valuator?    If  so,  what  should  be  the 
applicable conditions for an entity to be eligible to act as an UCITS Valuator? 

TOTAL 

ORGANISATIONS

PUBLIC 
AUTH. (10)

CITIZENS 
(1)

BANKING & 
SECURITIES 
INDUSTRY 
(41) 

MANAGEMENT 
INDUSTRY (20)

INVESTORS 
REP.(3)

LEGAL 
SERVICES 
(4)

Yes,  It will provide more comfort to 
investors as far as the valuation process is 
concerned. 
No, it will not necesseraly increase the  level 
of investor protection.  

14

18%

10

24%

2

10%

46

58%

20

49%

13

65%

No Opinion expressed

19

24%

11

27%

5

25%

1

1

1

33%

33%

33%

0

2

2

0%

0

0%

1

100%

50%

10

100%

0

0%

50%

0

0%

0

0%

Some respondents stressed that, for off shore hedge funds, most industry guidelines already 
require  that  an  independent  administrator  has  to  be  appointed  to  valuate  the  funds'  units. 
However, the ultimate decision on value of assets remains with the asset manager. 

As far as UCITS are concerned, some respondents took the view that independent valuators 
should  be  appointed  in  cases  where  this  would  provide  additional  comfort  to  investors. 
Should the valuation fall under the responsibility of an independent valuator, such an entity 
should be appropriately regulated (with proper capital and supervisory requirements). It was 
reiterated that ultimate decisions on value should still remain with the asset manager. 

84 

 
 
 
On  the  other  hand,  a  third  of  respondents  expressed  a  strong  disagreement  with  such  a 
requirement,  feeling  that  independent  UCITS  valuation  would  not  necessarily  improve 
investor  protection.  Issues  relating  to  the  valuation  process  would  remain  the  same 
irrespective  of  whether  the  manager  or  another  legally  independent  entity  performed  the 
valuation. Hard to value assets would remain difficult to value. The valuator's independence 
would  not  necessarily  ensure  his  competence  and  so  would  not  guarantee  more  accurate 
pricing.  

Moreover, stakeholders mentioned that an integral part of the manager's role is to be expert in 
asset  pricing  and  so  delegation  of  such  a  task  to  a  third  party  would  be  inconsistent  and 
duplicate  his  core  business.  Therefore,  most  respondents  felt  the  existing  model  to  be 
appropriate and so no further modification would be required. 

*** 

85 

 
 
Annex 1.  

-   List of the public authorities that have participated in the consultation. Most Ministries of 
Finance  have  made  a  single  contribution  to  the  consultation  also  on  behalf  of  their  market 
regulator and their prudential supervisor.  

Czech Republic 

Czech Republic 

Central Bank 

Finance Ministry 

European Union  

CESR 

Finland 

France  

Germany 

Ireland 

Luxembourg 

Netherlands 

Finance Ministry 

Finance Ministry 

Finance Ministry 

Financial regulator 

Financial regulator 

Financial regulator 

United Kingdom 

Finance Ministry 

-   List of the citizens which have participated in the consultation.  

Jerome TURQUEY  

Consultant  

-   List of the organisations which have participated in the consultation.  

ABBL-ALFI-Luxembourg Bankers association 

ABI-Italian Banking Association 

ADEPO 

Advisory panel of the CNMV  

Af2i. 

AFG - Association Française de Gestion  

AFTI & AMAFI-Association Française des Professionnels des Titres 

AIMA - Alternative Investment Management Association  

86 

 
 
 
  
  
 
AMCHAM EU - American Chamber of Commerce to the European Union 

Association of Foreign Banks in Germany 

Association of Global Custodian  

Association of Investment Companies  

ASSOGESTIONI- Associazione del risparmio gestito 

AXA Investment Manager  

BANCO SANTANDER 

BGIL-Barclays Global Investors 

BLACKROCK 

BNP Paribas Securities Services 

BNY Mellon 

BVCA Regulatory Committee 

BVI- Bundesverband Investment und Asset Management e.V. 

CACEIS 

ČESKÁ SPOŘITELNA, a.s 

CITCO Bank Nederland N.V. 

Citigroup International Plc (Luxembourg Branch) 

City of London Law Society Regulatory Committee (The)  

CLEARSTREAM International 

Danish Shareholders Associations  

DATA - Depositary and Trustee Association 

Deutsche Bank  AG, London 

DUFAS -Dutch Fund & Asset Management Association 

EACB-European Association of Co-operative Banks 

EAPB-European Association of Public Banks (EAPB) 

EBF- European Banking federation  

ECSDA 

EDHEC  

87 

 
EFAMA 

EFRP - European Federation for Retirement Provision  

ESBG - European Savings Banks Group aisbl 

ESSF-SIFMA Securities Industry and Financial Markets Association 

ETDF - European Trustee & Depositary Forum 

EUROCLEAR S.A 

EUROSHAREHOLDERS 

EVCA - European Private Equity & Equity Capital Venture 

FBF - Fédération Bancaire Française 

FIDELITY INTERNATIONAL  

FINUSE 

IFIA - Irish Funds Industry Association  

IMA - Investment Manager Association 

INTESASANPAOLO S.p.A. 

INVERSEGUROS 

ISSA - International Securities Services Association 

JP MORGAN Trust and Fiduciary Services  

Law Society of England and Wales (The)  

Legal & General Investment Management Limited 

Matheson Ormsby Prentice 

NFU - Nordiska Finansanställdas Union 

RBC - Dexia Investor Services 

SKAGEN Funds International  

SOCIETE GENERALE 

STATE STREET CORPORATION 

SWEDBANK  AS 

Swedish Bankers Association 

UBS AG 

88 

 
WKO - Austrian federal Economic Chamber  

ZBS - Bank Association of Slovenia 

ZKA - ZENTRALER KREDITAUSSCHUSS 

One organisation has submitted a contribution on a confidential basis 

CONSULTATION ON LEGISLATIVE CHANGES TO THE UCITS DEPOSITARY FUNCTION AND TO 
THE UCITS MANAGERS' REMUNERATION (2010) 

The  European  Commission  launched  a  public  consultation  to  review  the  current  framework 
applicable to the UCITS depositaries and to introduce provisions on remuneration for UCITS 
managers. The objective of the consultation was to gather evidence-based views, particularly 
on  any  foreseen  costs  and  benefits  relating  to  the  main  changes  that  the  Commission's 
services may envisage.  It is important to highlight that the responses to the consultation (in 
total  57)  revealed  a  very  broad  support  on  the  Commission's  initiatives  described  in  the 
consultation  document.  These  initiatives  are  perceived  as  a  significant  and  positive  step 
forward  in  order  to  improve  investor  protection,  notably  through  a  more  harmonised  EU 
regulatory framework to enhance fair competition between all UCITS fund providers. 

The responses to the consultation highlighted in particular the following conclusions: 

With  respect  to  UCITS  depositary  functions,  the  clarification  of  the  UCITS  depositary 
duties  and  liability  regimes  was  perceived  as  a  key  policy  priority,  given  that  UCITS 
depositaries are responsible for investors' safety. More specifically: 

(cid:131)  Alignment with the AIFM Directive: the so-called 'UCITS V' review initiative should 
be  conducted  in  accordance  with  the  respective  requirements  under  the  AIFM 
Directive,  to  enhance  consistency  in  the  regulatory  framework  applicable  to  the 
depositary  function.  Stakeholders  encouraged  the  use  of  similar  and  consistent 
terminology between the AIFM and the UCITS provisions. However a pure alignment 
of the AIFM Directive is not considered appropriate, in particular as UCITS investors 
addressed  through  fund  'passporting'  are  mostly  retail  investors.  In  this  context,  the 
depositary's role to ensure that investors' interests are protected is crucial; 

89 

 
 
 
 
 
 
 
 
 
 
(cid:131)  Liability regime: the two most controversial aspects relate to (i) the reference to 'force 
majeure', to allow a liability discharge of the UCITS depositary, and (ii) the obligation 
to  return  'lost'  assets  "with  no  delay"  (where  according  to  the  AIFM  Directive 
standards, AIF depositaries must return 'lost' assets 'without any undue delay'). In this 
context, nevertheless, a majority of stakeholders have highlighted the fact that the key 
outstanding question is rather to know when an asset can be considered "lost"; 

(cid:131)  UCITS  holders'  rights:  The  UCITS  unit  holders'  and  shareholders'  rights  should  be 
clarified  and  aligned,  regardless  of  the  legal  form  of  the  UCITS  fund.  Some 
stakeholders  even  suggest  that  the  Commission  introduce  UCITS  class  actions  to 
ensure that the retail investors can benefit from all existing legal tools to ensure that 
their interests are duly protected; 

(cid:131)  Supervision:  This  has  been  highlighted  as  an  essential  'single  market'  issue  in  the 
responses  to  the  consultation.  The  majority  of  stakeholders  believe  that  the 
competencies of supervisors should be further harmonised and that competent national 
authorities  should  be  allowed  to  enforce  EU  rules  in  an  effective  and  harmonised 
manner. 

On  managers'  remuneration  policy,  the  majority  of  the  contributions  stress  that  rules  on 
remuneration policies should be consistent with rules laid down in the AIFMD albeit adjusted 
to  the  UCITS  model.  For  instance,  some  stakeholders  have  highlighted  that  requirements 
relating to the fact that a substantial portion of variable remuneration should consist of units 
or shares of the fund or a company concerned is not suitable in a UCITS environment. 

90 

 
 
 
 
 
10.3.  ANNEX 3: Shares of Households that invest in UCITS Funds  

Member 
State 

Share 
households 

of 

Source (2005-2008 data) 

Germany  16% 

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/C
ontent/Publikationen/Fachveroeffentlichungen/WirtschaftsrechnungenZ
eitbudget/EinkommenVerbrauch/EVS__GeldImmobilienvermoegenSch
ulden2152602089004,property=file.pdf  

Italy 

11% 

http://www.bancaditalia.it/statistiche/indcamp/bilfait/boll_stat/suppl_08
_10_corr.pdf 

Austria 

11% 

http://www.hfcs.at/de/img/gewi_2006_2_05_tcm14-43181.pdf 

France 

10% 

http://www.insee.fr/fr/ffc/docs_ffc/ip985.pdf 

Spain 

7% 

http://www.bde.es/webbde/es/estadis/eff/eff2008_be1210.pdf 

United 
Kingdom 

6% 

Average 

10% 

http://www.ons.gov.uk/ons/rel/was/wealth-in-great-britain/main-results-
from-the-wealth-and-assets-survey-2006-2008/index.html 

91 

 
 
 
 
10.4.  ANNEX 4: UCITS Net Assets by Country of Domiciliation 

UCITS Net Assets

11,5%

1,4%

1,5%

2,6%

2,9%

1,1%

1,1%

20,6%

4,2%

32,4%

14,4%

2,8%

0,5%

Austria
Belgium
Bulgaria
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Liechtenstein
Luxembourg
Netherlands
Norway
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom

Net assets of UCITS  -  30/09/2011 

Members 

Assets (EURm) 

Share 

Austria 

              75 788     

1,4% 

Belgium 

              79 131     

1,5% 

Bulgaria 

                   226     

0,0% 

Czech Republic 

                4 375     

0,1% 

Denmark 

              62 373     

1,2% 

Finland 

France 

              46 969     

0,9% 

         1 080 382     

20,6% 

Germany 

            221 914     

4,2% 

Greece 

                5 140     

0,1% 

Hungary 

                7 856     

0,1% 

Ireland 

            754 903     

14,4% 

Italy 

            149 371     

2,8% 

Liechtenstein 

              25 769     

0,5% 

92 

 
 
 
Luxembourg 

         1 704 978     

32,4% 

Netherlands 

              58 591     

1,1% 

Norway 

              59 614     

1,1% 

Poland 

              15 197     

0,3% 

Portugal 

                6 565     

0,1% 

Romania 

                1 871     

0,0% 

Slovakia 

                3 011     

0,1% 

Slovenia 

                1 752     

0,0% 

Spain 

            152 792     

2,9% 

Sweden 

            134 790     

2,6% 

United Kingdom 

            602 269     

11,5% 

EEA 

         5 255 627     

100,0% 

93 

 
10.5.  ANNEX 5: Summary of the 2010 CESR mapping exercise 

Summary  of  the  CESR  mapping  exercise  of  the  duties  and  liabilities  of  UCITS  depositaries  as  published  in  January  2010  and 
complemented by the Commission Communication on depositaries in the Member States of March 2004 

(Mapping for 10  EU counties representing 92% of the UCITS Markets) 

UCITS 
MARKET 
SHARES 

ELIGIBILITY CRITERIA 

Applicable Criteria 

Capital 
requirement 

WHAT  LIABILITY  REGIME  IN  CASE 
OF LOSS OF ASSETS 

REGULATION 
DELEGATION 

Appr
oval 

liability  for 

What 
safekeeping 

Civil 
or 
Administrative ruling 

Restrictions 
to 
task 
on 
be delegated 

Existing 
diligence 

UPON 

due 

AUSTRIA 

1.6% 

Credit institutions  

5 M€ 

-- 

-- 

Civil ruling  

No  prohibition 
,  all  task  can 
be delegated  

No  specific  rules  -  Must 
respect  fund's  rules  and 
shareholders interests. 

Domestic  branch  of  a 
EEA credit institutions 

Outside 
jurisdiction  

FMA's 

BELGUM 

1.6% 

Credit institutions 

As  applicable  to 
CRD firms* 

Yes 

-- 

Civil court ruling;   

Safekeeping 
only  

Belgium Central bank  

CBFA  may  only 
take 
administrative measures to 

94 

Contractual  duty  of  care 
and  due  diligence  on  the 
choice  of  delegate  and 
Adequate  monitoring  of 
the delegated function. 

 
 
 
 
 
 
 
 
 
 
 
 
 
Investment firms  

organisational, 
remedy 
conduct 
of 
rules 
deficiencies. 

FRANCE  

23.7% 

Credit institutions 

3.8 M€* 

No 

Obligation  of  result  to 
return safe kept assets 

civil 

General 
law 
principal,  complemented 
by the AMF rulebook ;  

Safekeeping 
only  

Investment firms  

Insurance companies 

Competence  of  AMF,  to 
be  challenge  to  the  Court, 
if necessary. 

Extension  of  Mifid  rules 
on 
to 
safekeeping 
depositary  function  when 
is  a  credit 
depositary 
institution.  

Administrative  framework 
applicable 
upon 
delegation    (contract  and 
due 
diligence 
requirements) 

95 

 
 
 
 
  
 
 
 
 
 
UCITS 
MARKET 
SHARES 

ELIGIBILITY CRITERIA 

LIABILITY  REGIME  IN  CASE  OF  LOSS  OF 
ASSETS 

REGULATION UPON DELEGATION 

Applicable Criteria 

Capital 
requirement 

Approv
al 

What 
safekeeping 

liability 

for 

Civil  or  Administrative 
ruling 

Restrictions  on 
task 
be 
to 
delegated 

Existing due diligence 

GERMANY 

4.2% 

Credit institutions 

5 M€ 

Yes 

IRELAND 

11.3% 

principles 

" 
UCITS 
…subject  to  prudential 
regulation and on-going 

-- 

Supervision. (…)" 

-- 

Civil court ruling;   

-- 

Outside 
jurisdiction  

Bafin's 

Tribunal ruling  

--  

Administrative  framework 
upon 
applicable 
delegation. 

  Specific 
applicable: 

conditions 

.  Type of eligible the sub-
custodian  

. local regulation  shall not 
impair the right of request 
delivery of the depositary, 

. 
  on  the  type  of  the 
equities  to  be  kept  in  sub 
custody : must be fungible 
and eligible to the scheme.  

Administrative  framework 
applicable 
upon 
delegation. 

No eligibility criteria upon 

If  failure  (negligence  or 
failure  to  met  accepted 
standard  of  due  care)  to 
comply  with  a  duty 
arising 
the 
obligation  (e.g.  to  return 
the 
in 
custody),  possible  may 
claim for compensation.  

assets 

under 

held 

requires 

a 
This 
depositary  to  return  the 
assets  to  the  UCITS  on 
request  (…).  Depositary 
is liable as a result of its 
to 
unjustifiable  failure 
perform  its  obligations, 
improper 
or 

its 

96 

 
 
 
 
 
 
 
 
 
 
 
UCITS 
MARKET 
SHARES 

ELIGIBILITY CRITERIA 

LIABILITY  REGIME  IN  CASE  OF  LOSS  OF 
ASSETS 

REGULATION UPON DELEGATION 

Applicable Criteria 

Capital 
requirement 

Approv
al 

What 
safekeeping 

liability 

for 

Civil  or  Administrative 
ruling 

Restrictions  on 
task 
be 
to 
delegated 

Existing due diligence 

performance of them. 

sub custodian; 

Credit 
branch)  

intuition 

(+ 

Company 
incorporated 
in  IR  wholly  owned  by 
a credit institution in an 
EU  or  non  EU  country, 
condition 
upon 
(equivalence 
of 
protection ) 

ITALY 

3.7% 

Credit institutions 

100M€ 

-- 

+  Other  requirements 
(organisational 
structure, 
capital 
requirement  adequate… 
experience)   

If  failure,  the  depositary 
is  liable  unless  it  can 
prove  that  it  could  not 
have avoided the loss.  

Civil competence 

-- 

Supervisory authority may 
administrative 
impose 
other 
sanction 
and 
remedial  measures 
for 
breach  of  administrative 
regulation  

97 

.Specific  Due  diligence 
sub 
requirements  upon 
custody  of  assets 
(for 
example, segregation)  

Administrative  framework 
applicable 
upon 
delegation 

Specific 
applicable: 

conditions 

.Upon the sub custodian  

(credit 
authorised custodian)  

institution 

or 

. 
Operational 
requirement  (consent  of 
asset 
manager, 
segregation)  

.   no minimum content of 

 
 
 
 
 
 
 
 
 
 
 
UCITS 
MARKET 
SHARES 

ELIGIBILITY CRITERIA 

LIABILITY  REGIME  IN  CASE  OF  LOSS  OF 
ASSETS 

REGULATION UPON DELEGATION 

Applicable Criteria 

Capital 
requirement 

Approv
al 

What 
safekeeping 

liability 

for 

Civil  or  Administrative 
ruling 

Restrictions  on 
task 
be 
to 
delegated 

Existing due diligence 

LUXEMBOURG 

30.1% 

Credit institutions 

8.7 M€* 

Implying  at  MS  level 
and 
requirements 
of 
supervision 
the 
function 
depositary 
(adequate 
organisational 
structure, 
capital 
requirement  adequate 
experience)   

Yes  (as 
a 
Bank) 

SPAIN 

3.5% 

Credit institutions 

Yes 

Yes 

Investment firm  

+  Other  requirements 
(organisational 
structure, 
requirement 

capital 
adequate, 

of 

case 

In 
wrongful/improper 
performance  and  failure 
to perform.  

Civil 
exclusively  

competence 

-- 

On  the  burden  of  the 
proof : Anyone suffering 
damages  must  prove  the 
depositary negligence 

impose 
may 
CSSF 
sanction 
administrative 
(fine/  withdrawal 
of 
approval)  for  breach  of 
administrative regulation. 

If  the  UCITS  depositary 
breaches  of  their  duties, 
according 
best 
standards.  

to 

Administrative legislation 

-- 

Competence  of  CNMV,  to 
be  challenge  to  the  Court, 
if necessary. 

98 

the sub custody contract  

Administrative  framework 
upon 
applicable 
delegation  and 
  CSSF 
supervisory practices   

Specific 
applicable: 

conditions 

.    check-list  on  the  sub 
custodian  entity  and  task 
delegated  

   Operational  requirement 
(segregation) 

Administrative  framework 
applicable 
upon 
delegation 

Specific 
applicable: 

conditions 

.  Upon the sub custodian  

. 

Operational 

 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
UCITS 
MARKET 
SHARES 

ELIGIBILITY CRITERIA 

LIABILITY  REGIME  IN  CASE  OF  LOSS  OF 
ASSETS 

REGULATION UPON DELEGATION 

Applicable Criteria 

Capital 
requirement 

Approv
al 

What 
safekeeping 

liability 

for 

Civil  or  Administrative 
ruling 

Restrictions  on 
task 
be 
to 
delegated 

Existing due diligence 

rules of conduct…)  

requirement  (segregation, 
and  in  specific  case  of 
Omnibus account ) 

.    Due  diligence  over  the 
delegated duties. 

  No  rules  as  to  the 

. 
content of the contract.  

SWEDEN 

2.3% 

Credit institutions 

Yes 

-- 

Obligation of result  

Civil law 

-- 

Guidelines  

UK 

10.0% 

principles 

UCITS 
" 
…subject  to  prudential 
regulation and on-going 

Yes 

Threshold 
condition  upon 
approval  
(4M£*)  

Liability  for 
improper 
performance  or  in  case 
of unjustifiable failure to 
perform.  

Supervision. (…)" 

+  Other  requirements 
(adequate 
, 
sutability, …)  

resources 

issue 
Supervisor  may 
administrative 
sanction 
that  do  not  affect  civil 
liability 

Depending  on  the  nature 
and  extent  of  any  breach 
by the depositary, the FSA 
may  be  able  to  exercise 
the  own-initiative  powers 
conferred on it by primary 
legislation.  

All  decisions  by  the  FSA 
to exercise its disciplinary 
powers  are  subject  to  an 
appeals 
independent 
process. 

No 
restriction 
–  any  function 
can 
be 
delegated   

Administrative  framework 
applicable 
upon 
delegation 

to 

specific 
Subject 
and 
due 
conditions 
requirements 
diligence 
(depending  on  the  type  of 
function  which  is  to  be 
delegated) . 

99 

 
 
 
 
 
 
 
 
 
 
 
100 

 
 
 
 
10.6.  ANNEX 6: The Commission's broad Framework on remuneration 

Post-2008, the case for regulating remuneration policies across the financial services industry 
is  founded  on  well-documented  evidence  that  skewed  remuneration  practices  within  credit 
institutions, investment and insurance companies, as well as in other large corporate entities, 
played  a  significant  role  in  the  build-up  of  leverage,  and  ultimately  of  financial  risk,  across 
financial markets world-wide80. The pro-cyclical effect of these misguided incentive schemes 
in the financial services industry was further recognised by the G20 Group at its April 2009 
Summit in London, where leaders engaged to endorse and implement the Financial Stability 
Forum’s  (FSF)  tough  new  principles  on  pay  and  compensation  and  to  support  sustainable 
compensation  schemes  and  the  corporate  social  responsibility  of  al  firms81. On the basis of 
this  mandate,  the  Financial  Stability  Board  (FSB)  issued  its  Principles  for  Sound 
Compensation Practices in September 2009 to be applied globally82.  

The above FSB principles were translated into the EU regulatory context in April 2009 with 
the Commission Recommendation on remuneration policies in the financial services sector83.  
The  main  objective  of  the  Recommendation  is  to  ensure  that  remuneration  policies  of 
financial institutions do not encourage excessive risk taking and are in line with the long-term 
interests of financial institutions, their objectives, values, business strategy and risk tolerance. 
This will in turn lead to reduced levels of systemic risk and greater transparency within the 
financial services.  

The Recommendation includes new principles on the structure of remuneration, on processes 
for designing and operating the remuneration policy, on the disclosure of remuneration policy 
to  stakeholders  and  on  the  supervisory  review  of  such  policies.  The  Recommendation  takes 
the view that these new principles on sound remuneration policies must apply to all sectors in 
the financial services industry, regardless of the size of the financial institution. This breadth 
of application avoids any possible loopholes and prevents a distortion of competition between 
different sectors and financial institutions. However, some of the general principles on sound 
remuneration practices may be of more relevance to certain categories of financial institutions 
than others. For this reason, a proportionality test was introduced in the Recommendation to 

80  In  the  words  of  the  de  Larosière  Report  of  February  2009,  remuneration  and  incentive  schemes  within 
financial  institutions  contributed  to  excessive  risk-taking  by  rewarding  short-term  expansion  of  the  volume  of 
(risky) trades rather than the long-term profitability of investments. See the Report of the High-Level Group on 
at: 
de 
Financial 
http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf.  

Larosière.  Available 

Supervision 

Jacques 

chaired 

EU 

the 

by 

in 

81  See 
http://www.londonsummit.gov.uk/resources/en/PDF/final-communique  

final  communiqué  of 

the  G20  London  Summit 

the 

in  April  2009.  Available  at: 

82 Available at: http://www.financialstabilityboard.org/publications/r_090925c.pdf  

83 See the Commission's Recommendation on remuneration policies in the financial services sector of 30 April 
2009. 
http://ec.europa.eu/internal_market/company/docs/directors-
remun/financialsector_290409_en.pdf  

Available 

at: 

101 

 
 
 
                                                 
ensure  that  Member  States,  when  implementing  the  general  principles,  should  take  into 
account  the  nature,  the  size,  as  well  as  the  specific  scope  of  activities  of  the  financial 
undertakings concerned. Furthermore, the application of these principles would be limited to 
those categories of staff whose professional activities have an impact on the risk profile of the 
financial institution.  

The conclusion of the Recommendation also stated that it shall be followed by a legislative 
proposal  in  the  banking  and  investment  firms´  sector  and  further  extension  into  the  other 
financial services sectors should also be considered.  

An ensuing report by the Commission in June 2010 on the application by Member States of 
the  aforementioned  Recommendation  showed  substantial  differences  in  the  approaches  of 
Member  States  to  the  agreed  principles84.  Furthermore,  it  announced  the  Commission 
intended to take legislative measures on remuneration in the non-banking financial services 
sector  (insurance,  UCITS)85,  similar  to  those  adopted  under  the  Capital  Requirements 
Directive (CRD).  

As  far  as  the  insurance  industry  is  concerned,  the  Commission's  services  are  currently 
working on level 2 measures to the Solvency II measure, where rules on remuneration policy 
will  be  introduced,  following  the  advice  of  the  Committee  of  European  Insurance  and 
Occupational Pensions Supervisors (CEIOPS).  

Implementation  of  principles  enshrined 
management area 

in  the  Recommendation 

in  the  asset 

At the time of the adoption of the proposal for an Alternative Investment Fund Managers 
(AIFM)  Directive,  there  were  no  specific  provisions  contained  in  the  text  on  remuneration 
policies, since the adoption of this proposal coincided with the adoption of the Commission's 
Recommendations  on  Remuneration  –  end  of  April  2009.  Since  then  discussions  were 
underway  as  to  whether  the  proposal  might  be  adjusted  to  include  remuneration  policy 
provisions.   Finally, the Member States decided to follow the political agreement reached on 
CRD  III  and  include  in  the  text  of  the  AIFMD  similar  provisions  setting  up  principles  of 
sound remuneration policy for managers of alternative investment funds. The AIFMD awaits 
its formal adoption (foreseen in June 2011) after favourable vote in the European Parliament 
on 11 November 2010. 

84  Only  sixteen  Member  States  had  applied  the  measure,  though  to  different  extents;  six  were  in  a  process  of 
adjusting their national legislation; while a relatively high number of them had not initiated any measures or had 
taken unsatisfactory ones. Only seven Member States had applied pertinent measures across the whole financial 
services sector. Not surprisingly the Report concluded that further efforts were needed in order to bring firms' 
remuneration policies into line with the principles stated in the aforementioned Recommendation.  

85  See  the  Report  on  the  application  by  Member  States  of  the  EU  of  the  Commission  2009/384/EC 
Recommendation  on  remuneration  policies  in  the  financial  services  sector  of  2  June  2010.  Available  at: 
http://ec.europa.eu/internal_market/company/docs/directors-remun/com-2010-286-2_en.pdf  

102 

 
 
                                                 
10.7.  ANNEX 7: Summary of replies to the questionnaire on administrative sanctions 

FRANCE 

-  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations to prior authorisation requirements:  

Article L621-9 II of the Financial and Monetary Code provides that the Financial Markets Authority (Autorité des marchés financiers) monitors compliance with the professional obligations that eligible 
legal entities and natural persons must fulfil by virtue of the law and regulations. For the persons referred to in 1 to 8, 11, 12 and 15 of Article L621-9 II of the Financial and Monetary Code: 

A warning (although not public prior to a sanctioning decision), administrative or judiciary orders – the latter issued by a Paris court - , or temporary or permanent prohibition from providing any or all 
of  the  services  offered  through  the  revocation  of  license  or  in  emergency  situations  where  disciplinary  proceedings  concern  the  manager  or  depositary;  the  disciplinary  committee  of  the  Financial 
Markets Authority may pronounce, either instead of, or in addition to, those sanctions, an administrative sanction in the form of a fine. 

For violations to operating requirements:  

A warning (although not public prior to a sanctioning decision), a reprimand, temporary or permanent revocation of their professional license, temporary or permanent prohibition from engaging in any 
or all of their activities; the disciplinary committee may pronounce, either instead of, or in addition to, those sanctions, also the dismissal of one or more natural persons exercising functions in the asset 
management industry, as well as fines.  

For violations of disclosure / reporting requirements:  

All of the above.  

Publication of sanctions is not 'nominative', i.e. does not reveal the offenders' identity.  

Settlement proceedings are being currently introduced in the French legislation.  

Presently, the above sanctioning regime applies equally to both UCITS and non-UCITS funds, although adaptations may be necessary. 

103 

 
 
 
 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

can 

The addressees of the 
administrative 
sanctions 
be 
either  a  legal  person 
(entity)  or  a  natural 
person  (individual)  - 
See 
in 
response 
column 1. 

the 

For 
persons 
referred to in 1 to 8, 
11,  12  and  15  of 
Article  L621-9  II  of 
the  Financial  and 
Monetary Code: 

a  fine  of  an  amount 
not  exceeding  €10 
million  or  10  times 
the  amount  of  any 
profit  realised;  the 
sums are paid to the 
to 
guarantee  fund 
the  person 
which 
fined 
is  affiliated, 
or,  failing  this,  to 
the Trésor public. 

to 

For  natural  persons, 
fine  of  €300,000  or 
five 
the 
times 
amount of any profit 
the  sums 
realised; 
the 
are  paid 
to 
guarantee  fund 
which 
legal 
the 
entity  under  whose 
on 
authority 
or 
whose  behalf 
the 
person  being  fined 
acted,  is  affiliated, 
or,  failing  this,  to 
the Trésor public. 

board 

Article  L621-15  II  of 
the 
and 
Financial 
Monetary  provides  that 
the 
the 
of 
Financial 
Markets 
Authority  examines  the 
investigation 
or 
inspection  report  drawn 
up by the services of the 
Financial 
Markets 
Authority, or the request 
formulated 
the 
chairman  of  the  French 
regulator 
the 
banking  and  insurance 
industries,  the  Autorité 
de  contrôle  prudentiel 
(the 
of 
authority 
prudential  supervision, 
ACP).  

for 

by 

the  board  of 

the 
If 
Markets 
Financial 
to 
Authority  decides 
initiate 
disciplinary 
proceedings,  it  informs 
the  persons  concerned 
of  the  allegations  and 
sends  details  thereof  to 
disciplinary 
the 
committee.  The 
latter 
appoints  a  rapporteur 
its 
among 
from 
members. 
The 
disciplinary  committee 
is not competent to hear 

of 

or 
from 

a 
realised 

The  amount  of  the  penalty 
must  be 
commensurate 
with  the  seriousness  of the 
breaches  committed,  any 
profits 
advantages 
derived 
those 
breaches, 
gravity/seriousness/magnit
infringement; 
ude 
duration 
frequency; 
or 
financial  strength  of  the 
legal 
perpetrator 
if 
person 
illicit 
; 
gains;  perpetrator’s  past 
conduct/recidivism; 
eventual 
acts 
dissimulate/cover-up 
alleged 
perpetrator’s 
motives/negligence; 
perpetrator’s 
cooperation 
with  authorities;  where  a 
natural 
the 
perpetrator’s  position  and 
responsibility; 
of 
level 
economic 
of 
effects 
infringement  on  investors, 
third  parties  and  in  the 
domestic  market  insofar  as 
these  can  be  determined. 
The  same  criteria  can  be 
applied 
settlement 
in 
proceedings.  

breaches; 

person, 

to 

a 

total 

In  2007,  60  fines  ranging 
from  €1,000  to  €5,000,000 
making 
of 
levied 
€19,894,000  were 
(for 
against  24  entities 
36 
€10,680,000) 
and 
individuals 
(for 
€9,214,000). 

a 

total 

In  2008,  80  fines  ranging 
from  €1,000  to  €5,000,000 
of 
making 
levied 
€24,715,000  were 
entities 
against 
(€6,546,000) 
46 
individuals (€18,169,000).  

and 

34 

a 

total 

In  2009,  38  fines  ranging 
from  €100  to  €1,500,000 
of 
making 
levied 
€6,345,100  were 
(for 
against  21  entities 
17 
€3,165,000) 
and 
individuals 
(for 
€3,180,000). 

the 

other 

should 
as 

be 
not 
Sanctions 
they  would 
automatic, 
violate 
of 
principle 
proportionality  and  necessity. 
Where 
administrative 
measures  are  foreseen,  fines 
should  not  additionally  apply. 
Achieving  minimum  standards 
requires  that  an  exhaustive  list 
of  violations  needs 
to  be 
identified  from  the  directive. 
The 10% criterion is inadequate 
since not all violations generate 
illicit benefits. Also, a 10% fine 
could impose an amount higher 
than  the  level  of  own  funds  of 
the  management  company  as 
foreseen  by  Article  7 
the 
directive.  

Suggestion: establishing precise 
and  defined  principles  in  the 
directive  in  order  to  ensure 
penalties established in Member 
States  reflect  the  gravity  of  the 
infringements  and  considerably 
exceed 
(direct  or 
real 
indirect)  or  potential  gains  as 
well  as  the  damage  caused  to 
clients; 

the 

-  introducing  a  peer  review  as 
regards  to  the  effectiveness  of 
the  sanctioning  regime  across 
Member States and managed by 

In  2007,  33  proceedings,  of 
which  28  gave 
to 
sanctions 
natural 
against 
persons and legal entities. 

rise 

disclosure 

Most  of  the  sanctions  were 
related to breaches of rules on 
public 
(13 
proceedings),  insider  dealing 
(5  proceedings)  and  price 
manipulation  (1  proceeding). 
The  other  sanctions  were 
involving 
in  cases 
issued 
investment 
of 
providers 
services  other 
than  asset 
management  (5  proceedings) 
asset 
and 
management 
(4 
proceedings). 

of 
services 

providers 

rise 

In  2008,  40  proceedings,  34 
of  which  gave 
to 
natural 
against 
sanctions 
persons  and  legal  entities.  2 
administrative  orders  where 
handed  down  to  depositaries. 
The  sanctions  handed  down 
related to breaches of rules on 
public 
(5 
proceedings),  insider  dealing 
(10  proceedings)  and  price 
manipulation  (1  proceeding). 
proceedings 
The 
resulted  in  sanctions  for  rule 
breaches 
investment 
by 
services providers carrying on 

disclosure 

other 

104 

 
 
 
 
 
 
 
facts  which  date  back 
more  than  three  years  if 
no  action  was  taken  to 
record 
detect, 
or 
sanction 
them  during 
that prior period. 

In  an  emergency,  the 
board  may  suspend  the 
activities  of  the  persons 
against 
whom 
disciplinary proceedings 
are initiated. 

If  the  board  sends  the 
report  referred  to  in  the 
first  paragraph  to  the 
Public  Prosecutor,  the 
board  may  decide 
to 
make that fact public. 

There 
minimum fine. 

is 

no 

PORTUGAL 

ESMA; 

establishing 

- 
maximum 
common  levels  for  fines  would 
be  useful  (only  if  they are very 
high). 

an asset management business 
(7  proceedings)  or  on  the 
provisions 
grounds 
of 
governing 
of 
investment services other than 
asset 
(11 
management 
proceedings).  

providers 

In 2009, a total of 46 persons 
and  entities  lodged  appeals 
against 
sanction  decisions 
with the Paris Appeal Court. 1 
judiciary restriction order was 
issued  against  a  management 
company  where  a  manager 
controller was designated.  

Administrative sanctions were 
handed  down  9  times  each  in 
2008,  2009  and  2010,  among 
permanent 
which 
revocations  of 
in 
2008 and 2009 respectively. 

licenses 

2 

105 

 
 
 
 
 
 
 
 
1) Fines: Between €25,000 and €5,000,000, when classified as very serious; 

Between €12,500 and €2,500,000, when classified as serious; 

Between €2,500 and €500,000, when classified as less serious. 

If the economic gain, when doubled, is more than the maximum value of the fine which is envisaged, the highest value shall prevail. Payments resulting from the imposition of fines and economic 
benefit in administrative offence proceedings revert in full to the Investors´ Compensation Scheme. 

2) Accessory sanctions: 

a) Apprehension and loss of the object of the offence, including the benefit obtained by the infringer by the practice of the offence; 

b) Temporary suspension of the exercise by the infringer of the profession or the activity to which the offence refers (maximum duration: five years from the definitive sanctioning decision); 

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

c)  Disqualification  from  the  exercise  of  the  function  of  administration,  management,  control,  supervision  and,  in  general,  representation  of  any  financial  intermediary  within  the  scope  of  any  or  all 
activities of intermediation in securities or other financial instruments (maximum duration: five years from the definitive sanctioning decision); 

d)  Publication  (complete  or  partial,  in  accordance  with  the  CMVM’s  decision)  by  the  CMVM,  at  the  expense  of  the  infringer  and  in  places  suitable  for  the  accomplishment  of  the  aims  of  general 
prevention of the legal system and protection of securities or other financial instruments markets, of the sanction imposed in view of the offence; 

e) Revocation of the authorisation or cancellation of the registration necessary for the performance of the activities of financial intermediation in securities or in other financial instruments. 

There are a series of interim measures necessary for the instruction of proceedings, the defence of the market or the protection of the investors’ interests, that the CMVM may order: 

(i) set out the suspension of the activities carried out by the perpetrator (said order may be published by CMVM); (ii) lay down certain conditions which shall be complied to proceed with the exercise of 
functions or activities, namely, compliance with the duty to inform; and (iii) seizure or freezing of valuables. 

Other measures include summary proceedings (for cases of a lesser gravity), warning procedures and the public release of CMVM decisions 

Presently, the above sanctioning regime applies equally to both UCITS and non-UCITS funds, although adaptations may be necessary. 

106 

 
 
 
 
 
 
 
 
 
2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

1) minimum level of 
administrative 
pecuniary  sanctions: 
€2.500 

2)  maximum  level 
administrative 
of 
pecuniary  sanctions: 
€5.000.000 

In  2007,  60  fines 
ranging  from  €1,000 
to €5,000,000 making 
of 
total 
a 
€19,894,000 
were 
against  24 
levied 
entities 
(for 
€10,680,000)  and  36 
(for 
individuals 
€9,214,000). 

In  2008,  80  fines 
ranging  from  €1,000 
to €5,000,000 making 
of 
a 
total 
€24,715,000 
were 
levied 
against  34 
entities  (€6,546,000) 
and  46 
individuals 
(€18,169,000). 

In  2009,  38  fines 
ranging from €100 to 
€1,500,000  making  a 
total  of  €6,345,100 
were  levied  against 
21 
(for 
entities 
€3,165,000)  and  17 
individuals 
(for 
€3,180,000). 

CMVM  (the  Portuguese 
Securities  Commission) 
according to Article 408 
of Securities Code 

legal  and  natural 

Both 
persons: 

4 fines: 

Maximum amount: €75.000 

2007: €50.000 

Minimum amount: €50.000 

2009:  €75.000  and  €35.000 
(later reduced to €22.000) 

2010: €50.000 

Total number of infringement 
cases brought and decided by 
the  CMVM  in  the  period 
2008  -  2010:  10  (of  which  7 
effectively 
sanctioned). 
Sanctions were in the form of 
fines and warnings. 

1) material illegality of the 
act; 

2) agent's negligence;  

3) benefits obtained;  

4) 
requirements; 

prevention 

5)  whether  the  agent  is  an 
individual or legal entity; 

agent's 

6) 
situation; 

economic 

agent's 

7) 
conduct.  

previous 

Legal persons: 

8)  danger  or  damage 
caused  to  investors  or  to 
the  securities  /  financial 
instrument market; 

107 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

is  highly  desirable 

that 
It 
sanctions  exceed 
the  actual 
pecuniary  gains  resulting  from 
the  offence.    CMVM  supports 
an  option  to  seize  gains  made 
by third parties as a result of the 
offence.  CMVM  believes  that 
its view should not be construed 
as  preventing  or  restraining  the 
assessment  of  each  particular 
case  by  competent  authorities, 
to 
mainly 
refrain  from  sanctioning  minor 
offences. 

their  discretion 

that 

Fines  should  be  differentiated 
according to types of violations: 
those 
typically  promise 
large  gains  to  the  perpetrator 
(e.g.  market  manipulation  and 
insider  trading),  and  those  that 
usually  do  not  allow  for  large 
profits 
untimely 
(e.g. 
notifications or disclosures). 

setting 

Regarding a common minimum 
CMVM 
fines, 
level 
of 
emphasizes 
a 
that 
common minimum level of fine 
would have to bear in mind, i.a., 
that  (i)  a  dissuasive  fine  for  a 
perpetrator 
be 
for  another; 
disproportionate 
and  (ii)  minimum 
levels  of 
sanctions  will  heavily  depend 
on  the  criteria  to  be  taken  into 
applying 
when 
account 
the 
and 
sanctions 

might 

upon 

 
 
 
 
 
 
 
 
 
benchmark  used 
financial hardship.  

to 

assess 

considers 
that 
CMVM 
minimum 
amounts  would 
mainly  affect  minor  cases  of 
the 
offences  carried  out  by 
financially  weakest 
parties. 
However,  minimum  amounts 
for  the  upper  limit  of  fines 
according  to  the  national  laws 
would allow for a more credible 
deterrent  effect  throughout  the 
EU.  Common  minimum  levels 
for 
of 
upper 
administrative  fines  should  be 
introduced for each category of 
offences. 

limit 

the 

9)  occasional  or  repeated 
nature of the offence; 

10)  acts  which  tend  to 
impair  discovery  of 
the 
offence; 

11) existence of acts by the 
agent,  on  own  initiative, 
aiming  at,  repairing 
the 
damages  or  preventing  the 
the 
dangers  caused  by 
offence. 

Natural persons: 

12)  level  of  responsibility, 
scope of functions and role 
in the legal entity; 

13)  intention  to  obtain,  for 
itself  or  another  entity,  an 
illegitimate  benefit  or  the 
damage caused; 

compromise 

14) 
measures 
committing the offence. 

to 

and 
avoid 

108 

 
 
 
 
SPAIN 

109 

 
 
 
1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

Administrative sanctions are regulated by chapter IV “Legal Penalties” of the existing Law 35/2003 on Collective Investment Schemes. 

This  chapter  distinguishes  between  infringements  and  sanctions.  The  infringements  will  result in sanctions. Infringements are classified into three categories depending on their importance:  minor, 
serious and very serious. The gradation of the sanction is based on the type of infringement.  

According to Articles 85, 86 and 87 of Law 35/2003 on Collective Investment Schemes, the different types of sanctions are described as follows: 

Sanctions applied to legal person as a result of very serious infringements: 

€300.000 fine in case of profits obtained because of the infringement which can not be quantified. If the profits can be quantified, the fine will be as a minimum, the profit's amount and as a maximum, 
five times the profits. 

• Temporary exclusion from the official registers for a period between 2 and 5 years. 

• Revocation of authorisations.  

• Temporary suspension or limitation on the type or volume of operations for a period not exceeding five years. 

• Public warning, published in the Official Bulletin of Spain “BOE” and replacement of depositary. 

In  case  of  natural  person  belonging  to  the  management  company,  the  fine  would  be  up to a maximum of €300.000 per person. Additionally a suspension of a person belonging to the management 
company can be applied for a period of 3 years to 5 years, or a suspension of up to 10 years for management jobs or administrative positions in any other management company. 

Sanctions applied to legal person as a result of serious infringements: 

• Public warning, published in the Official Bulletin of Spain “BOE” and replacement of depositary. 

• €150.000 fine in case of profits which can not be quantified. If the profits can be quantified, the fine will be up to the amount of profits as a result of the infringement. 

• Temporary suspension or limitation on the type or volume of operations for a period not exceeding one year. 

• Temporary exclusion from the official registers for a period between 1 and 3 years, 

110 

 
 
 
 
 
 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

Minimum 

Spanish  authorities  believe  that 
violations  should  be  classified 
as  minor,  serious  and  very 
and 
serious. 
maximum  amounts  could  also 
be  set.  The  10%  criteria  is 
disproportionate  and  may  give 
rise  to  very  large  fines,  often 
larger  than  the  same  capital  of 
the  management 
company. 
Alternatively,  fines  should  be 
based  on  the  capital  of  the 
management 
company.  For 
natural  persons,  fines  could 
vary between a minimum and a 
maximum.  

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

In  general  there  is 
no  minimum  level 
for  pecuniary 
set 
The 
sanctions. 
maximum  level  of 
administrative 
pecuniary  sanctions 
applied  in  case  of 
serious 
very 
infringements 
is 
€300.000  fine,  .for 
serious 
infringements 
is 
€150.000  fine  and 
finally  in  case  of 
minor  infringements 
the  maximum  level 
is €60.000.  

When  the  profits  as 
a 
the 
result  of 
infringement  can  be 
quantified,  and  the 
sanction  is  applied 
to  a  legal  person, 
maximums 
these 
levels 
be 
can 
extended  up  to  the 
profits  amount  and 
in  case  of  very 
serious 
infringements 
fine  can  be 
times 
amount. 

the 
five 
the  profits 

According 
to 
question  1  and  2,  the 
addressees  of 
the 
sanctions  are  both, 
legal 
natural 
and 
person. 

authorities 
The 
the 
for 
responsible 
application 
the 
of 
administrative  sanctions 
are defined in Article 92 
of  the  abovementioned 
Law 35/2003. 

defines 

The  Article  88  of  the  Law 
35/2003, 
the 
criteria  to  set  the  level  of 
administrative 
the 
sanctions.  These  main 
criteria are related to: 

During  the  year  2007  the 
number 
pecuniary 
of 
sanctions  applied  were  2. 
were 
sanctions 
These 
imposed as a result of serious 
infringements.  On  the  other 
hand  in  2008  there  were  no 
pecuniary sanctions applied.  

In  2007 
the  maximum 
amount in the two sanctions 
imposed  to  a  legal  person 
the 
was  €1.000.000  and 
minimum  was 
€30.000 
respectively. 

According  to  Article 
89 of Law 35/2003 of 
Collective 
Investment  Schemes, 
the  addressees  of  the 
very 
and 
serious 
serious  infringements 
can  be  individuals  in 
directing or executive 
roles.  Additionally 
the addressees can be 
also 
the  UCITS, 
management 
companies, 
depositaries  of 
UCITS. 

and 
the 

is 

very 

The  CNMV 
the 
authority  responsible  of 
the  imposition  of  minor 
serious 
and 
infringements.  In  case 
serious 
of 
infringements, 
the 
Ministry  of  Finance  is 
responsible 
the 
imposition  of  sanctions, 
following  a  proposal 
the  CNMV.  In 
from 
case 
credit 
a 
of 
institution, it is needed a 
previous  report  of  the 
Banco de España. 

for 

•  The  nature  and 
magnitude 
infringement; 

of 

the 
the 

•  The  importance  of  the 
damages caused; 

•  The  profits  as  a  result  of 
the  infringement,  or  the 
profits  in  case  of  omission 
or acts that can result in an 
infringement; 

•  The  importance  of  the 
its 
UCITS  according 
assets under management; 

to 

2009, 

In 
pecuniary 
the 
sanctions applied were 5, and 
all of them were as a result of 
very serious infringements. 

During  2009  the  maximum 
pecuniary 
amount 
of 
sanctions  was 
€90.000 
applied  to  a  natural  person, 
the  minimum  was 
and 
€3.000  applied  to  a  legal 
person. 

9 

2010, 

serious 
In 
infringements,  with 
fines 
ranging  between  €1000  and 
€2000.  

In  2010, 
between  €1000 - €2000. 

fines 

ranged 

The 

• 
for 
consequences 
system 
financial 
country's economy; 

adverse 
the 
or 

•  The  attempt  or  intention 
of 
the 
repairing 
infringement; 

111 

 
 
 
 
 
 
 
 
 
• Duration and frequency; 

Perpetrator's 

• 
conduct/recidivism; 

past 

• The perpetrator's position 
within  the  company  (only 
managerial 
those 
positions 
be 
can 
sanctioned); 

in 

•  The  rectification  of  the 
infringement 
own 
initiative; 

by 

•  Objective  difficulties  the 
company  may  have  met 
while attempting to comply 
with legal requirements; 

•  Compensation  for 
the 
damages  caused,  together 
with measures to avoid the 
continuity 
the 
infringement.  

of 

112 

 
 
ITALY 

113 

 
 
For violations of authorisation requirements:  

Fine of between €516 and €10.329 for unauthorised use of false or misleading expressions. For natural persons,  

imprisonment between 6 months and 4 years, with a fine of between €2.066 and €10.329 for unauthorised activities. The Bank of Italy or Consob shall inform the public prosecutor with a view to the 
adoption of the measures (inspection of the company, appointment of an administrator, etc.) or may apply to the courts for the adoption of the same measures. 

Article 190 of TUF provides for the imposition of an administrative fine from € 2,500 to € 250,000 in case of a failure to comply with general or specific rules relating to prior authorisation applicable to 
management companies and intermediaries. A disqualification from office is foreseen for those individuals that fail to comply with experience, good repute and independency requirements valid for the 
industry.  

Failure by holders of a qualifying stake in an asset management or an investment company to comply with good repute requirements or mandatory notifications entails automatic suspension of attached 
voting  rights.  Any  person  who  fails  to  comply  with  a  request  from  Consob  within  the  prescribed  time  limits  or  delays  the  performance  of  Consob’s  functions  shall  be  punished  by  a  pecuniary 
administrative sanction of between € 50,000 and € 1,000,000. 

For violations to relating to operating requirements, Consob and the Bank of Italy may undertake corrective actions (e.g. convene directors and Board). They can also order the suspension or temporary 
limitation of the issue or redemption of units or shares of UCITS. 

Injunctive remedies, such as cease and desist orders and, where necessary, temporary injunction/restraining orders are also foreseen. Any person who fails to comply with a request from Consob within 
the prescribed time limits or delays the performance of Consob’s functions shall be punished by a pecuniary administrative sanction of between € 50,000 and € 1,000,000. 

Other sanctions include the dismissal of the whole executive and supervisory board and/or the permanent withdrawal of authorisation.  

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

Criminal  sanctions  may  apply  in  case  of  violations  of  the  provisions  governing  conflicts  of  interest  and  client  assets  segregation.  Furthermore,  any  person  who  obstructs  the  supervisory  functions 
entrusted to Consob shall be punished by imprisonment for a term of up to 2 years and a fine of between €10.000 and €200.000. 

In case of violations of the rules concerning the offering of the units to the public, the financial penalty could range between one-fourth of the total value of the financial products marketed but not twice 
more than the total value. If the total value of the financial products marketed is not determined, the financial penalty can range between €100.000 and €2 million. 

For violations of disclosure reporting requirements:  

Precautionary  measures,  e.g.  the  suspension  of  units/shares,  for  the  violation  of  the  public  offering  provisions  and  related  regulations.  Where  violation  is  proven,  Consob  shall  prohibit  the  public 
offering.  

Consob may make public the fact that the public offering or issuer fails to meet obligations as a preventive measure and for a period not exceeding ten consecutive working days on each occasion, 
request that the stock exchange company suspends or prohibits trading on a regulated market. 

114 

Consob may suspend temporarily the marketing of units of foreign collective investment undertakings, or suspend or prohibit the public offering where a violation is ascertained.  

 
 
 
 
 
 
 
2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

Between  €516  and 
million, 
€2 
the 
depending  on 
the 
of 
typology 
infringement. 

, 

Pursuant Article 187-
quinquiesdecies 
(Safeguarding 
of 
Consob's  supervisory 
functions) 
any 
person  who  fails  to 
comply 
a 
request  from  Consob 
within  the  prescribed 
time  limits  or  delays 
the  performance  of 
Consob's 
functions 
shall  be  punished  by 
a financial penalty.  

with 

or 

Moreover,  pursuant 
the  above  mentioned 
Article 190  , persons 
performing 
administrative 
management 
functions 
in 
employees  of 
management 
company  which  do 
not  comply  with  law 
provisions  or  related 
rules 
implementing 
shall  be  punished  by 
a financial penalty.  

and 
the 

No financial penalties 
are  envisaged  for  the 
management 

and 

although 

No, 
corporate 
supervisory 
bodies 
external 
auditors 
the 
to 
irregularities 
and 
breaches 
detected  to  the 
Bank of Italy or 
Consob.  

have 
obligation 
report 

The  10%  of  AUM  criterion  is 
disproportionate  as 
it  would 
force  many  asset  management 
and 
(in 
companies 
elsewhere) into liquidation. It is 
disproportionate and far beyond 
the  amounts  of  a  company's 
own funds.  

IT 

Consob  is  responsible 
for the application of the 
financial penalty in case 
rules 
of  breach  of 
concerning 
disclosure 
and  other  transparency 
obligation,  conduct  of 
business  rules  and  other 
market  rules.  The  Bank 
of  Italy  is  responsible 
for sanctions concerning 
capital 
violation 
of 
requirements 
and 
prudential rules. 

The  criteria  for  setting  the 
level  of 
financial 
the 
penalty are:  

a)  the  seriousness  of  the 
breach; 

b)  the  consequences  of the 
breach  (in  terms  of  loss  or 
the  risk  of  loss  caused  to 
investors  in  the  UCITS  or 
to the market); 

c)  the  duration  and  the 
extent of the breach; 

d) the intent; 

e)  whether 
the  breach 
reveals  serious  or  systemic 
weakness 
the 
management company; 

of 

f)  the  role/position  of  the 
individual 
the 
management company;  

in 

The figures below refer to the 
total  number  of  natural 
persons, 
performing 
administrative or management 
Italian 
function 
in 
management  companies, 
to 
which financial penalties have 
been  applied  by  Consob  and 
the  Bank  of  Italy  during  the 
last three years (the number is 
the 
comprehensive 
sanctions 
to 
management 
companies 
which  manage  non-UCITS 
funds).  

of 
applied 

and 
amount 

The  figures  below  refer  to 
the 
the  minimum 
maximum 
of 
financial  penalties  applied 
by Consob and the Bank of 
individuals 
Italy 
to 
performing 
asset 
management  activity  (the 
amount is comprehensive of 
the  sanctions  applied 
to 
management 
companies 
which  manage  non-UCITS 
funds). 

the 

2007 

2007 

Consob:  €2,600 / €42,800 

55 infringements 

Bank of Italy: 0 / 0 

2008 

2008 

17 infringements 

Consob:  €2,000 / €31,000 

g) acts to dissimulate/cover 
up breaches; 

2009 

Bank  of  Italy:  €6,000 
€63,000 

/ 

offenders 

h) 
conduct/recidivism; 

past 

17 infringements 

2009 

115 

 
 
 
 
 
 
 
 
 
 
 
company. 

i) realised illicit gains; 

2010 

Consob:  €8,200 / 120,000 

j)  financial  strength  of  the 
perpetrator; 

20 infringements 

Bank  of  Italy:  €2,500 
€60,00 

/ 

k)  voluntary  mitigating 
action  undertaken  by  the 
relevant person. 

116 

 
 
 
BELGIUM 

117 

 
 
 
For UCITS, no distinction is made between the 3 categories of infringements mentioned in the Commission's questionnaire.  

The CBFA may:  

• order the UCITS, a designated investment company and/or other persons concerned to take the necessary measures in order to make an end to certain infringements in case of a public offer. If no 
sufficient measures are taken, the CBFA may suspend or prohibit the public offer and suspend, prohibit or withdraw notices, advertisements and other documents that relate to a public offer, or that 
announce or recommend such an offer, and/or publish a rectification. It may also make public these decisions. Moreover, the CBFA may set a deadline by which the prohibition or order to suspend or 
withdraw must be complied with. If anyone continues to be in default after that deadline has expired, the CBFA may impose a penalty per infringement or a penalty per day’s delay; 

• make public, at the expense of the UCITS and/or the designated management company, its position regarding certain infringements; 

• designate a special inspector; 

• suspend or prohibit the subscription, redemption or trading on the market of the UCITS' units for a period of time determined by the CBFA; 

• order the UCITS' managers or directors (or those of the designated management company) to be replaced within a period determined by the CBFA, failing which, replace the entirety of its decision-
making or management bodies, as well as those of the designated management company, with one or more temporary managers or directors who will, individually or jointly as the case may be, have the 
same powers as those replaced; 

• revoke the UCITS registration (or of one of its sub-funds) and, as the case may be, the authorisation granted to this UCITS; 

• set a deadline by which a UCITS or a designated management company must comply with certain provisions established in the legislation. If the UCITS continues to be in default after that deadline 
has expired, the CBFA may impose a penalty per infringement or a penalty per day’s delay*; 

• impose administrative fines*. 

* Administrative sanctions that also apply to foreign UCITS. 

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For management companies: 

The CBFA may: 

• make a public announcement that a management company has failed to comply with the injunctions of the CBFA, ordering it to comply with the provisions of the legislation within the period laid 
down by the CBFA. The costs incurred of making that announcement are borne by the management company concerned; 

118 

• designate a special inspector; 

 
 
 
 
 
 
 
 
2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

For UCITS, legal and 
natural persons. 

management 
For 
company,  legal  and 
natural persons. 

For  UCITS:  Belgian 
Banking,  Finance  and 
Insurance  Commission 
(CBFA). 

Management 
For 
companies: 
Belgian 
banking,  Finance  and 
Insurance  Commission 
(CBFA). 

For UCITS: 

Penalty  in  case  of 
non-compliance: 

•  Minimum:  not 
determined 

€ 
•  Maximum: 
2.500.000 
per 
infringement  or  € 
50.000  per  day's 
delay, 

Administrative 
fines: 

•  Minimum: 
5.000 

  € 

•  Maximum: 
2.500.000 

  € 

management 

For 
company: 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

For UCITS: 

UCITS: None 

Not specified 

Not specified 

No 

as 

apply; 

In  order  to  determine  the 
level  of  the  administrative 
pecuniary  sanctions, 
the 
principle of proportionality 
a 
will 
consequence, 
the  main 
criteria to take into account 
are  the  gravity  and  the 
duration 
the 
infringement. Other factors 
that  are  taken  into  account 
the 
are 
the  nature  of 
infringement, 
intention, 
recidivism  and  the  size  of 
the 
the 
sanction. 

addressee 

of 

of 

Management company: None 

119 

 
 
 
  
 
 
 
Penalty  in  case  of 
non-compliance: 

•  Minimum:  not 
determined 

€ 
•  Maximum: 
2.500.000 
per 
infringement  or  € 
50.000  per  day's 
delay. 

Administrative 
fines: 

•  Minimum: 
5.000 

  € 

•  Maximum: 
2.500.000 

  € 

120 

 
 
  
 
THE NETHERLANDS 

For violation relating to prior authorisation:  

Public warnings / reprimands indicating entity /person responsible and nature of breach, administrative fines (even when prior warnings have not been heeded). 

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations relating to operating requirements:  

Public warnings / reprimands indicating entity/person responsible and nature of the breach, the imposition of temporary injunction / restraining orders, including e.g. the suspension of the public offer of 
UCITS units / shares both domestically and abroad;  

the dismissal of one or more natural persons (executives) from the UCITS management body, as well as the dismissal of a an auditor;  

a temporary or permanent ban for certain natural persons from exercising functions (or manage invested volumes) in the asset management industry;  

imposition of administrative fines and permanent withdrawal of authorisation for the take-up of business for fund management companies (i.e. license). 

For violations relating to disclosure / reporting requirements:  

Public orders and reprimands, the dismissal / replacement of executives and auditors, administrative fines (also for natural persons), withdrawal of a licence. For funds that are under supervision of the 
AFM and do not publish the (semi-) annual report, the AFM demand incremental penalty payments. 

2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

the 
8 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

The 
maximum 
levels  of  fines  for 
the  three  categories 
of  offences 
is  € 
10.000,  €  1.000.000 
and  €  4.000.000. 

Both 
natural persons. 

legal 

and 

Autoriteit 
Financiële 
Markten – Authority for 
Markets 
Financial 
(AFM)  and  the  Dutch 
Central Bank (DNB) 

the 

All  key  criteria  mentioned 
in 
Commission's 
questionnaire  are  foreseen 
already  under  Dutch  law. 
These include:  

January  2008, 

Since 
the 
Department  of  supervisory 
the  AFM  has 
groups  of 
received 
of 
signals 
potential  violations  by  fund 
of  which 
2 
managers, 

11 

Not specified 

121 

Preference  for  a  fixed  amount 
as  the  minimum  level  of  fines. 
The  proposed  amounts  make  it 
unlikely 
national 
authority would want to impose 
thereby 
amounts, 
higher 

that 

a 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

Not specified 

 
 
 
 
January  2010, 

concerned  UCITS 
funds. 
the 
Since 
Department of supervision on 
of 
transparency 
financial 
received  16 
products  has 
signals 
potential 
of 
infringements  to  the  UCITS 
Directive.  Of  these  only  8 
merited  a  follow-up  directly 
with 
management 
company.  

the 

undermining  a  Member  State's 
sovereignty. Moreover, it would 
conflict with the present system 
of  bandwidths  and  exceptions 
under  Dutch  law.  Exceptions 
should  be  inserted  that  will 
allow a lower fine than the one 
proposed.  

for 

These figures can be 
old 
doubled 
For 
offenders. 
severe 
offences 
were  the  profit  for 
the  offender  has 
been  larger  than  € 
2.000.000,  there  is 
also  the  option  to 
choose  the  double 
amount  of  the profit 
as fine. 

Gravity/seriousness/magnit
ude  of  infringement.  The 
severity of the offence (the 
law  categorizes  them  in  3 
levels), higher fines for old 
offenders  and  lower  fines 
for special circumstances;  

Duration or frequency;  

Financial  strength  of  the 
perpetrator (i.e. in terms of 
AUM) if a legal person, or 
of professional income if a 
natural one);  

Realised illicit gains;  

Perpetrator’s 
conduct/recidivism;  

past 

acts 

Eventual 
dissimulate/cover-up 
alleged breaches;  

to 

Perpetrator’s 
motives/negligence;  

Perpetrator’s 
with authorities;  

cooperation 

Where a natural person, the 
perpetrator’s  position  and 
level of responsibility;  

effects 

Economic 
of 
infringement  on  investors, 
third  parties  and  in  the 
domestic  market  insofar  as 
these can be determined. 

122 

 
 
UK 

123 

 
 
 
1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

The  UK  has  implemented  the  UCITS  Directive  through  a  combination of primary legislation in the Financial Services and Markets Act 2000 (FSMA), secondary legislation and rules in the FSA’s 
Handbook.  

For violations relating to prior authorisation:  

• 

• 

FSA can apply to the civil courts for an injunction where there has been, or is likely to be, a breach. The court may make three types of injunctive order: to restrain a course of conduct; to require a 
person to take steps to remedy a course of conduct; and to restrain a person from disposing of, or otherwise dealing with, assets; 
FSA has the power to vary or cancel a firm’s permission to carry on regulated activities. The FSA may do this where it considers: that the firm is failing or is likely to fail to satisfy the threshold 
conditions (i.e. the minimum standards the FSA requires firms to meet to become and remain authorised); that the firm has not carried on any regulated activity for a period of at least 12 months; or 
that it is desirable to do so to meet any of its regulatory objectives (i.e. maintaining market confidence in the UK financial system; contributing to the protection and enhancement of the stability of 
the UK financial system; securing the appropriate degree of protection for consumers; and reducing financial crime); 
It may prohibit an individual, whether approved by the FSA or not, if they are not fit to engage in regulated activity; 
It may prevent an individual from undertaking specific regulated activities; 
It may suspend a firm for up to 12 months, or an individual for up to two years, from undertaking specific regulated activities; 
It may censure firms and individuals through public statements indicating the nature of the breach; 
It may impose a financial penalty on a firm or individual. 

• 
• 
• 
• 
• 
These sanctioning powers also apply, where appropriate, to breaches concerning authorisation prior to a UCITS merger, or mandatory approval prior to master/feeder fund investments. 

All sanctions are published, except where publication might be prejudicial to consumers or unfair to those subject to an enforcement action.  

For violations to operating requirements:  

The FSA has the same sanctioning powers for breaches relating to operating requirements as it does for breaches relating to prior authorisation. These cover all the administrative sanctions listed above, 
and  include  (i)  varying  a  firm’s  permissions  to  restrain  the public  offer  of  UCITS  units/shares  both  domestically  and  abroad;  and  (ii) the disqualification of an auditor from being the auditor of an 
authorised person or a class of authorised person.   

For violations to disclosure/reporting requirements:  

The FSA has the same sanctioning powers set out above. 

Sanctioning powers under AIFM Directive are deemed to be the same as those under UCITS. A different sanctioning regime is not merited.  

124 

 
 
 
 
2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

The  FSA  has  no 
statutory  minimum 
or maximum fine. 

to 

the 
The  FSA  has 
impose 
power 
penalties  on 
firms 
(legal  persons)  and 
individuals 
(natural 
persons). 

The  Financial  Services 
Authority (FSA) 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

(DEPP) 

the 
Since  March  2010, 
a  5-step 
FSA 
applies 
approach 
to 
determining  the  amount  of 
a fine. All steps include the 
criteria 
the 
listed 
Commission's  consultation 
questionnaire.  The  steps 
are:  

in 

Step 1: the removal of any 
financial  benefit  derived 
from the breach; 

Step  2:  the  determination 
of  a  figure  which  reflects 
the 
seriousness  of 
the 
breach 
is 
(seriousness 
determined  as  a  %  figures 
/ 
of  a  firm's  revenues 
individual's income); 

Step 3: an adjustment made 
to the Step 2 figure to take 
account of any aggravating 
and 
mitigating 
circumstances; 

Step 4: an adjustment made 
to  the  amount  arrived  at 
after  Steps  2  and  3,  where 
appropriate,  to  ensure  that 
the  penalty  has  a  deterrent 
effect; and  

Step  5:  if  applicable,  a 
settlement  discount will be 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

No  enforcement  actions  were 
undertaken  for  violation  of 
UCITS-specific rules.  

Not specified.  

In 2007: not specified.  

to 

of 

which 

In 
2008-2009: 
302 
infringement  cases  closed, 
234 
were 
sanctioned,  55  of which were 
fined 
a 
amounting 
total  of  £27.5 
collective 
million;  Other 
sanctions 
included  48  prohibitions,  122 
of 
refusal 
approval/authorisation, 
1 
criminal  sanction,  7  civil 
injunctions/restitutions, 
and 
10 public censures only.  

286 
2009-2010: 
In 
infringement  cases  closed, 
168  of  which  sanctioned,  41 
of  which  were 
fined 
amounting to a collective total 
of  £33.6  million;  Other 
sanctions 
57 
prohibitions,  142  refusal  of 
approval/authorisation, 
5 
criminal  sanction,  11  civil 
injunctions/restitutions,  and  8 

included 

125 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

regimes 

Minimum fines for both UCITS 
and  AIFM 
are 
unworkable,  as  every  case  is 
specific  to  its  facts.  However, 
minimums with respect to other 
standards  are  worthwhile  if  set 
at an EU level to avoid the risk 
of  arbitrage.  Illicit  benefits  are 
in 
not 
violations. The 10% criterion is 
bears 
excessive 
no 
and 
the  capital 
consistency  with 
requirements 
the 
for 
management  company  under 
Article  7  of  UCITS.  AUM-
backed fines would therefore be 
largely disproportionate.  

implied 

always 

for 
All  minimum  standards 
fines 
recognise 
should 
mitigating  circumstances,  as 
well as the possibility to settle a 
case.  The  latter  allows  cases  to 
be settled quickly, with less use 
of  resources  by  the  competent 
authorities.  

on 

has 

Yes. The Public 
Interest 
Disclosure  Act 
(PIDA) 
1998 
provides 
guidance 
whistle-
The 
blowing. 
a 
FSA 
whistle-blowing 
scheme  which, 
consistent  with 
PIDA, 
encourages 
to 
employees 
raise  concerns 
internally  in  the 
first 
instance, 
and explains the 
in 
situations 
which 
an 
employee  will 
be  protected  by 
they 
PIDA 
if 
the 
contact 
FSA. 

 
 
 
 
 
applied.  

public censures only. 

297 
2010-2011: 
In 
infringement  cases  closed, 
280  of  which  sanctioned,  74 
of  which  were 
fined 
amounting to a collective total 
of  £98.5  million;  Other 
sanctions 
65 
prohibitions,  109  refusal  of 
approval/authorisation, 
3 
criminal  sanction,  10  civil 
injunctions/restitutions, 
and 
14 public censures only. 

included 

126 

 
 
 
IRELAND 

127 

 
 
 
The 1942 Central Bank Act (as amended) foresees an Administrative Sanctions Procedure (ASP) that provides for the following sanctions:  

For violations relating to prior authorisation:  

1) a caution or reprimand;  

2) a direction to refund or withhold all or part of an amount of money charged or paid, or to be charged or paid, for the provision of a financial service by the regulated financial service provider; 

3) a direction to pay to the Central Bank a monetary penalty not exceeding a prescribed amount;  

4) if the regulated financial service provider is a natural person, a direction disqualifying the person from being concerned in the management of a regulated financial service provider for such period as 
is specified in the order;  

5) if the regulated financial service provider is found to be still committing the contravention, a direction ordering the regulated financial service provider to cease committing the contravention;  

6) a direction to pay to the Central Bank all or a specified part of the costs incurred by the Central Bank in holding the inquiry and in investigating the matter to which the inquiry relates. 

At any time, however, there is the possibility to negotiate a settlement agreement between the Central Bank and the financial services provider.  

The regulations transposing UCITS indicate that certain infringements, including those to prior authorisation requirements, may lead to criminal prosecution.  

For violations to operating requirements:  

Same as the sanctions above. The conditions are set out in the implementing regulations.  

The Central Bank has the authority to issue such directions to a financial service provider including the following: the winding-up of a UCITS; or the suspension of the issue of units in the UCITS; or 
the  redemption  of  the  units  of  the  UCITS.  Regulation  131  (9)  –  (10)  identifies  the  power  of  the  Central  Bank  to  seek  such  interim  or  interlocutory  orders  from  the  High  Court  as  they  consider 
appropriate with regard to the actions of the UCITS. Regulation 131 (11) enables the Central Bank to seek such orders from the High Court to have the UCITS dissolved, and further restrain the disposal 
of the assets of the UCITS.  

The Central Bank may revoke the authorisation of a UCITS if it appears to the Central Bank that a) any of the requirements for the authorisation of the UCITS are no longer satisfied;  b) that it is 
undesirable in the interests of the unit-holders or potential unit-holders that the UCITS should continue to be authorised; c) without prejudice to subparagraph (b) above, that the management company 
or investment company or trustee of the UCITS has seriously or systematically contravened any provision of the Regulations or, in purported compliance with any such provision, has furnished the 
Central  Bank  with  false,  inaccurate  or  misleading  information  or  has  contravened  any  prohibition  or  requirement  imposed  under  the  Regulations;  or    d)  that  the  UCITS  has  not  made  use  of  the 
authorisation within 12 months of the date on which it was authorised under the Regulations, or has failed to operate as a UCITS for a period of more than 6 months.  

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations to disclosure/reporting requirements:  

Same sanctions as the ones for the categories above.  

128 

 
 
 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 
statutory 
programme,  but 
only 
general 
guidelines.  The 
upcoming 
Central  Bank 
Bill  of  2011 
have 
will 
on 
provisions 
whistle-
blowing.  

2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

The 
maximum 
amounts  prescribed 
by  the  Central Bank 
a  body 
for 
are 
corporate 
an 
or 
unincorporated 
body: 
€5,000,000; 
for a natural person: 
€500,000.  

Where 
penalties 
foreseen, 
maximum 
shall 
following:  

be 

criminal 
are 
the 
fines 
the 

summary 
a) 
on 
to 
a 
conviction, 
fine  of 
maximum 
€5,000 
or 
imprisonment  for  a 
term  not  exceeding 
6 months or both, or 

b)  on  conviction  on 
indictment, to a fine 
exceeding 
not 
€500,000 
or 
imprisonment  for  a 
term  not  exceeding 
3 years or both. 

2004 

The  Central  Bank  and 
Services 
Financial 
Ireland 
Authority  of 
provides 
Act, 
powers for the Financial 
Regulator 
impose 
sanctions  for  prescribed 
contraventions 
of 
legislation  or  regulatory 
rules. 

to 

The  Administrative 
Sanctions  Procedure 
applies  to  both  legal 
and  natural  persons 
and  may  only  be 
applied to a regulated 
service 
financial 
(which 
provider 
a 
would 
UCITS 
its 
management 
company)  or 
those 
persons  concerned  in 
the  management  of 
regulated 
the 
financial 
service 
provider. 

include 
or 

All  of  those  mentioned  in 
the 
Commission's 
consultation  questionnaire. 
The  ASP  may  require  the 
affected  financial  services 
provider  to  reimburse  any 
illicit profit.  

In 2007: not specified.  

In 2007: not specified.  

although 

Favourable, 
the 
proposed  criteria  would  require 
greater scrutiny.  

In 2008: 10 fines for a total of 
€3.595.000,  9 
reprimands, 
and  disqualification  of  a 
person.   

In  2008:  from  €5.000  to 
€3.250.000; 

In  2009:  from  €7500  to 
€2.750.000 

In  2010:  from  €5000  to 
€2.000.000 

In 2009: 8 fines for a total of 
€3.672.500,  8 
reprimands, 
and  disqualification  of  a 
person; 

In 2010: 8 fines for a total of 
€2.248.700, 3 reprimands. 

129 

 
 
 
 
 
 
 
 
 
 
FINLAND 

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

Sanctions are regulated under FIN-FSA (Act on Financial Supervision Authority – Law 878/2008.  

For violations relating to prior authorisation: 

Public warnings/reprimands indicating entity/person responsible and nature of the breach; cease and desist orders; the imposition of administrative fines;  

For violations to operating requirements:  

Public  warnings/reprimands  indicating  entity/person  responsible  and  nature  of  the  breach;  cease  and  desist  orders;  the  imposition  of  administrative  fines;  the  imposition  of  temporary  injunction  / 
restraining orders, including e.g. the suspension of the public offer of UCITS units / shares both domestically and abroad; the dismissal of one or more natural persons (executives) from the UCITS 
management body, as well as the dismissal of a depositary or of an auditor; the permanent withdrawal of authorisation for the take-up of business for fund management companies (i.e. license). 

For violations to disclosure/reporting requirements:  

Public warnings/reprimands indicating entity/person responsible and nature of the breach; cease and desist orders; the dismissal/replacement of one or more natural persons (executives) from the UCITS 
management body, as well as the dismissal/replacement of an auditor; the imposition of administrative fines; the permanent withdrawal of authorisation for the take-up of business for fund management 
companies (i.e. license). 

All of the above sanctions are published on a systematic basis.  

Extending the current UCITS regime to AIFM funds is appropriate, albeit with the inclusion of other categories of funds presently not regulated under FIN-FSA.  

130 

 
 
 
 
 
 
 
 
2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

Administrative fine: 

Both 
and 
legal 
natural  persons  are 
the addressees. 

The 
authority 
FSA. 

responsible 
the  FIN-

is 

The  minimum  level 
for  legal  person  is 
€500 
the 
and 
maximum  level  for 
is 
legal 
€10,000. 

person 

The  minimum  level 
for  natural person is 
the 
and 
€50 
maximum  level  for 
natural  person 
is 
€1.000. 

Penalty payment: 

The  minimum  level 
for  legal  person  is 
€500 
the 
and 
maximum  level  for 
is 
legal 
€200,000. 

person 

The  minimum  level 
for  natural person is 
the 
and 
€100 
maximum  level  for 
is 
natural  person 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

of 

Gravity/seriousness/magnit
infringement; 
ude 
frequency; 
duration 
or 
cooperation 
perpetrator’s 
with authorities.  

In  the  period  during  2008-
2010,  only  1  fine  was  levied 
against a UCITS management 
to 
company  for  violations 
fund rules. The fine amounted 
to €5.000.  

€5.000.  

No  

Finland  opposes  EU  rules  on 
sanctions'  harmonisation,  as 
they  would  require  a  massive 
overhaul of existing legislation, 
most of which is in the criminal 
realm. The proposed minimums 
would  by  far  exceed 
those 
available under Finnish law.  

the 

illicit  benefit 

The  amount  of  not  lower  than 
twice 
is 
excessively punitive and far too 
broad.  Many  breaches  of  the 
UCITS Directive are sanctioned 
by  criminal  law.  There  is  the 
danger  that  the  principle  of  ne 
bis in idem is contravened, were 
administrative 
criminal 
sanctions  to  overlap,  resulting 
in  an  excessively  burdensome 
regime  for  offenders  (in  this 
respect, the Commission should 
of 
on 
focus 
Regulation 
on 
CRAs).  

23 
recital 
1060/2009 

and 

10% 

criterion 

The 
is 
disproportionate,  as  it  would 
translate  into  billions  of  €  that 
might  ultimately  even  damage 
unit-holders.  

131 

 
 
 
 
 
 
Alternatively,  Finland  suggest 
calibrating  the  amount  of  the 
fine with the annual turnover of 
the  management 
company 
in 
(already 
Directive1060/2009  on  CRAs, 
as  amended  by  Regulation 
513/2011  –  Articles  36a)  and 
b).  

is  foreseen 

this 

€10,000. 

132 

 
 
 
 
SWEDEN 

The UCITS Directive, as amended, has been implemented in Sweden by the Investment Funds Act (SFS 2004:46, LIF).  

For violations to authorisation requirements:  

Finansinspektionen can issue warnings, orders and injunctions requiring UCITS companies to take specific action and / or ban certain operations. It can submit a protest to the management company if 
one or more of the persons managing it does not fulfil the stated requirements and demand that this person no longer hold the position in question. If it does not adhere to Finansinspektionen's decision 
and take action, the management company's authorisation can be withdrawn. Authorisation may also be withdrawn if the company has received it by submitting false or misleading information, or has 
not begun operating within one year from the time of authorisation.  

1  -  What  type  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

If the management company does not provide the information required by Finansinspektionen, a late fee may be issued. Finansinspektionen has not yet begun charging late fees, but initial preparations 
to do so are underway. In conjunction with a ban or injunction, the management company can be issued a conditional fine (fines may not be directed at natural persons). Finansinspektionen may forego 
an  intervention  if  the  breach  is  negligible  or  excusable,  if  the  company  rectifies  the  matter  or  if  any  other  body  has  taken  action  against  the  company  and  this  action  is  deemed  sufficient. 
Finansinspektionen can also intervene against companies that conduct fund operations without having obtained authorisation to do so. Finansinspektionen shall in such cases issue an injunction that the 
company cease to conduct the operations.  

For violations to operating requirements:  

Same as above.  

For violations to disclosure/reporting requirements:  

Same as above.  

Finansinspektionen deems that the present rules (that i.a. are also applied to other financial services providers) should also apply for violations of the AIFM Directive.  

133 

 
 
 
 
 
 
 
 
2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

to 

the 

According 
applicable 
provisions set out in 
an 
LIF, 
administrative 

The 
administrative 
sanctions are directed 
to  legal  persons  (i.e. 
management 
company). 

is 
Finansinspektionen 
the 
responsible 
application 
the 
administrative  sanctions 
under the IFA.  

for 
of 

Finansinspektionen 
decisions 
appealed 
Administrative Court. 

can 
to 

be 
the 

fine  shall  have  a 
minimum  value  of 
SEK  5,000  (approx. 
€553) 
a 
maximum  value  of 
SEK 50 

and 

(approx. 

million 
€5.527.000). 
However, it may not 
exceed  10%  of  the 
management 
company's  turnover 
during  the  previous 
financial year. 

intervention 
An 
against 
parties 
lacking  authorisation 
fund 
to 
conduct 
operation  (order 
to 
operations) 
cease 
may  be  directed  to 
both 
legal  persons 
and natural persons.  

if 

is 

or 

or 

The 
for 
criterion 
withdrawing  authorisation 
as set out in LIF is that the 
breach  shall  be  “severe”, 
although a warning may be 
issued  if  this  is  deemed  to 
be  sufficient.  Government 
Bill  2007/08:57  specifies 
that the deciding factor for 
not 
whether 
shall 
Finansinspektionen 
intervene 
a 
management 
company 
behaves in a manner that is 
not in compliance with the 
laws and other statutes that 
apply  to  the  company,  the 
fund  rules,  the  articles  of 
association 
internal 
instructions  that  are  based 
on  a  statue  that  regulates 
the  company's  operations. 
When 
the 
measure, the severity of the 
breach should be taken into 
consideration  based  on  the 
consequences it has had or 
could 
the 
securities  market  as  a 
whole  and  for  individual 
investors.  Consideration 
should also be given to the 
measure  that  is  sufficient 
and appropriate in reaction 
to 
the 
the  breach  and 
the  measure  can 
effects 
have  on  unit  holders. 
has 
Finansinspektionen 
to 
considerable 

selecting 

freedom 

have 

for 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

Not specified.  

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010. 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

a 

Most breaches were not worth 
a  pecuniary  sanction.  Only  in 
2010,  a  fine  of  SEK  400.000 
(approx.  €44.217)  was  dealt 
against 
management 
company  for  violations  of 
relevant  law,  regulations  and 
fund  rules.  In  all,  only  3 
the 
sanctions 
breach  of  the  UCITS-specific 
rules.  

concerned 

N/A 

that 
standards 
to 
"race 

The fine should be calibrated on 
the  amount  of  the  management 
turnover.  Sweden 
company's 
although 
highlights 
are 
minimum 
a 
worthwhile 
avoid 
competitive 
the 
to 
jurisdictions, 
bottom"  among 
remains 
a 
such 
among 
difficult 
jurisdictions 
fund 
industries  are  so  diversified.  A 
reasonable level in one country, 
would  be 
in 
another.  

standard 
set 
to 
where 

too  high/low 

134 

 
 
 
that 

decide  itself  the  level  of 
is 
intervention 
reasonable  and  the  criteria 
that  should  be  taken  into 
consideration. 
Finansinspektionen 
the  most 
that 
believes 
critical 
criteria  when 
assessing  a  breach  are  its 
frequency 
severity, 
the 
the  breach 
with  which 
any  previous 
occurred, 
breaches,  obstructions  to 
supervision and attempts to 
hide  breaches.  Financial 
strength  is  relevant  when 
determining the size of the 
administrative fine. 

from 

Cooperation 
the 
company can in some cases 
be  viewed  as  mitigating 
circumstances,  primarily  if 
taken 
the  company  has 
measures 
the 
deficiencies. 

to  rectify 

135 

 
 
LATVIA 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For the violation of prior authorisation requirements:  

Public warnings/reprimands indicating entity/person responsible and nature of the breach; Other violations, if of a certain gravity, are punishable via criminal sanctions.  

For the violation of operating requirements:  

The dismissal of one or more natural persons (executives) from the UCITS management body, as well as the dismissal of a depositary or of an auditor; 

The imposition of administrative fines; 

The permanent withdrawal of authorisation for the take-up of business for fund management companies (i.e. license). 

For the violation of disclosure/reporting requirements:  

The dismissal/replacement of one or more natural persons (executives) from the UCITS management body, as well as the dismissal/replacement of an auditor; 

The imposition of administrative fines; 

The permanent withdrawal of authorisation for the take-up of business for fund management companies (i.e. license). 

Sanctions applicable to UCITS funds are appropriate to apply also to non-UCITS (i.e. AIFM) funds, subject to certain adaptations.  

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

136 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

 
 
 
 
 
on 

for 

The  FCMC  has  the 
right  to  impose  a 
the 
penalty 
company  and 
the 
custodian bank up to 
minimum 
400 
salaries 
monthly 
(minimum  salary  is 
LVL 200, or approx. 
the 
€278) 
violations 
above. 
Should  these  fail  to 
the 
deter 
of 
perpetration 
despite 
violations, 
notices 
the 
the 
addressed  by 
the 
FCMC 
the 
offender  and 
the 
expiration  of 
time 
to 
limits 
comply,  a  higher 
level  of  penalties, 
depending  on 
the 
violations, can range 
from  LVL  1000 
(approx.  €1.390)  to 
a  maximum  amount 
of  LVL  720  000 
(approx. 
€1.000.980).  

to 

Legal  persons,  but  in 
the 
cases  whereby 
company’s  official  is 
prohibited 
from 
performing  of  his/her 
duties or acquiring or 
a 
increasing 
qualifying  holding  in 
a company, both. 

Financial 

and 
The 
Market 
Capital 
Commission 
(FCMC) 
shall  be  responsible  for 
the 
of 
supervision 
companies licensed by it 
the 
supervise 
and 
the 
operation 
of 
custodian 
bank.  An 
administrative act issued 
by 
in 
FCMC 
the 
accordance  with 
Law 
Investment 
on 
Management 
Companies  may 
be 
appealed  in  front  of  the 
Administrative Regional 
Court. 

the 

Not specified.  

The  mentioned  minimum  for 
fines  is  too  high  compared  to 
the  400  minimum  monthly 
salaries  (minimum  salary 
is 
LVL  200,  or  approx.  €278) 
mentioned under column 1.  

1)  Gravity  /  seriousness  / 
magnitude of infringement; 

2) Duration or frequency; 

N/A 

No pecuniary sanctions. Only 
1  warning  to  a  management 
company 
in 
for 
submitting  annual  report  to 
FCMC.  

delay 

3) 
motives/negligence; 

Perpetrator’s 

4) 
cooperation 
authorities; 

Perpetrator’s 
with 

5)  Economic  effects  of 
infringement  on  investors, 
third  parties  and  in  the 
domestic  market  insofar  as 
these can be determined.  

137 

 
 
ESTONIA 

138 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For the violation of prior authorisation requirements:  

The  FSA  sanctions  these  in  cooperation  with  the  police  and  Prosecutors  Office.  According  to  §  372  (2)  Penal  Code  economic  activity  without  activity  license  within  a  field  of  provision  of  credit, 
insurance or financial services is criminal offence. The main course followed by the FSA is referring matters for criminal prosecution and publication of a public warning message. Economic activities 
in a field subject to a special prohibition, or activities without an activity license, other license, registration or through an unapproved enterprise in a field where such activity license, other license, 
registration or approval of enterprises is required, are punishable by a pecuniary sanction or up to 3 years' imprisonment.  

For the violation of operating requirements:  

The FSA has broad competence to issue a precept if there are violations relating to operating requirements. It may suspend the public offer of the units or shares of a foreign fund in Estonia. 

When the violation has been made by executives from the UCITS management body, then FSA has the right to remove such persons. If needed, the FSA can demand that the auditor of a management 
company be changed; an employee of a management company be suspended from work or demand that performance of the duties of a management company transferred by the management company to 
a third party be terminated prematurely. 

If the addressee of a precept fails to comply with the precept of the FSA, the latter may impose a penalty payment pursuant to the procedure provided for in the Substitutive Enforcement and Penalty 
Payment Act. In addition, if the addressee of the precept fails to comply with the precept of the FSA, the latter may apply other measures prescribed by this Act, including: revocation of the activity 
license of the management company; revocation of the authorisation for the foundation of a branch; demanding the removal of a manager of the management company by a court.  

According to Penal Code for serious violation of restrictions provided by law on investment of assets is punishable by a pecuniary sanction.  

Depositaries may also be fined for failing to perform their obligations under the Investment Funds Act. 

For the violation of disclosure/reporting requirements:  

If necessary, the FSA may issue an order whereby the Authority designates a term for the performance of obligations. The order may contain a warning that upon failure to perform the obligations within 
the designated term, a penalty payment may be imposed pursuant to the procedure provided for in the Substitutive Enforcement and Penalty Payment Act. In addition, if the addressee of the precept fails 
to comply with the precept of the FSA, the FSA may apply other measures prescribed by Investment Funds Act, including: revocation of the activity licence of the management company; revocation of 
the authorisation for the foundation of a branch; demanding the removal of a manager of the management company by a court.  

The FSA has the right to disclose, in full or in part, a decision, administrative act or contract under public law as of the date of its issue or conclusion if this is necessary for the protection of investors, 
clients of financial supervision subjects or the public, or for ensuring the lawful or regular functioning of the financial market. 

There are lot of different possibilities to impose administrative fines for violation relating to public disclosure, disclosure of misleading or incomplete advertising or information about a public offer or 
reporting requirements to the unit-holders (mandatory reports, documents, explanations or information) , but level of fines are remarkably low.  

No opinion insofar concerning the applicability of the above rules to non-UCITS funds.  

139 

 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

In  case  of  a  natural 
person; a court or an 
extra-judicial  body 
may  impose  a  fine 
of 
180 
EEK 
(approx.  €11.5)  up 
to  EEK 
18.000 
(approx. €1.150). 

According 
to 
Estonian  Code  of 
Misdemeanour 
Procedure  both  legal 
and  natural  persons 
may  be  subject 
to 
misdemeanour 
proceedings. 

legal 

The fine imposed on 
person 
a 
from  EEK 
ranges 
500 (approx. €32) to 
EEK 
500,000 
(approx. €32,000). 

for 

Extra-judicial 
proceedings  concerning 
misdemeanours 
the 
the 
in 
provided 
Investment 
Estonian 
are 
Funds 
by 
conducted 
the 
Estonian 
Financial 
Supervision  Authority 
(FSA). 

Act 

From €10.000 to €19.000.  

A  comprehensive  list  of 
mitigating  and  aggravating 
circumstances  is set by the 
Estonian  Penal  Code.  The 
body 
extra-judicial 
conducting 
the 
misdemeanour proceedings 
must 
these 
consider 
accordingly.  

and 

During  2008  –  2010,  3 
cases  were 
infringement 
all  were 
treated 
sanctioned. 
effectively 
Criminal 
legislation  with 
respect  to  financial  crimes  is 
presently being reconsidered.  

or 

are 

offence, 

The  main  mitigating 
circumstances 
the 
following:  prevention  of 
harmful  consequences  of 
the 
voluntary 
compensation  for  damage; 
appearance  for  voluntary 
sincere 
confession, 
remorse, 
active 
assistance  in  detection  of 
the offence; commission of 
the  offence  due 
to  a 
difficult personal situation; 
commission  of  the  offence 
under  threat  or  duress,  or 
due  to service, financial or 
dependent 
family-related 
relationship; 
commission 
of 
the  offence  by  a 
pregnant  woman  or  a 
person  in  an  advanced  age 
etc.  

The  corresponding  list  of 
aggravating  circumstances 
is 
self 
interest  or  other  base 

following: 

the 

140 

are 

significant 
There 
in  polices  and 
differences 
the 
definitions 
in 
and 
law 
interpretation  of  penal 
States. 
between  Member 
Estonian  FSA  supports 
the 
opinion  that  a  high  level  of 
administrative  fines  should  not 
be  an  aim  per  se.  The  actual 
imposed 
level  of  sanctions 
should  be  adequate 
the 
to 
violation  and  similar  for  the 
same 
violation 
regardless  if  it  is  qualified  as  a 
criminal  or  an  administrative 
fine  according  to  the  national 
law  of  a  Member  State.  It 
further  believes  that  not  only 
the  level  of  fines,  but  other 
such  as 
coercive  measures 
occupational  ban,  confiscation 
of  the  assets  gained  as  a  result 
of  violation  are  also  among 
effective 
the 
ones 
enforcement toolkit. 

type 

of 

in 

 
 
 
motives, commission of the 
offence  during  a  state  of 
emergency  or  state of war; 
commission  of  the  offence 
by  taking  advantage  of  a 
public  accident  or  natural 
disaster; commission of the 
offence in a manner which 
is  dangerous  to  the  public; 
causing 
serious 
of 
consequences;  commission 
of  the  offence  in  order  to 
facilitate 
conceal 
or 
another offence. 

141 

 
 
LITHUANIA 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

Under the Law on Collective Investment Undertakings, and the Code on Administrative Violation of Law (for natural persons), the Securities Commission has a right to:  

For violations of authorisation requirements:  

Public warnings and reprimands, cease and desist orders for infringements to law provisions and those of secondary legislation, fines, impose deadlines to the rectification of illicit behaviour, prohibit 
conclusion  of  transactions  for  a  defined  period,  suspend  distribution  and  redemption  of  units/shares,  appoint  a  temporary  representative  of  the  LSC  to  supervise  activities,  replace  fund  managers, 
suspend validity of licence, or withdraw it completely.  

For violations of operating requirements:  

Same as the above, but additionally, the possibility to require the management company to replace the depositary, or to fine the auditor.  

For violations relating to disclosure/reporting requirements:  

All of the above.  

All decisions/resolutions of the LSC are announced publicly, save for where publicity may cause disproportionate harm to affected persons or impair the functioning of the market. 

Presently, the above sanctioning regime applies equally to both UCITS and non-UCITS funds, although adaptations may be necessary. 

2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
administrative 
the 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

persons 
Legal 
without a licence are 
fined  an  amount  of 
up  to  LTL  200.000 

and 
legal 
Both, 
natural  persons  can 
be  the  addressees  of 
administrative 
the 

Lithuanian 
The 
Securities  Commission 
(LSC) 
imposes 
administrative 

The  LSC 
account:  

takes 

into 

1) 

the  amount  of 

the 

In  2007  one  action  was 
brought 
the 
management  company for the 
infringement  of  the  Law  on 

upon 

In  2007:  LTL  50  000 
(approx.  €14  500, 
later 
reduced  the  LTL  25.000 

illegal  proceeds 
Where  any 
have  been  generated,  or  any 
other  property  benefit  received, 
loss  avoided,  and  the  amounts 

No 

142 

 
 
 
 
 
or 

the 

of  such  pecuniary  benefit,  loss 
damage 
avoided 
exceeded  the  amounts  of  the 
fines,  the  LSC  shall  have  the 
right to impose a fine double in 
illegally 
the  amount  of 
other 
generated 
pecuniary benefit, loss avoided, 
or the damage incurred, the first 
proposal  for  a  level  of  fines 
seems  to  be  acceptable  for  the 
legal persons.  

the 
proceeds, 

However,  the  abovementioned 
fines  if  applied  to  the  natural 
persons  could  be  hardly  treated 
as  administrative  sanctions  – 
generally  the  amounts  of  the 
fines are expected to exceed the 
threshold  of  the  administrative 
sanctions and probably shall be 
assessed  as  criminal  sanctions. 
Therefore  certain  alterations  of 
fines  applicable  to  individuals 
would  normally  have  to  result 
in necessity to criminalize these 
actions  in  the  framework  of 
and 
national 
therefore  would  be  related  to 
lengthy legislative procedures. 

legislation 

sanctions. 
Rules 
to  natural 
applying 
persons  are  governed 
by 
the  Code  on 
Administrative 
Violation of Law. 

from 

sanctions. The monetary 
fines  shall  be  paid  into 
the  State  budget  not 
later  than  within  one 
month 
the  day 
from  the  receipt  by  the 
person of the decision of 
the 
Securities 
Commission  to  impose 
the fine. In the event the 
fine has not been paid in 
good  faith  the  decision 
of 
Securities 
Commission  shall  be 
enforced  in  the  manner 
established  by  the  Civil 
Code of the Republic of 
Lithuania. 

the 

(approx.  €58.000); 
those  in  breach  of 
regulatory 
other 
to 
provisions  up 
100.000 
LTL 
(approx. 
€29.000) 
for  non-compliance. 
Where 
illegal 
proceeds  have  been 
generated  and  these 
the 
exceed 
foreseen 
maximum 
by 
the  applicable 
sanctions,  the  LSC 
to 
has 
the 
sanction 
by 
doubling the amount 
illicitly 
of 
generated  proceeds, 
of  the  loss  avoided 
or  of  the  damage 
incurred.  

right 

the 

persons, 
Natural 
fined 
amount 
an 
from  LTL  2,500 
(approx.  €725) 
to 
LTL  5,000  (approx. 
€1450) 
the 
to  comply 
failure 
the  LSC’s 
with 
resolutions, 
or 
interference  in  the 
carrying out of its its 
duties.  

for 

A fine of the amount 
from  LTL  2,000 
to 
(approx.  €580) 
LTL 
10,000 
(approx.  €2.900)  is 
to 
for 
the  failure 
the 
comply  with 
regulating 
laws 

damage incurred as a result 
of the infringement;  

2) 
duration 
infringement;  

of 

the 

the 
the  amount  of 
3) 
proceeds,  other  pecuniary 
benefit  or  other  benefit 
generated  due 
the 
infringement;  

to 

4) 
circumstances 
mitigating  or  aggravating 
the liability.  

Actions  of  the  suspected 
person  taken  of  his  own 
free will in order to prevent 
the  detrimental  effects  of 
the  violation,  to  assist  the 
LSC  in  carrying  out  the 
investigation, 
to 
compensate  for  the  losses 
or  to  undo  the  damage, 
shall  be  considered  to  be 
mitigating  circumstances. 
The  LSC  may  decide  to 
deem  other  circumstances 
not  specified  as  mitigating 
as  well.  The  disgorgement 
of 
is 
considered  as  a  mitigating 
circumstance.  Aggravating 
e.g. 
circumstances, 
impeding 
the 
investigation  procedure  by 
a  person  suspected, refusal 
to cooperate with the LSC, 
recidivism  etc.  are  also 
account, 
taken 
although 
is 
list 
exhaustive.  

profits 

illicit 

their 

into 

of 

the 

business 

imposed  by 

Collective 
Investment 
Undertakings.  In  2008  one 
fine  was 
the 
Securities  Commission  to  a 
company  which  was  engaged 
in 
of 
company 
management 
without possessing the licence 
prescribed  under  the  Law  on 
Collective 
Investment 
Undertakings.  In  2009  one 
manager  of  a  management 
company was sanctioned. The 
fine  was  imposed  upon  the 
former 
of 
management  company  for  its 
failure, acting as the manager 
of  the  2nd  and  3rd  pillar 
pension funds, to comply with 
the  requirements 
to  avoid 
conflicts  of  interests  and  act 
in  the  best  interest  of  fund 
holders. 

manager 

(approx. €7250). 

In  2008:  LTL  100.000 
(approx.  €29.000)  –  later 
to  LTL  20.000 
reduced 
(approx. €5792).  

In  2009:  2  management 
companies  were  fined  LTL 
1000  (approx.  €289)  and 
LTL 2700 (approx. €782). 

2010:  warnings  and  license 
suspension  against  certain 
management companies.  

These  violations  were  not 
specific  of  UCITS  funds. 
Legislation 
to 
bother  retail  and  alternative 
investment vehicles.  

applies 

143 

 
 
 
 
 
 
fund 

pension 
associations, 
pension 
management 
companies, 
operation of pension 
asset  depositary.  A 
fine  of  the  amount 
from  LTL  1,000 
(approx.  €290) 
to 
LTL  5000  (approx. 
€1450)  is  levied  for 
to  comply 
failure 
laws 
with 
the 
the 
regulating 
activities 
of 
investment 
companies 
variable 
closed-end 
investment 
companies, 
management 
companies,  holding 
companies, 
public 
investment 
companies.  

with 
capital, 
type 

A fine of the amount 
from  LTL  3  000 
(approx.  €869) 
to 
LTL  5  000  (approx. 
€1 450) is levied for 
to  comply 
failure 
laws 
with 
the 
the 
regulating 
activities 
of 
depository. Fines for 
auditors  range  from 
LTL  2000  (approx. 
€579)  to  LTL  5000 
(approx. €1448). 

144 

 
 
POLAND 

145 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations relating to authorisation requirements:  

The Polish Financial Supervision Authority (PFSA) is empowered to publish warnings indicating entity or person responsible for a breach of law. 

Neither cease and desist orders or pecuniary sanctions are contemplated.  

For violations relating to operating requirements:  

The Polish Financial Supervision Authority is empowered to publish warnings indicating entity or person responsible for a breach of law. Polish UCITS funds do not issue securities thus the public offer 
is not the case of the Polish UCITS. The PFSA is empowered to give temporary injunction/restraining orders in case of securities of foreign UCITS that intend to admit their securities to public trading. 
Also,  it  is  empowered  to  order  the  dismissal  of  one  or  more  natural  persons  (executives)  from  the  UCITS  management  body  and  of a  depositary  or  of  an  auditor.  The  PFSA  can  also  impose  fines 
(including for violation of delegation requirements, rules of conduct, and for those relating to depositaries). The withdrawal of a license to provide services is also foreseen.  

Fines  are  applied  against  management  companies,  depositaries,  distributors,  transfer  agents,  entities  commissioned  by  a  management  company  to  carry  out  its  responsibilities,  persons  acquiring  or 
subscribing for shares in a management company or persons not notifying of a disposal of shares in a management company, foreign funds, paying agents, representatives of foreign funds, foreign 
management companies (sanctions against foreign management companies may be imposed only as a definitive measure). 

For violations relating to disclosure/reporting requirements:  

The PFSA is empowered to publish public warnings indicating entity or person responsible for the breach of the law, including a description of the nature of the breach. Moreover, sanctions include the 
dismissal of natural persons, as well as that of an auditor, the imposition of fines and the decision to permanently withdraw the provider's licence.  

Other specific sanctions (as mentioned in the 2010 CESR mapping exercise) are:  

• prohibiting shareholders from exercising their voting rights when their influence proves detrimental to sound and prudent management by the management company, observance of the principles of 
fair trading, or due protection of the interests of unit-holders or ordering shareholders to sell their shares (similarly, ordering persons who indirectly acquired shares in the management company to 
terminate such influence); 

• ordering to amend an investment fund’s Articles of association; 

•  ordering  management  companies  to  replace  management  company’s  management  and  supervisory  board  members,  employees  of  the  management  company  or  the  entities  commissioned  by  a 
management company to carry out its responsibilities, who have a material influence on the fund’s activities or to replace persons designated by a depositary to carry out its responsibilities; 

• ordering a fund to replace its depositary; 

• revoking the authorisation for distributors; 

• prohibiting further sale of the units of foreign funds (properly speaking it is a preventive measure not the sanction); 

146 

• demanding that a management company discontinue the breach of the regulations in force in other Member State; 

• prohibiting a management company from conducting activities in other Member State;

 
 
 
 
 
6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

In 2007: not specified. 

In 2007: not specified. 

During 2008-2010, there were 
17  cases  of  infringements  to 
the  UCITS  regulation.  All 
resulted  in  sanctions  against 
offenders,  all  of  which  were 
of the pecuniary type.  

ranged 

The amounts during 2008 – 
2010 
from  PLN 
10.000  (approx.  €2.500)  to 
PLN 
(approx. 
€200.000).  

800.000 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

Polish  authorities  consider  that 
fines  should  not  be  based  on 
illicit  benefits  as  they  are  not 
always  determined.  AUM  as  a 
measure 
and 
proportionate,  although  there  is 
no  need  to  set  up  a  minimum. 
The  AUM  would  also  not  be 
applicable to natural persons.  

proper 

is 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

No  maximum  or 
level  of 
minimum 
been 
fines 
the 
reported 
PFSA.  

has 

by 

Both 
natural persons.  

legal 

and 

The  Polish  Financial 
Supervision Authority. 

The  factors  mentioned  in 
the 
Commission's 
consultation  questionnaire 
are  not  explicitly  foreseen 
under 
law. 
Polish 
However,  the  PFSA  has 
the  right  to  impose  a  fine 
taking  into  account  every 
the  mentioned 
one  of 
factors by the Commission. 

to  an  earlier 
According 
answer (to the 2010 CESR 
mapping  exercise),  Polish 
authorities  may  look  more 
closely at the following:  

the 

impact 

of 
a) 
irregularities 
on 
functioning  of  the  capital 
market  and  the  interests  of 
unit-holders;  

the 

types 

b) 
of 
irregularities  and  actions 
taken  by  an  entity 
to 
eliminate 
the 
future;  

them 

in 

c) 
of 
detection 
irregularities  by  an  entity 
itself. 

147 

 
 
 
 
 
CZECH REPUBLIC 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations relating to authorisation requirements:  

Public warnings are issued by the competent authority in case there is a need to warn investors (e.g. in case of unauthorized collective investment schemes). The domestic law also provides for public 
reprimands indicating entity and nature of the respective breach. However, the Czech competent authority (CNB) does not use such measure very often. The CNB has a statutory duty to publish the 
verdict of every sanction decision that came into force (this is not considered as a sanction in the strict sense of the word). The imposition of administrative penalty is possible in this case and in general, 
the  competent  authority  can  impose  remedial  measures  (including  cease  and  desist  orders)  on  a  person/entity  that  is  subject  to  supervision  in  case  of  violation  of  Law/prospectus/depositary 
agreement/management contract.  

For violations relating to operating requirements:  

Dismissal of a depositary or auditor is a possible remedial measure, as well as forced administration in case of serious breaches of law. Furthermore, the change of management company can be imposed 
upon the investment company or the common funds may be ordered to be transferred to other management company. The imposition of administrative fines for the violation of delegation requirements, 
the rules of conduct of the management company and the depositary is possible as well as withdrawal of license in serious cases (insolvency, no activity, breach of capital adequacy, etc.). In general the 
competent authority can impose several remedial measures upon a person/entity that is subject to supervision in case of violation of Law/prospectus/depositary agreement/management contract. The 
competent authority may for example impose a temporary suspension of the issue and/or redemption of UCITS units or change the scope of authorisation of the management company. 

For violations relating to disclosure/reporting requirements:  

Dismissal of an auditor is a possible remedial measure, as well as forced administration in case of serious or repeated breaches of law and existing threat to the investors. Furthermore the change of 
management company can be imposed. The imposition of administrative fines is a common and prevalent measure for violations relating to disclosure duties. In serious cases the license could also be 
withdrawn  (when  the  authorisation  was  issued  on  the  basis  of  false  or  incomplete  information  or  when  there  was  substantial  change  of  the  conditions  for  authorisation).  In  general,  the  competent 
authority  can  impose  remedial  measures  upon  a  person/entity  that  is  subject  to  supervision  in  case  of  violation  of  Law/implementing  acts/decision  of  the  competent  authority/EU 
regulations/prospectus/depositary agreement/management contract. Ordering an extraordinary audit of fund assets at the expense of the fund is also a possible remedial measure in cases of ascertained 
shortcomings  in  the  audit  or  when  the  auditor  fails  to  fulfil  its  reporting  duty.  The  verdict of the administrative decision in force (including the name of the entity/offender, brief description of the 
unlawful conduct and the type of inflicted sanction) is systematically published on the website of the competent authority. 

Sanctions applicable under UCITS would be appropriate also for the AIFM regime, although doubts remain as to the enforcement of sanctions vis-à-vis non-EU AIFMs that sell and market non-EU 
AIFs.  

148 

 
 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

No  

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

The  minimum  level 
the  pecuniary 
of 
not 
sanction 
is 
the 
stipulated  by 
law,  but  the  amount 
of  the  fine  imposed 
in  every  single  case 
shall  correspond  to 
the  nature  and  the 
gravity 
the 
infringement.  The 
maximum  level  of 
fine laid down in the 
implementing 
Act 
Directive 
UCITS 
amounts 
to  CZK 
20.000.000  (approx. 
€800.000).   

of 

The 
maximum 
amount  of  the  fine 
(cap) 
that  can  be 
these 
inflicted 
cases  on  natural 
persons  amounts  to 
CZK  5  000  000 
(approx. €200.000). 

in 

Both 
natural persons.  

legal 

and 

The  Czech  National 
Bank (CNB).  

amount 

The  fundamental  criteria 
the 
that  shall  determine 
final 
of 
administrative fine and that 
are  defined  by  the  Act 
implementing 
UCITS 
Directive  are  as  follows: 
the  gravity  of  the  illegal 
behavior,  the  manner  in 
which 
the  offence  was 
committed,  circumstances 
it  was 
under  which 
and 
committed 
consequences 
resulting 
from the offence. 

recorded 

No 
was 
infringement 
recorded  for  2007.  For  the 
period  2008-2010,  there  were 
infringements 
7 
(only  1relating  to  a  UCITS 
fund),  of  which  only  5  were 
effectively  sanctioned  with  3 
permanent  withdrawal 
of 
license  to  provide  investment 
management  services,  and  3 
fines  amounting  to  a  total  of 
€51.000).  

In 2007: N/A 

In  2008:  From  CZK  0  to 
(approx. 
CZK 
€2,000) 

50,000 

2009: 

From  CZK 
In 
750,000  (approx.  €30,000) 
to  Max  CZK  1,000,000 
(approx. €40,000). 

In 2010: Not specified.  

Revenues  of  the  management 
company are a more appropriate 
criterion  since  they  represent 
the  own  assets  of  the  fund 
management 
company.  A 
minimum  level  of  fines  risks 
disregarding  the  principle  of 
sanction  individualisation,  with 
a 
the 
prescribed  minimum  may  be 
disproportionate  and  possibly 
also 
as 
sanctionable 
unconstitutional  by  the  Czech 
Constitutional Court. Moreover, 
it  is  not  appropriate  also  in  the 
light  of  the  other  criteria  the 
CNB has to take into account.  

consequence 

that 

from 

from 

It  shall  be,  however,  noted 
that  there  are  some  of  the 
other  criteria  that  ensue 
either 
established 
case-law  of  higher  courts 
or 
the  CNB’s 
practice.  For  example,  the 
amount  of  damage  (illicit 
gain)  caused  by  the  illegal 
behavior, financial strength 
of the offender, duration of 
the  illegal  behavior  and 
systemic  consequences  of 
behavior, 
the 
cooperation 
offender’s 
with 
competent 
authority  and  compliance 
history of the offender. 

illegal 

the 

149 

 
 
 
 
SLOVENIA 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

The Investment Fund and Management Companies Act (ZISDU) implements the UCITS Directive.  

For violations to the prior authorisation requirement:  

Public warnings / admonitions (even on the SMA's website);  

Temporary prohibition of offering investment management services; cease and desist orders to eliminate violations, fines.  

For violations to operating requirements:  

Same as above, but additionally injunctions and temporary restrictions to the marketing and issue/redemption of units/shares; the dismissal of executives from company boards (the latter may also be 
reached by a letter of admonishment), ban for certain natural persons from exercising functions in asset management; fines (e.g. for violation of delegation requirements, rules of conduct or those of the 
depositary); permanent withdrawal of license. 

For violations to disclosure/reporting requirements:  

All of the above, and additionally, the dismissal of the auditor. 

SMA considers that the current regime for UCITS will be appropriate for AIFM (i.e. non-UCITS) funds as well.  

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

150 

 
 
 
 
 
 
Year 2007:  

Year 2007:  

The SMA does not see the need 
to modify the status quo. 

No 

and 

6  out  of  which  3  for  legal 
(management 
persons 
for 
company) 
3 
responsible  persons  of 
the 
legal persons (the responsible 
person  of  a  management 
company); 

Minimum  for  legal  person 
(management 
company): 
€600  EUR;  minimum  for 
responsible  person  of  the 
(the 
person 
legal 
responsible 
of 
management 
company): 
€100; 

person 

Major 
Violations 
committed  by  legal 
person (management 
company, custodian, 
other  legal  person, 
sole proprietor, self-
employed person): 

The addressees of the 
administrative 
sanctions  are 
legal 
and natural persons:  

- 
company 

Management 

Minimum: €1.250 

- Custodian 

za 

Security Market Agency 
(Agencija 
trg 
vrednostnih  papirjev)  is 
the 
responsible 
application 
the 
administrative 
sanctions. 

for 
of 

-  Responsible  person 
the  management 
of 
company 

-  Responsible  person 
of the custodian 

-  Other  legal  person, 
sole  proprietor  or  a 
self-employed person 

- Natural person 

Maximum: 
€125.000 

or 

Where  gravity  of 
is 
offence 
particularly 
severe 
(amount  of  damage 
caused 
the 
amount  of  acquired 
illegal  proceeds,  or 
due 
to  offender’s 
intent  of  unlawful 
gain) 
fine  of 
€41.000 to €370.000 
shall  be  imposed  on 
the  offender  who  is 
a  legal  person,  sole 
proprietor  or  a  self–
employed person. 

a 

Minor  Violations 
committed  by 
the 
legal person: 

Minimum: €400 

Maximum: 
€125.000 

According 
to  Minor 
the  main 
Offences  Act, 
criteria to take into account 
to  set  the  level  of  the 
pecuniary 
administrative 
sanctions  within 
those 
limits as prescribed by law. 
The Investments Funds and 
Management  Companies 
Act  (or  the  Government 
Regulation  or  Local  Self-
Government  Ordinance) 
considers the gravity of the 
offender's 
offense, 
the 
intent,  as 
negligence  or 
well  as 
following 
the 
mitigating  and  aggravating 
circumstances: 

-  Level  of  offender's 
responsibility; 

Year 2008:  

7 
initiated  procedures,  of 
which  6  involved  pecuniary 
(misdemeanour 
sanctions 
cases); 

-  Motives  for  committing 
minor offence; 

Year 2009:  

-  Degree  of 
violation of secured good; 

threat  or 

-  Circumstances,  in  which 
offence was made; 

28  initiated  procedures,  of 
which  6  involved  pecuniary 
(misdemeanour 
sanctions 
cases); 

- Previous life of offender; 

Year 2010:  

13  initiated  procedures,  of 
which  2  involved  pecuniary 
sanctions 
(misdemeanour 
cases). 

-  Offender's 
circumstances; 

personal 

behaviour 
-  Offender's 
after  committing  minor 
offence, 
if 
especially 
he/she  compensated 
the 
damage. 

When  meting  out  a  fine 

151 

Maximum  for  legal  person 
company): 
(management 
€2.000;  maximum 
for 
responsible  person  of  the 
(the 
legal 
person 
responsible 
of 
management 
company): 
€700. 

person 

Year 2008: 

minimum 

Minimum  for  legal  person 
company): 
(management 
€800; 
for 
responsible  person  of  the 
(the 
legal 
person 
of 
responsible 
management 
company): 
€80; 

person 

Maximum  for  legal  person 
company): 
(management 
€3.300;  maximum 
for 
responsible  person  of  the 
(the 
person 
legal 
responsible 
of 
company): 
management 

person 

 
 
 
 
 
 
 
 
 
 
 
The 
responsible 
person  of  the  legal 
person:  

Minimum: €125 

Maximum: €4.100 

or 

If  the  gravity  of  the 
is 
offence 
particularly 
severe 
(amount  of  damage 
caused 
the 
amount  of  acquired 
illegal  proceeds,  or 
due 
to  offender’s 
intent  of  unlawful 
fine  of 
gain),  a 
€2.500  to  €12.000 
shall  be  imposed  on 
the  offender  who  is 
the 
responsible 
person  of  the  legal 
person, 
the 
responsible  person 
sole 
of 
the 
proprietor  or 
the 
responsible  person 
of the self-employed 
person.  

The 
responsible 
person  of  the  legal 
person 
who 
committed  minor 
violation:  

Minimum: €40 

€330. 

Year 2009:  

Minimum  for  legal  person 
company): 
(management 
€1.250;  minimum 
for 
responsible  person  of  the 
(the 
legal 
person 
of 
responsible 
management 
company): 
€125; 

person 

Maximum  for  legal  person 
company): 
(management 
€200.000;  maximum 
for 
responsible  person  of  the 
(the 
person 
legal 
responsible 
of 
management 
company): 
€6.000. 

person 

Year 2010:  

Not specified.  

other 

(pecuniary  sanction), 
the 
economic 
offender's 
situation,  amount  of  wage 
incomes, 
and 
property 
family 
and 
obligations  are  also  taken 
in  consideration.  For  legal 
is  economic 
persons 
power 
previous 
sanctions. 

it 
and 

Previous sanctions (in case 
fines and warnings) cannot 
be  taken  into  account  as 
mitigating  circumstance,  if 
more  than  three  years  past 
between  final  provision  or 
final  judgment  and  a  new 
minor offence. 

152 

 
 
 
 
 
 
 
 
Maximum: €4.100 

Violations 
committed  by 
natural person 

the 

Minimum: €125  

Maximum: €1.200  

or 

If  the  gravity  of  the 
is 
offence 
particularly 
severe 
(amount  of  damage 
caused 
the 
amount  of  acquired 
illegal  proceeds,  or 
due 
to  offender’s 
intent  of  unlawful 
gain), a fine of €400 
to  €3.600  shall  be 
imposed 
the 
offender  who  is  a 
natural person. 

on 

153 

 
 
 
 
AUSTRIA 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations to the prior authorisation requirement:  

The Austrian legislation provides for the following administrative sanctions with regard to violations relating to prior authorisation: public warnings/reprimands; cease and desist orders; administrative 
fines. The offering of foreign collective investment funds in Austria without prior notification to the FMA or offering Austrian collective investment funds (including Master-Feeder Structures) without 
prior authorisation by the FMA constitutes a criminal offense under Austrian Law and is prosecuted by criminal courts. 

For violations to operating requirements:  

The Austrian legislation provides for the following administrative sanctions with regard to violations relating to operating requirements: public warnings/reprimands; cease and desist orders; imposition 
of temporary restraining orders; dismissal of one or more national persons; administrative fines; permanent withdrawal of authorisation.  

For violations to disclosure/reporting requirements:  

The Austrian legislation provides for the following administrative sanctions with regard to violations relating to reporting/disclosure requirements: public warnings/reprimands; cease and desist orders; 
dismissal of one or more national persons; administrative fines; permanent withdrawal of authorisation.  

Making false declarations in a prospect, a key investor information document, an annual report on the financial year or in information on the proposed merger to unit-holders constitutes a criminal 
offense under Austrian Law and is prosecuted by criminal courts. 

FMA does not publish sanctions on a systematic basis. 

Alignment of the sanctions regimes between UCITS and AIFM is appropriate, although differences should apply to sanctions disciplining the marketing regime and the depositary functions.  

154 

 
 
 
 
 
 
2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

is 
no 
There 
level  of 
minimum 
sanctions. 
The 
maximum  ranges  up 
to 
per 
€75,000 
violation 
of 
(accumulation 
violations 
is 
possible)  or  up  to 
six 
weeks 
imprisonment. 

as 

the 
the 
fund 

general 
of 

In 
directors 
investment 
management 
companies 
responsible 
representatives  of  the 
legal  person  are  the 
the 
addressees  of 
administrative 
sanctions. 
is 
possible  to  nominate 
a  natural  person  in 
charge 
is 
the 
responsible 
legal  compliance  in 
certain  areas 
(e.g. 
marketing, 
management) 
of 
subject 
proceeding. 

who 
for 

and 
the 

It 

for 
of 

In  Austria  the  FMA  is 
the 
responsible 
application 
the 
administrative 
sanctions.  In  case  of 
aggravated 
violations 
the  criminal  courts  are 
responsible. 

that 

Code 

The  FMA  may  take  into 
account all criteria listed in 
Commission's 
the 
when 
questionnaire 
imposing 
administrative 
fines.  In  this  regard,  the 
Austrian 
of 
Penalties 
Administrative 
flexible 
a 
establishes 
system 
into 
takes 
account  an  open  ended list 
of 
and 
aggravating 
mitigating 
criteria/circumstances 
when settling a fine. There 
is  no  hierarchy  of  these 
criteria,  i.e.  illicit  profits 
may  be  taken  into  account 
but  may  not  be  the  only 
decisive  criteria  or  prevail 
on 
(possibly 
mitigating)  circumstances 
of a given case. It is further 
noted 
the  financial 
strength  of  the  perpetrator 
is a general criterion which 
does  not  explicitly  refer  to 
assets under management. 

other 

that 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

See column 6. 

2008:  Number 

of 
In 
infringements 
dealt  with 
amounted  to  11,  all  of  which 
were  fines  for  a  total  of 
€2.500.  Other  measured 
included  13  cease  and  desist 
orders.  

2009:  Number 

of 
In 
dealt  with 
infringements 
amounted 
to  197,  123  of 
which were fines for a total of 
€8.500.  Other  measured 
included  14  cease  and  desist 
orders. 

2010:  Number 

of 
In 
dealt  with 
infringements 
amounted 
to  221,  165  of 
which were fines for a total of 
€8.500.  Other  measures  have 
not been specified.  

155 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

No  

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

from 

the  Austrian 
Reply 
Ministry 
Finance: 
of 
Harmonisation  on  minimums 
appears  difficult  as  they  to  not 
provide  the  level  of  discretion 
necessary 
the 
proportionality  of  the  imposed 
fine  with  respect  to  the  nature 
the  violation.  Choosing 
of 
AUM  as  a  parameter  would 
lead  to  an  exaggerated  level  of 
fines. 

ensure 

to 

an 

from 

illicit  benefit 

Reply 
the  Austrian 
Financial  Markets  Authority 
(FMA): 
the  FMA  suggests 
establishing  minimum  amounts 
of  the  maximum  instead.  The 
criterion  of  twice  the  amount 
for 
(if 
quantified)  may  be  supported 
although  it  is  challenging  to 
quantify  the  benefit.  The  10% 
criterion  does  not  find  support 
for  the  abovementioned  reason. 
Alternatively, 
a  minimum 
amount  of  an  upper  limit  of 
fines  may  be  established,  e.g. 
the amount of management fees 
of  the  previous  financial  year 
reflecting 
(thereby  also 
the 
financial  strength 
company's 
ensuring 
and 
proportionality).  

thus 

 
 
 
 
 
GERMANY 

156 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

The administrative sanctions rules of the German Investment Act (Investmentgesetz - "InvG") concern infringements of notification-, publication- or accounting obligations or with infringements of 
investment rules. 

Violation relating to prior authorisation:  

In case, a management company commences business without the required permission, BaFin may order the company and the members of its bodies to discontinue such business operations immediately 
and to settle such transactions without undue delay (section 17c InvG). Moreover, any person who carries on the business of a management company without the required licence insures a penalty and 
shall be punished with imprisonment of up to three years or with a fine (section 143a InvG). 

The  license  of  the  management  company  may  be  revoked,  or  alternatively,  the  senior  mangers  /  executives  are  dismissed  from  his/her  position  in  the  management  company  (section  17a  InvG) 
particularly in cases were license conditions are no longer met and in case of ongoing infringements of provisions. Sanctions are also applicable with regard to mergers or master/feeder investments 
(e.g., fines with regard to merger information or investment restrictions for master feeders.  

For violations of operating rules requirements:  

The BaFin may withdraw the license of the management company and the executives may be dismissed. This would generally also imply a permanent ban for the person from exercising executive 
functions  in  the  asset  management  industry.  BaFin  may  also  dismiss  the  auditor.  The  management  company  shall  notify  the  BaFin  of  the  auditor  they have appointed immediately after making the 
appointment. Within one month of the receipt of such notification, BaFin may request the appointment of a different auditor if this appears necessary to achieve the object of the audit.  

BaFin may also dismiss the depositary. According to section 21 paragraph 1 InvG the appointment and any change of the depositary is subject to authorisation by BaFin and according to section 21 
paragraph 2 InvG BaFin may order a change of the depositary, particularly in cases where the depositary does not adequately fulfil its duties by law or contract or breaches of capital requirements.  

However, the rules in section 143 InvG concerning administrative fines deal mainly with infringements of notification-, publication- or accounting obligations or with infringements of investment rules, 
but not with general rules of conduct or depositary duties. Note also, that the sanction with administrative fines according to section 143 InvG requires at least a negligent act, which in practice may be 
difficult to evidence. Much more practical is therefore the following measure: BaFin may issue administrative acts (e.g. any orders according to section 5 InvG) which are enforceable by appropriate 
measures of compulsory execution (Zwangsvollstreckung), for example imposition of penalty payments (Zwangsgeld)) which may also be higher than the maximum levels in case of administrative fines. 
Zwangsgeld is intended as an enforcement measure to coerce compliance with an order or decision, more than as a sanction as such. It can be of an amount up to €250.000.  

For violations to disclosure / reporting requirements:  

The  Dismissal  of  executives  or  the  withdrawal  of  the  license  may  be  ordered  by  BaFin  in case of ongoing violation of requirements. Also, as specified above auditors may be dismissed by BaFin. 
Violations relating to disclosure or reporting requirements are also subject to sanctions with administrative fines as detailed in a catalogue in section 143 InvG.  

Bafin expects the UCITS sanctioning regime to be efficient for the purpose of sanctioning non-UCITS funds under AIFM.  

157 

 
 
 
 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

or 

(i) 

for 

criteria 

Main 
the 
determination  of  the  level 
administrative 
of 
the 
the 
if 
sanction  are 
offence  was  committed 
wilfully 
negligently 
(please  refer  to  answer  in 
column  2  above)  and  (ii) 
of 
"degree 
the 
unlawfulness" 
The 
(Unrechtsgehalt). 
Administrative 
German 
Offenses  Act 
(OWiG) 
considers  further  criteria, 
among  which  the  financial 
strength of the offender. 

The  Federal  Financial 
Supervisory  Authority 
(Bundesanstalt 
für 
Finanzdienstleistungsau
fsicht 
is 
the 
responsible 
application 
of 
administrative 
sanctions. 

-  "BaFin") 

for 

the 

can 

Addressees  of 
administrative 
sanctions 
be 
natural  persons  (for 
example  managing 
directors 
the 
management 
company)  or 
legal 
persons  (for  example 
management 
company 
even both. 

itself)  or 

of 

and 

According 
to 
section  143 InvG an 
administrative 
sanction can, mainly 
the  cases  of 
in 
infringement 
of 
investment  rules,  be 
punished  with  an 
fine 
administrative 
of  up 
to  €50.000 
(maximum level). In 
other  cases,  i.e.  for 
violation 
of 
notification, 
publication 
accounting 
obligations, 
administrative 
sanction  of  up  to 
€100.000 
(maximum 
level) 
can  be  dealt.  There 
administrative 
are 
for 
sanctions 
either 
offences 
committed  wilfully 
negligently. 
or 
that 
Please 
note 
actions 
negligent 
can 
be 
only 
punished with a fine 
of  up  to  the  half  of 
the  maximum  level 
set out above. 

an 

Please  refer  to  answer  in 
column 6. 

are 

Bafin  considers  that  minimum 
for  administrative 
standards 
fines 
as 
national  regulators  are  already 
equipped  with  better  measures 
for ensuring proportionality.  

unnecessary 

of 

effective 

No  administrative  sanctions 
were  applied  during  2007, 
2008  and  2009  since  BaFin 
made use of other appropriate 
supervisory 
and 
instruments 
(issue  of  an 
administrative  act  which  is 
enforceable  by  appropriate 
compulsory 
measures 
execution 
for 
(Zwangsvollstreckung), 
imposition  of  a 
example 
penalty 
payment 
(Zwangsgeld). Bafin admitted 
degree 
that 
infringements 
the 
violation  of  investment  limit 
rules)  were  dealt  with  via 
early  contacts  with  offenders. 
These measures, accompanied 
by  warnings  or  notices,  have 
proved  sufficient  throughout 
the whole 2008 – 2010 period 
to  discourage  infringements. 
Only  3  formal  warnings  have 
been issued since 2008.  

lower 

(i.e. 

158 

 
 
159 

 
 
 
SLOVAKIA 

160 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations to the prior authorisation requirement:  

Publication of warnings, cease and desist orders, the National Bank of Slovakia (NBS) is empowered to order the termination of the unlicensed activity and to impose a fine of up to €1.000.000 when 
the conditions for prior approval are infringed. This rule also applies to infringements of rules settled for using the required mark and violating of duties to provide the NBS with information relating to 
winding-up and liquidation of a fund. 

For violations to operating requirements:  

Apart from issuing public warnings, if the NBS finds out that the supervised entity has violated or is violating the Act on Collective Investments, fund rules, the rules of incorporation, the conditions 
stated in a license, a duty to provide the key investor information or that it has violated a separate legal regulation which applies to its activities, or that it has not fulfilled a measure imposed by a 
decision of the NBS, the NBS shall: a) order the termination of an unlicensed activity; b) restrict or suspend the management company, foreign management company, or foreign collective investment 
undertaking from performing one or more licensed activities; or c) revoke a license. 

Moreover, it shall a) suspend for a defined period and to a defined extent the use of a fund's assets and the issue of units; and b) suspend or restrict the distribution of securities of foreign collective 
investment undertaking for a defined period (max. up to 1 year) within the territory of the Slovak Republic. It shall have the powers to a) order a change of the depositary and the conditions of the 
change, recall and nominate the compulsory administrator of  fund's assets, or order a change of the liquidator and the conditions of the change, or it shall order the replacement of persons on the bodies 
of the management company, the replacement of management employees reporting directly to the board of directors who are responsible for professional activities, and the replacement of the employee 
responsible  for  internal  control and b) where a person has ceased to be trustworthy as a result of being validly fined, a management company, foreign collective investment undertaking or foreign 
management company is obliged immediately dismiss such person from his/her position. 

Where  a  person  has  ceased  to  be  trustworthy  as  a  result  of  being  validly  fined,  a  management  company,  foreign  collective  investment  undertaking  or  foreign  management  company  is  obliged  to 
immediately  dismiss  such  person  from  his/her  position.  Subsequently  such  person  can  not  become  member  of  management  company  bodies,  because  by  losing  trustworthiness  it  is  impossible  for 
him/her to obtain (according to law) preliminary approval from the NBS to be appointed or to receive authorisation. The NBS shall revoke a license for the establishment and activities of a management 
company where a series of conditions materialize.  

For violations to disclosure/reporting requirements:  

In addition to the above where applicable, the NBS shall require the correction of accounting records or other records in accordance with the findings of the NBS or an auditor, and require publication 
of the correction of incomplete, incorrect or false information which the management company, foreign management company, or foreign collective investment undertaking has published. 

All of the above sanctions and published and disseminated on a systematic basis.  

The NBS considers the UCITS sanctioning regime to be appropriate for non-UCITS funds.  

161 

 
 
 
 
 
 
2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

violation 

For 
authorisation 
requirements, 
fine  may 
€1.000.000.  

of 

the 
reach 

The  National  Bank  of 
Slovakia (NBS) 

legal 

and 
persons 

Both 
natural 
(management 
and 
company 
depositary  employees 
of 
and  members 
board) 
under 
supervision 

In  imposing  sanctions,  the 
NBS  shall  proceed  on  the 
basis  of  the  gravity  of  the 
the  degree  of 
breach, 
culpability,  the  nature  of 
the  detected  breach,  and 
the  manner,  duration  and 
consequences of the breach 
of  obligation,  while  taking 
into 
the 
supervised  entity  has  itself 
detected  the  breach  and 
restored 
lawful 
the 
situation  by  the  time  the 
decision  on  the  sanction  is 
issued.  

account 

that 

in 

the 

criteria 
of 
All 
mentioned 
the 
Commission's  consultation 
questionnaire  are 
taken 
into account.  

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

See column 6) 

N/A 

No  

the  period  2008-2010, 
In 
there  were  3 
infringement 
cases that were all effectively 
sanctioned.  For  2  of  them, 
corrective  measures  were 
ordered,  whereas  only  1  was 
sanctioned  with  a  fine  of 
€20.000.  

162 

 
 
 
GREECE 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

The Greek law for the transposition of UCITS (2009/65/EC) is currently being reviewed.  

The distinction of violation categories as identified by the Commission is not replicated at the national level. However, the Hellenic Capital Markets Commission is empowered to issue reprimands, as 
well as pecuniary sanctions within limits specified under column 2).  

Where infringements have been knowingly committed by natural persons, they shall be punished with imprisonment of at least 3 months and fines ranging between €50.000 and €300.000.  

Publications are always foreseen save where they risk destabilising financial markets or risk causing disproportionate damages to parties involved. 

Another provision of the draft law also stipulates that the Hellenic Capital Market Commission, may, among other things require the cessation of any practice that is contrary to the provisions of the 
UCITS  law  and  the  decisions  implementing  the  law,  request  the  freezing  or  the  sequestration  of  assets,  request  the  temporary  cessation  of  professional  activity,  require  the  suspension  of  the  issue, 
repurchase or redemption of units in the interest of the unit-holders or of the public, withdraw the authorisation granted to a UCITS, or management company or the approval granted to a depositary. 

Finally, the Hellenic Capital Market Commission may request the correct repetition of an inaccurate disclosure submitted by a management company of UCITS and may ask the relevant supervised 
entity to refrain from similar behavior in the future. 

The Hellenic Capital Markets Commission considers the UCITS sanctioning regime to be appropriate for non-UCITS funds, subject to appropriate adaptations.  

2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

the 
-  Who  are 
4 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

For 
legal  persons: 
fines  have  an  upper 
limit  of  €3.000.000, 
or  an  amount  equal 
to  twice  the  amount 
of  the  illicit  benefit 

The addressees of the 
administrative 
sanctions  are  both 
natural 
and 
legal 
persons. 

The  Hellenic  Capital 
Markets Commission 

The  draft 
law  provides 
indicatively  the  following 
criteria  for  the  setting  of 
administrative sanctions:  

In  2007:  26  sanctioned  cases 
(fines)  

a)  The 

impact  of 

the 

In 2008: 7 sanctioned cases (4 

163 

amount 

minimum 

and 
The 
of 
maximum 
administrative 
pecuniary 
sanctions  applied  during 
2007,  2008  and  2009  are 
(€1,000.00 
-  €3,000.00), 
(€300.00  -  €5,000.00)  and 

to 

–  Feedback 

the 
8 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

Favourable 
to  minimums, 
although  thresholds  should  be 
revisited taking into account the 
size of the fund industry.  

No 

 
 
 
 
 
 
obtained.  

For natural persons: 

fines  have  an  upper 
limit of €200.000, or 
an  amount  equal  to 
twice  the  amount  of 
the 
illicit  benefit 
obtained.  Where 
offences 
been 
knowingly 
committed 
by 
natural persons, they 
shall  be  punished 
with 
imprisonment 
of  at  least  3  months 
ranging 
and 
between 
€50.000 
and €300.000. 

fines 

For  non-cooperation 
in inquiries, the fine 
may 
to 
be 
€500.000.  

up 

violation  on 
functioning of the market; 

the  proper 

of which fines).  

(€1,000.00 
respectively 
infringement ascertained). 

-  €8,000.00) 
(per 

b)  The  presentation  of 
basic  information  for  the 
in  a  way  not 
investors 
retail 
understandable  by 
investors; 

In 2009: 7 sanctioned cases (6 
of which fines).  

c) The danger of damage to 
investor interests; 

In  2010:  14  sanctioned  cases 
(12 of which fines).   

Maximum and minimum for 
2010 are not specified. 

d)  The  magnitude  of  the 
the 
induced  damage 
investors 
the 
and 
possibility of recovery; 

to 

e)  The  taking  of  measures 
for  the  correction  of  the 
violation; 

The 

of 
degree 
f) 
cooperation  with 
the 
Hellenic  Capital  Market 
the 
Commission  during 
various 
of 
investigation; 

stages 

g)  The  necessities  of  the 
general 
specific 
and 
prevention; 

h)  The  possible  relapse  of 
the  infringement  upon  the 
provisions of the law or the 
decisions implementing the 
law. 

164 

 
 
 
 
 
 
 
 
MALTA 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violations to the prior authorisation requirement:  

The MFSA has powers to issue reprimands and warnings that are published systematically. Cease and desist orders in the form of a directive against license holders, also requiring any natural persons to 
be removed and replaced by another person approved by the MFSA. Finally, fines are also contemplated.  

For violations to operating requirements:  

Same as the above powers, only that additionally the MFSA has the right to require the suspension of the repurchase / redemption or sale / issue of units. Through a directive the MFSA has the right to 
order the same activities to be ceased. A license may be cancelled or suspended in various cases. A removal of executives, as well as depositaries and auditors, is also contemplated to be replaced with a 
person approved by the MFSA. The latter may also decide to ban an individual on a provisional or permanent basis from performing certain functions in the industry.  

For violations to disclosure/reporting requirements:  

Same as above.  

All sanctions relating to a license holder are published systematically on the MFSA's website.  

The MFSA is favourable to aligning the UCITS sanctioning regime with that of the AIFM.  

2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
other 
sanctions 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

An 
administrative 
penalty  imposed  by 
the MFSA under the 

Both 
natural 
legal persons.  

and 

Malta 
Services 

Financial 
Authority 

All criteria indicated by the 
Commission 
its 
consultation  questionnaire, 

in 

In 

2010: 

the  MFSA 

In  2010:  fines  ranged  from 

The suggestion that the amount 
shall  be  no  lower  than  10%  of 
company's 
the  management 

No 

165 

 
 
 
 
 
 
 
 
given 

seems 

to  be  most 
AUM 
in 
that 
attractive, 
the 
threshold 
applying 
this 
to 
MFSA  would  not  need 
calculate 
illicit  benefit 
the 
whose calculation is not always 
indeed 
straightforward 
possible.  

or 

Investment  Services 
Act  (ISA)  may  not 
exceed €93,174. 

(MFSA) 

the 

save 
perpetrator's 
(where  a  natural  person) 
position 
level  of 
and 
responsibility.  

sanctioned  9 
cases, 6 of which with fines.  

infringement 

€232.94 to €1.500.  

In  2009:  fines  ranged  from 
€1.365 to €12.500. 

In  2008:  fines  were  of 
€5.124 and €28.200.  

2009: 

In 
sanctioned  4 
cases, 2 of which with fines. 

the  MFSA 
infringement 

2008: 

In 
sanctioned  2 
cases, 2 of which with fines. 

the  MFSA 
infringement 

2007: 

the  MFSA 
In 
sanctioned  3 
infringement 
cases,  none  of  which  with 
fines. 

166 

 
 
 
 
 
 
 
 
CYPRUS 

167 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

According to the new draft Law transposing UCITS (2009/65/EC), the Cyprus Security and Exchange Commission (CySEC), has powers to impose all of the following sanctions:  

For the violation relating to prior authorisation:  

Public warnings/reprimands indicating entity/person responsible and nature of the breach; 

Cease and desist orders; 

The imposition of administrative fines. 

For violations relating to operating requirements:  

Public warnings/reprimands indicating entity/person responsible and nature of the breach; 

Cease and desist orders; 

The imposition of temporary injunction/restraining orders, including e.g. the suspension of the public offer of UCITS units/shares both domestically and abroad;  

The dismissal of one or more natural persons (executives) from the UCITS management body, as well as the dismissal of a depositary or of an auditor; 

A temporary or permanent ban for certain natural persons from exercising functions (or manage invested volumes) in the asset management industry; 

The imposition of administrative fines; 

The permanent withdrawal of authorisation for the take-up of business for fund management companies (i.e. license). 

For violations relating to disclosure/reporting requirements:  

Public warnings/reprimands indicating entity/person responsible and nature of the breach; 

Cease and desist orders; 

The dismissal/replacement of one or more natural persons (executives) from the UCITS management body, as well as the dismissal/replacement of an auditor; 

The imposition of administrative fines; 

The permanent withdrawal of authorisation for the take-up of business for fund management companies (i.e. license). 

The CySEC agrees that the approach to sanction UCITS violations is appropriate to sanctions those under the AIFM Directive.  

168 

 
 
 
2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

Both 
natural persons.   

legal 

and 

The CySEC and judicial 
courts.  

sanctions 

The level of administrative 
pecuniary 
is 
determined  on  a  case-by-
case  basis,  however,  he 
into 
main  criteria 
the 
account 
level 
administrative 
pecuniary sanctions are: 

taken 
for  setting 

of 

• The type and severity and 
of the violation. 

•  The  maximum  level  of 
amount  of  administrative 
sanction  provided  for  in 
accordance to the Law. 

•  Whether 
constitutes 
violation. 

the  violation 
repeated 
a 

•  Any  oral  or/and  written 
representations made to the 
Commission. 

the 

CySEC  may  impose 
on 
person 
responsible  for  the 
an 
violation 
administrative 
fine 
of  up  to  €350.000 
and  in  case  of  a 
repeated violation, a 
to 
of 
fine 
€700.000, 
depending  on 
gravity 
violation. 

the 
the 

up 

of 

the 
Furthermore, 
CySEC 
the 
has 
power  to  impose  an 
fine 
administrative 
of  up  to  double  the 
amount  of  the  gain 
that 
person 
responsible  for  the 
has 
violation 
provoked  as a result 
of this action. 

the 

In  addition  to  the 
above,  any  person 
who,  in  the  course 
of 
providing 
information  for  any 
matter  falling  in  the 
field  of  the  Law, 
false, 
a 
makes 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

See response in column 6.  

Up  to date, there are no local 
UCITS  funds  and  UCITS 
Management 
Companies 
authorised  by  the  Securities 
and  Exchange  Commission. 
Only  the  market  of  foreign 
UCITS  is  actively  operating 
in our jurisdiction. 

No 

The  imposition  of  an  illicit 
benefit as a general sanctioning 
principle  would  not  work,  as 
not  always  do  violations  give 
rise  to  illicit  benefits,  and  not 
illicit  benefits 
always 
are 
quantifiable. 
Other 
considerations:  

a 

that 

detected 

Over the period 2008 – 2010, 
only  one  case  of  a  violation 
that 
was 
constituted 
possible 
criminal  offence  under  the 
UCITS  Law.  For  this,  the 
CySEC  drew  up  a  report  of 
facts 
and 
the 
to 
the 
them 
submitted 
the 
Attorney-General 
of 
Republic  of  Cyprus 
for 
criminal investigation. 

relevant 

This  particular  case 
took 
place  in  2008  and  involved 
the  submission  of  a  false 
and/or  misleading  statement 
to  the  CySEC  by  a  foreign 
management  company  which 
marketed  UCITS 
the 
Republic.  The  CySEC  did 
still  not  receive  any  official 
notification of the outcome of 

in 

169 

a)  The  minimum  level  of  10% 
of management company’s total 
assets  under  management  may 
result to a big amount for minor 
infringements.    However,  by 
setting  the  maximum  level  of 
the 
supervisory 
the 
authority  is  more  flexible  to 
determine  the  amount  within 
that specific range according to 
the type of the infringement; 

fine, 

b) There will not be consistency 
of  the  absolute  amounts  of  the 
fines  imposed  for  the  same  or 
similar  infringements,  as  the 
amount  of  the  fine  will  depend 
on  the  amount  of  total  assets 
under management; 

c)  Complications  might  arise 
concerning  the  calculation  of 
the fine. Further guidance might 
the 
required  concerning 
be 
determination  of  assets  under 
management  or  the  calculation 

 
 
 
 
 
 
 
 
misleading 
or 
deceitful  statement 
or  announcement  as 
to  a  material  fact 
thereof or conceals a 
material fact or fails 
to submit facts, or in 
any manner impedes 
the  CySEC’s  direct 
collection 
of 
information or direct 
of 
conduct 
or 
monitoring 
or 
entrance 
is 
investigation, 
committing 
an 
offence  punishable 
by  imprisonment  of 
up to five years or a 
fine 
to 
€350.000  or  both 
such penalties. 

up 

of 

the criminal investigation. 

of the illicit benefit. 

up 

the 

10% 

Alternatively, 
CySEC 
proposes  that  the  amount  shall 
the 
of 
to 
be 
management  company’s 
total 
assets  under  management  as 
reported  at  the  close  of  the 
previous  financial  year.  In  case 
the  person  responsible  for  the 
violation  obtained  an  economic 
gain as a result of the violation, 
the  competent  authority  may, 
also,  impose  an  administrative 
fine  up  to  twice  the  amount  of 
the illicit benefit’.  

170 

 
 
 
HUNGARY 

171 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

According to Section 400 of Act CXX of 2001 (i.e. Capital Market Act), the HFSA shall have powers to take the following measures and/or to impose the following sanctions: 

a)  issue  an  official  warning  to  the  investment  fund  management  company,  to  their  executive  officers  and  employees  in  the  event  of  any  infringement  of  the  relevant  statutory  provisions,  internal 
regulations and the authorisation concerning its activities, for compliance with the said provisions, or - if necessary - shall order compliance within the prescribed deadline; 

b) prohibit the conduct of unauthorized investment fund management activities, 

c) demand reimbursement of the costs and expenses incurred in connection with the activities of an expert or a regulatory commissioner delegated by the Authority;  

d) initiate the dismissal of an executive employee or the auditor of an investment fund management company, or initiate disciplinary action against an employee of such bodies; 

e) order the management body of an investment fund management company,  to call an extraordinary general meeting, and may specify the mandatory agenda for such sessions; 

f) instruct an investment fund management company to draw up a restoration plan within the prescribed deadline, and submit it to the Authority; 

g) order an investment fund management company to disclose specific data or information; 

h) order the suspension of all or part of investment fund management activities for a fixed period of time; 

i) revoke the authorisation of an investment fund management company; 

j) order an investment fund management company to transfer its pending contractual commitments to another service provider; 

k) appoint a regulatory commissioner to an investment fund management company; 

l) impose fines in the cases and in the measure prescribed by law; 

m) initiate procedures with other competent supervisory authorities; 

n) ban, restrict or impose conditions on investment fund management companies in terms of: 

1. their payment of dividends. 

2. any payment made to an executive officer. 

3. their owners to raise loans from the said organizations or that these organizations provide any services to them that involve any degree of exposure. 

4. their providing any loan or credit to, or any similar transaction with, companies in which their owners or executive officers have any interest. 

5. the extension (prolongation) of deadlines specified in loan or credit agreements. 

6. their opening of any new branches, introducing new services and new operations. 

o) order investment fund management companies, venture capital fund management companies, the exchange, bodies providing clearing and settlement services and the central depository: 

172 

1. to draw up new internal regulations, or to revise or apply the existing regulations along specific guidelines. 

 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

Only 
rules exist 

general 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

legal 

and 
Both 
In 
natural  persons. 
general 
the 
addressees  of  these 
the 
sanctions 
companies, 
but 
would 
sanctions 
apply 
their 
officers 
executive 
and employees. 

are 

to 

of 
The 
amount 
administrative 
fine 
could range between 
the  minimum  of 
HUF 
100.000 
(approx.  €369)  and 
the  maximum  of 
HUF 
billion 
2 
(approx. 
€7.374.690). In such 
cases  where 
the 
annual  supervisory 
fee for an institution 
or  natural  person  is 
more  than  HUF  2 
billion  (approx.    the 
maximum amount of 
the fines will rise to 
200 percent of its or 
actual 
his 
supervisory fee. 

Minimum  thresholds  should  be 
calibrated very cautiously as the 
range of violations to UCITS is 
very  wide.  Quantifying  illicit 
profits  is  very  difficult.  10%  is 
disproportionately  high  and  a 
0.001%  of  the  AUM  would  be 
acceptable.  Fines  are  no  longer 
the 
specifically  applied 
to 
investment 
management 
industry,  but  are  harmonised  to 
include  all  activities 
falling 
underneath Act CXX.  

authority 
The 
responsible 
the 
for 
application is Hungarian 
Financial  Supervisory 
Authority (HFSA). 

The  HFSA  applies 
the 
following  criteria  for  the 
setting  of  administrative 
sanctions: 

No  statistics  available  given 
small  size  of  the  market  in 
Hungary 

No statistics available given 
small  size  of  the  market  in 
Hungary 

Gravity/seriousness/ 
magnitude of infringement;  

Duration or frequency;  

Realised illicit gains; 

Perpetrator’s 
conduct/recidivism; 
sanction;  

past 

Perpetrator’s 
motives/negligence; 

Perpetrator’s 
with authorities; 

cooperation 

effects 

of 
Economic 
infringement  on  investors, 
third  parties  and  in  the 
domestic  market  insofar  as 
these can be determined; 

shall 

criteria: 
take 

the 
Additional 
HFSA 
into 
account  the  perpetrator’s 
good  faith  or  malevolence, 
the  risk  triggered  by  the 
infringement,  the  extent  of 
the  economic  damage,  as 
to 
well  as  willingness 

173 

 
mitigate damages.  

174 

 
 
LUXEMBOURG 

175 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

UCITS (2009/65/EC) was transposed in December 2010 with a Law (Law of 2010).  

For the violation relating to prior authorisation:  

Aside from public warnings/reprimands, cease and desist orders, and administrative fines, the CSSF may always lodge a complaint with the Public Prosecutor of any investment fund active without prior 
authorisation. Moreover, in case of entities that are subject to the CSSF’s supervision (i.e. including entities involved in authorisations prior to a UCITS merger and master/feeder fund investments), 
order a fine on the directors or members of the management board, as the case may be, managers and officers of UCITS, of management companies, depositaries as well as of any other undertaking 
contributing towards the business activity of the UCITS in the event of any other serious irregularity being recorded. 

For violations relating to operating requirements:  

- withdrawal of a UCITS from the official list; 

- withdrawal of the authorisation issued to a management company; 

- suspension of the activities of the depositary bank; 

- withdrawal of the authorisation issued to the director of a UCITS / management company (i.e. no longer consider as of sufficiently good repute and experienced); 

- suspension of the redemption of units in the interest of the unit holders; 

-  ordering  of  a  fine  on  the  directors  or  members  of  the  management  board,  as  the  case  may  be,  managers  and  officers  of  UCITS,  of  management  companies,  depositaries  as  well  as  of  any  other 
undertaking contributing towards the business activity of the UCITS, as well as the liquidators in the case of voluntary liquidation of a UCITS in the event of their refusing to provide the financial 
reports and the requested information or where such documents prove to be incomplete, inaccurate or false, and in the event of any infringement of the chapter on the publication of a prospectus and 
periodical reports, or in the event of any other serious irregularity being recorded. 

Furthermore,  the  CSSF  has  to  lodge  a  complaint  with  the  Public  Prosecutor  of  any  instance  of  non-compliance  with  the  relevant  legal  provisions  notably  in  the  Law  of  2010,  giving  rise  to  penal 
sanctions and that could entail prosecution against the implicated persons. 

For violations relating to disclosure/reporting requirements:  

Same as those sanctions above.  

The CSSF may make public any fine as mentioned above, unless such a disclosure would seriously jeopardise the financial markets, be detrimental to the interests of investors or cause disproportionate 
damage to the parties concerned. Publication is therefore not systematic.  

The CSSF deems the sanctioning rules under UCITS to be appropriate for AIFM-compliant funds.  

176 

 
 
 
 
 
 
 
6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

Not specified.  

The  CSSF  cannot  opine  as  of 
yet.  

No 

In  the  period  2008-2010,  the 
CSSF  has  dealt  with  51 
infringement cases, leading to 
3 withdrawals of UCITS form 
the  official  list  of  authorised 
entities,  2  withdrawals  of 
authorisation 
to 
directors,  1  suspension  of 
redemption  of  units  in  the 
interest  of  their  holders,  and 
21  fines  for  not  transmitting 
relevant  reports  to  the  CSSF 
on time.  

issued 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

The  Commission  de 
Surveillance  du  Secteur 
Financier  (CSSF)  is  the 
authority responsible for 
the  application  of  the 
administrative  sanctions 
in the field of UCITS.  

define 

The  Law of 2010 does not 
specifically 
the 
criteria to take into account 
in  order  to  set  the  level  of 
administrative 
the 
(pecuniary) 
sanctions 
imposed by the CSSF. The 
the  sanction(s) 
level  of 
will 
imposed 
finally 
depend  on  the  individual 
case  at  hand  and  on  the 
seriousness 
the 
infringements  reported  to, 
respectively  detected  by, 
the CSSF. 

of 

The  Law  of  2010 
confers  to the CSSF 
the power to impose 
fines  between  €125 
and €12.500. 

The  may  be  imposed 
on  legal  or  natural 
persons depending on 
the 
the 
sanctioning measure. 

type 

of 

Administrative 
sanctions  where  the 
addresses  are 
legal 
persons: 

of 

from 

a 
withdrawal 
the 
UCITS 
list; 
official 
the 
withdrawal  of 
issued 
authorisation 
a  management 
to 
company;  request  to 
judicial 
the 
authorities 
to  order 
the  dissolution  and 
liquidation 
a 
UCITS. 

of 

Administrative 
sanctions  where  the 
addressees are natural 
persons: 

the 
withdrawal  of 
authorisation 
issued 
to  the  director  of  a 
UCITS / management 

177 

 
 
 
company; ordering of 
a fine on the directors 
and  managers 
of 
UCITS as well as the 
liquidators in the case 
voluntary 
of 
a 
liquidation 
UCITS. 

of 

178 

 
 
ROMANIA 

179 

 
 
1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

Applicable sanctions are governed by the provisions of Law No 297/2004 regarding the capital market, as well as by Regulation 15/2004 of the CNVM on the authorisation and functioning of asset 
management companies, collective investment undertakings and depositaries.  

For violation of authorisation requirements:  

a) public warnings; 

b) fines; 

c) complementary sanctions, including suspension of authorisation, withdrawal of authorisation and a temporary prohibition from carrying out certain activities and services. 

Publication is subject to conditions to avoid that public disclosures impair the normal functioning of the market or jeopardise the position of the parties involved. 

For violation of operational requirements:  

a) Public warnings or reprimands; 

b) injunction/restraining orders (including suspension of issue/redemption of units/shares); 

c) dismissal of persons (executives) of management company, auditor and depositary;  

d) individual and joint responsibility of persons for non-compliance;  

e) fines; 

f) withdrawal or suspension of authorisation.  

For violation of disclosure/reporting requirements:  

No specific sanctions are foreseen for this category and sanctions are determined on a case-by-case basis on the basis of the sanctions described above. 

The UCITS regime, subject to adaptation, would be appropriate for the enforcement of AIFM rules.  

180 

 
 
 
 
 
 
9  –  Existence 
of  a  'whistle-
blower' 
programme 

Not specified 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

EU  standard  for  a  minimum 
level of fines is appropriate, but 
of the view that the level of no 
lower than 10% is inappropriate 
because  it  might  give  rise  to 
situations  where  the  sanctions 
will  be  established  at  100%  of 
AUM.  The  suggested  approach 
is that the amount should not be 
lower than twice the amount of 
the  illicit  benefit  (where  the 
latter  can  be  quantified)  and  in 
no case higher than 10% of the 
management  company's 
total 
AUM as reported at the close of 
the previous financial year. 

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

The 
the 
limits  of 
fines  are  established 
as follows: 

The  addressees  may 
be  natural  persons 
and legal persons.  

The  Romanian  National 
Securities Commission 

Under  Article  275  of  Law 
297/2004:  

2007: N/A 

2007:  between  RON  500  - 
2500 (approx. €118 – 588) 

-  between  0.5%  and 
5%  of  the  paid-up 
capital, 
share 
the 
according 
to 
the 
seriousness  of 
offence, 
legal 
persons; 

for 

-  between  ROL* 
5,000,000 
(approx. 
€  500)  and  ROL 
500,000,000 
(approx.  €11.653), 
for  natural  persons, 
subject  to  updating 
by  order  of 
the 
President of CNVM. 

-  between  half  and 
the  full  amount  of 
transaction 
the 
by 
carried 
out 
committing 
the 
deeds  referred  to  in 
Articles  245-248  of 
Law 247/2004. 

2008: 12 cases fined 

2009: 9 cases fined 

2010: 7 cases fined 

2008:    between  RON  500  - 
5000 
(approx.  €118  – 
1.176) 

2009:  between  RON  500  - 
1500 (approx. €118 – 352) 

2010: between RON 1500 – 
(approx.  €352  – 
5000 
1.176) 

(1)  When  customising  the 
sanction,  the  personal  and 
real  circumstances  of  the 
deed  and  the  conduct  of 
the doer shall be taken into 
consideration; 

If 

an  offence 

(2) 
is 
committed  by  a  person 
repeatedly  within  a  period 
of  three  years,  or  if  the 
offence  is  committed  by  a 
person  who  has  been 
sanctioned  during  the  past 
three 
the 
sanction  has  not  been 
annulled  yet,  the  sanction 
established shall be applied 
cumulatively  with 
the 
maximum  fine  for  the  last 
offence committed; 

years, 

and 

(3) If two or more offences 
are 
the 
acknowledged, 
highest  penalty,  increased 
by  up  to  50%,  shall  be 
applied,  as  the  case  may 
be. 

* As of 1 July 2005, the new Romanian Leu (RON) was introduced at a value of 1 RON = 10.000 ROL.  

181 

 
 
 
 
 
 
 
 
 
 
BULGARIA 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violation of authorisation requirements:  

Public warnings, cease and desist orders and fines are provided for and permitted by the Bulgarian law in cases of violation of prior authorisation. 

For violation of operational requirements:  

All sanctions listed in the Commission's questionnaire are provided for under the relevant national law.  

For violation of disclosure/reporting requirements:  

All sanctions listed in the Commission's questionnaire are provided for under the relevant national law.  

All sanctions are promptly published on the FSC's website and the disgorgement of illicit profits is also foreseen.  

The FSC deems the sanctioning rules under UCITS to be appropriate for AIFM-compliant funds. 

2  -  What  is  the 
minimum 
and 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
addressees  of 
the 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
administrative 
the 
sanctions? 

to 

take 

5  -  What  are  the  main 
criteria 
into 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

minimum 

The 
administrative 
pecuniary 
500 
is 

sanction 
BGN 

Both 
natural persons.  

legal 

and 

The 
Supervision 

Financial 

All of the criteria indicated 
Commission's 
in 
the 
are 
questionnaire 

In 2007: not specified.  

N/A 

Object  that  illicit  benefits  may 
always  be  determined  and  the 
10%  criterion  should  not  be 

No 

182 

 
 
 
 
 
 
 
size 

(approx.  €250)  and 
– 
the  maximum 
BGN 
200.000 
The 
(€100.000). 
maximum 
is 
imposed  in  case  of 
repeated  offence  of 
some  provisions  in 
Public 
Law 
on 
Offering 
of 
Securities. 

Commission (FSC) 

envisaged.  

related to client assets.  

In 2008: 9 infringement cases 
were  dealt  with,  of  which  1 
was sanctioned with a fine of 
€256.  

In  2009:  29 
infringement 
cases  were  dealt  with,  of 
which 5 were sanctioned for a 
total amount of €14.061.  

In  2010:  16 
infringement 
cases  were  dealt  with,  of 
which 12 were sanctioned for 
a total amount of €42.950.  

183 

 
 
 
 
 
DENMARK 

1  -  What  types  of 
administrative 
sanctions 
envisaged 
national 
transposing 
UCITS Directive? 

are 
in 
rules 
the 

For violation of authorisation requirements:  

The Danish FSA can issue public warnings if entities operate in the Danish Market without proper licences. C&D orders can also be used. Administrative fines can be used. This is a new sanction and it 
has  never  been  used.  In  addition  the  above,  the  Danish  FSA  also  uses  the  sanction  of reporting persons or entities to the police for them to initiate investigations against the persons or entities for 
violation of the relevant financial legislation.  

For violation of operational requirements:  

No public warnings/reprimands are given, but C&D orders are used. The Danish FSA has these options: The imposition of temporary injunction/restraining orders, including e.g. the suspension of the 
public offer of UCITS units/shares both domestically and abroad. Executives can be dismissed. No temporary or permanent ban for certain natural persons can be imposed. These will have to be turned 
down case by case when handling 'Fit & Proper' applications. Administrative fines can be used to enforce corrections. The licence can be revoked for fund management business. In addition the above, 
the Danish FSA also uses the sanction of reporting persons or entities to the police for them to initiate investigations against the persons or entities for violation of the relevant financial legislation.  

For violation of disclosure/reporting requirements:  

No public warnings/reprimands are given, but C&D orders are used. The Danish FSA has these options: The imposition of temporary injunction/restraining orders, including e.g. the suspension of the 
public offer of UCITS units/shares both domestically and abroad. Executives and auditors can be dismissed. Administrative fines can be used to enforce corrections. The licence can be revoked for fund 
management business.  In addition the above, the Danish FSA also uses the sanction of reporting persons or entities to the police for them to initiate investigations against the persons or entities for 
violation of the relevant financial legislation. Actions against these violations are not publicised.  

2  -  What  is  the 
and 
minimum 
maximum  level  of 
administrative 
pecuniary 
sanctions? 

3  -  Who  are  the 
the 
addressees  of 
administrative 
sanctions: 
persons, 
persons, both? 

legal 
natural 

4 
the 
-  Who  are 
authorities  responsible 
for  the  application  of 
the 
administrative 
sanctions? 

Not specified 

Both 
natural persons.  

legal 

and 

The Danish FSA 

to 

take 

5  -  What  are  the  main 
into 
criteria 
account to set the level of 
administrative 
the 
pecuniary 
sanctions 
finally applied? 

6  -  If  available,  number  of 
pecuniary 
administrative 
sanctions 
other 
measures  applied  during 
2007 - 2010 

and 

7  -  If  available,  minimum 
and  maximum  amount  of 
administrative  pecuniary 
sanctions  applied  during 
2007 - 2010 

to 

–  Feedback 

8 
the 
Commission's  proposal  on  a 
minimum level of fines, i.e. no 
lower  than  twice  the  amount 
of  the  illicit  benefit,  or  no 
lower  than  10%  of  AUM 
reported in previous FY 

N/A 

N/A 

All  criteria  listed  in  the 
Commission's 
questionnaire  are 
taken 
into  account  when  setting 
fines.  

184 

to 

Minimum fines should be set at 
low  levels  so  that  they  can  be 
used 
smaller 
offences.  They  should  not  be 
based  on  AUM  as  a  company 
may  easily  go  into  receivership 

sanction 

9  –  Existence 
of  a  'whistle-
blower' 
programme 

No 

 
 
 
 
when applied.  

Fines could be calculated based 
on an average of the last 5 year 
surplus,  combined  with  a  fixed 
minimum.  

185 

 
 
 
 
 
 
Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11. 

http://ec.europa.eu/internal_market/ 

 
 
 
 
 
10.8.  ANNEX 8: Core violations of the UCITS Directive 

Violations relating to disclosure of qualifying holding in the management company 

Article 

Obligation 

Current sanctions 

Article  11  of 
MiFID 

Notification  of  acquisition  or  disposing    of 
qualifying holding in a management company 

No  stand-alone  provisions  in  the 
UCITS Directive 

Violations relating to prior authorisation 

Article 

Obligation 

Current sanctions 

Art. 5 

Prior authorisation of a UCITS fund 

Art. 6-7 

Prior  authorisation 
the  competent 
authority  for  the  take-up  of  business  for 
management companies 

from 

Art.  27  and 
29 

Prior  authorisation 
the  competent 
authority  for  the  take-up  of  business  for 
investment companies 

from 

Art. 39 

Prior  authorisation 
from 
authority for UCITS mergers 

the  competent 

Request end of breach, take measures 
under Articles 98-99 

Core provisions on operating requirements and applicable sanctions 

Art. 12-14 

Art. 18-21 

Art. 30-31 

Operating  conditions  for  the  management 
company  including  delegation  of  functions 
and conduct of business ruels 

Request end of breach, take measures 
under  Articles  98-99, 
including 
authorisation withdrawal 

Operating  conditions  for  freedom  to  provide 
services  on  a  cross-border  basis  –  disclosure 
requirements to host MS authorities 

Request end of breach, take measures 
under  Articles  98-99, 
including 
authorisation withdrawal.  

Operating  conditions  for 
company 
management 
mutandis) 

company 

(same 

the 
conditions 

investment 
for 
of 
apply  mutatis 

Request end of breach, take measures 
under  Articles  98-99, 
including 
authorisation withdrawal 

Art. 22-25 

Obligations regarding the depositary 

Chapter VII   Obligations regarding investment policies86 

Art. 51(1) 

Obligations 
process 

regarding 

risk  management 

86  Here  it  is  important  to  clarify  that  the  temporary  departures  from  the  eligible  assets,  and  investment 
limits under Article 57(2), shall not be sanctioned.  

187 

 
 
 
 
 
                                                 
Art. 93 

Notification for a UCITS to market units in a 
MS other than its home MS 

Core disclosure requirements and applicable sanctions 

Art. 68-82 

Obligations  concerning  information  to  be 
provided  to  investors,  i.e.  prospectus,  annual 
report, KIID and contents thereof, etc.  

188 

 
 
 
 
10.9.  ANNEX 9: Glossary of key terms 

Money market funds 

Bond funds 

Equity funds 

Balanced funds 

Index funds 

An  investment  fund  whose  portfolio  is  comprised  of 
short-term  (less  than  one  year)  securities  representing 
high-quality, liquid debt and monetary instruments. 

Bond  funds  are  pooled  amounts  of  money  invested  in 
bonds. 

Equity  funds  are  pooled  amounts  of  money  invested  in 
stocks.  Stocks  are  often  categorized  by 
their 
capitalization  (or  market  cap)  and,  like  many  other 
things,  come  in  three  basic  sizes:  small,  medium,  and 
large. Many funds invest primarily in one of these sizes 
and  are  thus  classified  as  large-cap,  mid-cap,  or  small-
cap funds. 

Balanced  funds  mix  some  stocks  and  some  bonds.  A 
typical  balanced  fund  might  contain  about  50-65% 
stocks,  and  hold  the  rest  of  the  shareholder's  money  in 
bonds and cash. It is important to know the distribution 
of  stocks  to  bonds  in  a  specific  balanced  fund  to 
understand the risks and rewards inherent in that fund. 

An  index  fund  matches  the  shareholdings  of  a  target 
index,  such  as  the  Standard  &  Poor's  500  Composite 
Stock  Price  Index  (S&P  500).  Index  funds  are  distinct 
from actively managed funds in that they do not involve 
any  stock  picking  by  supposedly  skilled  professionals. 
Rather,  they  simply  seek  to  replicate  the  returns  of  the 
specific index.  

Leverage 

The  use  of  various  financial  instruments  or  borrowed 
capital to increase the potential return of an investment.  

Central  Securities  Depositary 
(CSD) 

A  central  security  depositary  (CSD)  is  a  facility  (or  an 
institution)  for  the  holding  of  securities,  enabling 
securities  transactions  to  be  processed  by  book  entry. 
(or 
Physical  securities  may  be  physically  held 
immobilised)  by  the  depository  or  securities  may  be 
dematerialised  (i.e.  so  that  they  exist  only  as  electronic 
records).  In  addition  to  safekeeping,  a  CSD  may 
incorporate 
settlement 
functions. 

comparison, 

clearing 

and 

Net Asset Value (NAV) 

The value of a single unit/share of a fund, based on the 
value of the underlying assets minus the fund’s liabilities 
over the number of units/shares outstanding. It is usually 

189 

 
 
 
‘Loss’ 
instruments 

of 

financial 

Total Expense Ratio (TER) 

High Water Mark 

calculated at the end of each business day.  

Although a precise legal definition of what constitutes a 
“loss” of assets is lacking, the second public consultation 
confirmed  the  shared  opinion  among  regulators  and 
industry  practitioners  that  a  loss  of  assets  should  be 
understood  as  a  situation  where  the  entrusted  assets  are 
permanently and irretrievably no longer available to the 
custodian  and  that  rights  over  them  are  therefore  no 
longer exercisable. Consequentially, an asset that is only 
temporarily unavailable cannot be deemed as 'lost'. 

A  measure  of  the  total  costs  associated  with  managing 
and operating an investment fund such as a mutual fund. 
These  costs  consist  primarily  of  management  fees  and 
additional  expenses  such  as  trading  fees,  legal  fees, 
auditor fees and other operational expenses.  

that  an 

The  highest  peak 
investment 
in  value 
fund/account has reached. This term is often used in the 
context  of  fund  manager  compensation,  which 
is 
performance  based.  The  high-water  mark  ensures  that 
the  manager  does  not  get  paid  large  sums  for  poor 
performance.  So  if  the  manager  loses  money  over  a 
period,  he  or  she  must  get  the  fund  above  the  high 
watermark before receiving a performance bonus.  

190