Article 21 
1. A management company’s host Member State may, for statistical purposes, require all management companies with branches within its territory to report periodically on their activities pursued in that host Member State to the competent authorities of that host Member State. 2. A management company’s host Member State may require management companies pursuing business within its territory through the establishment of a branch or under the freedom to provide services, to provide the information necessary for the monitoring of their compliance with the rules under the responsibility of the management company’s host Member State that apply to them. Those requirements shall not be more stringent than those which the same Member State imposes on management companies authorised in that Member State for the monitoring of their compliance with the same standards. Management companies shall ensure that the procedures and arrangements referred to in Article 15 enable the competent authorities of the UCITS home Member State to obtain directly from the management company the information referred to in this paragraph. 3. Where the competent authorities of a management company’s host Member State ascertain that a management company that has a branch or provides services within its territory is in breach of one of the rules under their responsibility, those authorities shall require the management company concerned to put an end to that breach and inform the competent authorities of the management company’s home Member State thereof. 4. If the management company concerned refuses to provide the management company’s host Member State with information falling under its responsibility, or fails to take the necessary steps to put an end to the breach referred to in paragraph 3, the competent authorities of the management company’s host Member State shall inform the competent authorities of the management company’s home Member State accordingly. The competent authorities of the management company’s home Member State shall, at the earliest opportunity, take all appropriate measures to ensure that the management company concerned provides the information requested by the management company’s host Member State pursuant to paragraph 2 or puts an end to the breach. The nature of those measures shall be communicated to the competent authorities of the management company’s host Member State. 5. If, despite the measures taken by the competent authorities of the management company's home Member State or because such measures prove to be inadequate or are not available in the Member State in question, the management company continues to refuse to provide the information requested by the management company's host Member State pursuant to paragraph 2, or persists in breaching the legal or regulatory provisions, referred to in the same paragraph, in force in the management company's host Member State, the competent authorities of the management company's host Member State may take either of the following actions: (a) after informing the competent authorities of the management company's home Member State, take appropriate measures, including under Articles 98 and 99, to prevent or penalise further irregularities and, in so far as necessary, to prevent that management company from initiating any further transaction within its territory. Member States shall ensure that within their territories it is possible to serve the legal documents necessary for those measures on management companies. Where the service provided within the management company's host Member State is the management of a UCITS, the management company's host Member State may require the management company to cease managing that UCITS; or (b) where they consider that the competent authority of the management company's home Member State has not acted adequately, refer the matter to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. 6. Any measure adopted pursuant to paragraphs 4 or 5 involving measures or penalties shall be properly justified and communicated to the management company concerned. Every such measure shall be subject to the right to apply to the courts in the Member State which adopted it. 7. Before following the procedure laid down in paragraphs 3, 4 or 5, the competent authorities of the management company's host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others for whom services are provided. The Commission, ESMA, and the competent authorities of the other Member States concerned shall be informed of such measures at the earliest opportunity. After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member State in question must amend or abolish those measures, without prejudice to power of ESMA under Article 17 of Regulation (EU) No 1095/2010. 8. The competent authorities of the management company’s home Member State shall consult the competent authorities of the UCITS home Member State before withdrawing the authorisation of the management company. In such cases, the competent authorities of the UCITS home Member State shall take appropriate measures to safeguard investors’ interests. Those measures may include decisions preventing the management company concerned from initiating any further transactions within its territory. Every two years the Commission shall issue a report on such cases. 9. Member States shall inform ESMA and the Commission of the number and type of cases in which they refuse authorisation under Article 17 or an application under Article 20 and of any measures taken in accordance with paragraph 5 of this Article.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Each undertaking for collective investment in transferable securities (UCITS) must provide ‘k ey investor information’ in accordance with Directive 2009/65/EC 1 . The information on objectives and investment policy, risk and reward profile, charges, past performance and other practical details helps investors to understand the essential characteristics of the UCITS and to make informed investment decisions. Articles 78 to 82, and 94 of the Directive specify the main principles of the k ey investor information . Commission Regulation (EU) No 583/2010 2 lays down further rules on its content and format . UCITS qualify as packaged retail and insurance-based investment products (PRIIPs) within the meaning of Regulation (EU) No 1286/2014 3 , which requires that all PRIIPs be accompanied by a ‘key information document’. The document contains i nformation on the PRIIP’s risk and reward profile, including the possible maximum loss of invested capital and appropriate performance scenarios, the costs retail investors have to bear when investing in it, and other details. Again, this information helps retail investors to understand the essential characteristics of the product and to make informed investment decisions. Commission Delegated Regulation (EU) 2017/653 4 lays down detailed rules on the presentation, content, review, revision and provision of the document. Delegated Regulation (EU) 2016/1904 5 lays down rules on product intervention. Article 32 of Regulation (EU) No 1286/2014 provides for a transitional arrangement whereby management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS are temporarily exempted from the requirement to provide retail investors with a key information document. The arrangement currently applies until 31 December 2021. This Directive is accompanied by two further measures. First, the Commission is proposing that the transitional arrangement in Regulation (EU) No 1286/2014 be extended to 30 June 2022. This will allow the time necessary to prepare for the end of the transitional arrangement and to implement the other measure (which involves amendments to Delegated Regulation (EU) 2017/653) from 1 July 2022. The three measures are therefore synchronised in terms of application dates. As things stand, as of 1 July 2022 retail investors in UCITS would receive both a key information document in accordance with Regulation (EU) No 1286/2014 and key investor information in accordance with Directive 2009/65/EC. It is desirable to avoid a situation where retail investors receive two different pre-contractual disclosure documents in respect of the same UCITS. This Directive ensures that a key information document drawn up, provided, revised and translated for a given UCITS in accordance with the Regulation is considered as satisfying the key investor information requirements of Directive 2009/65/EC. This initiative is not part of the regulatory fitness programme (REFIT). 
Revised version (Article 21 ):
1. A management company’s host Member State may, for statistical purposes, require all management companies with branches within its territory to report periodically on their activities pursued in that host Member State to the competent authorities of that host Member State. 2. A management company’s host Member State may require management companies pursuing business within its territory through the establishment of a branch or under the freedom to provide services, to provide the information necessary for the monitoring of their compliance with the rules under the responsibility of the management company’s host Member State that apply to them. Those requirements shall not be more stringent than those which the same Member State imposes on management companies authorised in that Member State for the monitoring of their compliance with the same standards. Management companies shall ensure that the procedures and arrangements referred to in Article 15 enable the competent authorities of the UCITS home Member State to obtain directly from the management company the information referred to in this paragraph. A management company’s host Member State may require management companies pursuing business within its territory through the establishment of a branch or under the freedom to provide services, to provide the information necessary for the monitoring of their compliance with the rules under the responsibility of the management company’s host Member State that apply to them. Those requirements shall not be more stringent than those which the same Member State imposes on management companies authorised in that Member State for the monitoring of their compliance with the same standards. Management companies shall ensure that the procedures and arrangements referred to in Article 15 enable the competent authorities of the UCITS home Member State to obtain directly from the management company the information referred to in this paragraph. 3. Where the competent authorities of a management company’s host Member State ascertain that a management company that has a branch or provides services within its territory is in breach of one of the rules under their responsibility, those authorities shall require the management company concerned to put an end to that breach and inform the competent authorities of the management company’s home Member State thereof. 4. If the management company concerned refuses to provide the management company’s host Member State with information falling under its responsibility, or fails to take the necessary steps to put an end to the breach referred to in paragraph 3, the competent authorities of the management company’s host Member State shall inform the competent authorities of the management company’s home Member State accordingly. The competent authorities of the management company’s home Member State shall, at the earliest opportunity, take all appropriate measures to ensure that the management company concerned provides the information requested by the management company’s host Member State pursuant to paragraph 2 or puts an end to the breach. The nature of those measures shall be communicated to the competent authorities of the management company’s host Member State. 5. If, despite the measures taken by the competent authorities of the management company's home Member State or because such measures prove to be inadequate or are not available in the Member State in question, the management company continues to refuse to provide the information requested by the management company's host Member State pursuant to paragraph 2, or persists in breaching the legal or regulatory provisions, referred to in the same paragraph, in force in the management company's host Member State, the competent authorities of the management company's host Member State may take either of the following actions: (a) after informing the competent authorities of the management company's home Member State, take appropriate measures, including under Articles 98 and 99, to prevent or penalise further irregularities and, in so far as necessary, to prevent that management company from initiating any further transaction within its territory. Member States shall ensure that within their territories it is possible to serve the legal documents necessary for those measures on management companies. Where the service provided within the management company's host Member State is the management of a UCITS, the management company's host Member State may require the management company to cease managing that UCITS; or (b) where they consider that the competent authority of the management company's home Member State has not acted adequately, refer the matter to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010. 6. Any measure adopted pursuant to paragraphs 4 or 5 involving measures or penalties shall be properly justified and communicated to the management company concerned. Every such measure shall be subject to the right to apply to the courts in the Member State which adopted it. 7. Before following the procedure laid down in paragraphs 3, 4 or 5, the competent authorities of the management company's host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others for whom services are provided. The Commission, ESMA, and the competent authorities of the other Member States concerned shall be informed of such measures at the earliest opportunity. After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member State in question must amend or abolish those measures, without prejudice to power of ESMA under Article 17 of Regulation (EU) No 1095/2010. Before following the procedure laid down in paragraphs 3, 4 or 5, the competent authorities of the management company's host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others for whom services are provided. The Commission, ESMA, and the competent authorities of the other Member States concerned shall be informed of such measures at the earliest opportunity. After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member State in question must amend or abolish those measures, without prejudice to power of ESMA under Article 17 of Regulation (EU) No 1095/2010. 8. The competent authorities of the management company’s home Member State shall consult the competent authorities of the UCITS home Member State before withdrawing the authorisation of the management company. In such cases, the competent authorities of the UCITS home Member State shall take appropriate measures to safeguard investors’ interests. Those measures may include decisions preventing the management company concerned from initiating any further transactions within its territory. Every two years the Commission shall issue a report on such cases. The competent authorities of the management company’s home Member State shall consult the competent authorities of the UCITS home Member State before withdrawing the authorisation of the management company. In such cases, the competent authorities of the UCITS home Member State shall take appropriate measures to safeguard investors’ interests. Those measures may include decisions preventing the management company concerned from initiating any further transactions within its territory. Every two years the Commission shall issue a report on such cases. 9. Member States shall inform ESMA and the Commission of the number and type of cases in which they refuse authorisation under Article 17 or an application under Article 20 and of any measures taken in accordance with paragraph 5 of this Article. Every two years the Commission shall issue a report on such cases. Member States shall inform ESMA and the Commission of the number and type of cases in which they refuse authorisation under Article 17 or an application under Article 20 and of any measures taken in accordance with paragraph 5 of this Article.
Article 22 
1. The assets of a common fund shall be entrusted to a depositary for safe-keeping. 2. 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. 3. A depositary shall: (a) ensure that the sale, issue, repurchase, 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.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 23 
1. A depositary shall either have its registered office or be established in the UCITS home Member State. 2. A depositary shall be an institution which is subject to prudential regulation and ongoing 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. 3. Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to be depositaries. 4. The depositary shall enable the competent authorities of the UCITS home Member State to obtain, on request, all information that the depositary has obtained while discharging its duties and that is necessary for the competent authorities to supervise the UCITS compliance with this Directive. 5. Where the management company’s home Member State is not the UCITS home Member State, the depositary shall sign a written agreement with the management company regulating the flow of information deemed necessary to allow it to perform the functions set out in Article 22 and in other laws, regulations or administrative provisions which are relevant for depositaries in the UCITS home Member State. 6. The Commission may adopt, by means of delegated acts in accordance with Article 112(2), (3) and (4), and subject to the conditions of Articles 112a and 112b, measures in relation to the measures to be taken by a depositary in order to fulfil its duties regarding a UCITS managed by a management company established in another Member State, including the particulars that need to be included in the standard agreement to be used by the depositary and the management company in accordance with paragraph 5.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Revised version (Article 23 ):
1. A depositary shall either have its registered office or be established in the UCITS home Member State. 2. The depositary shall be: (a) a national central bank; (b) a credit institution authorised in accordance with Directive 2013/36/EU; or (c) another legal entity, authorised by the competent authority under the law of the Member State to carry out depositary activities under this Directive, which is subject to capital adequacy requirements not less than the requirements calculated depending on the selected approach in accordance with Article 315 or 317 of Regulation (EU) No 575/2013 of the European Parliament and of the Council ( 21 ) and which has own funds not less than the amount of initial capital under Article 28(2) of Directive 2013/36/EU. A legal entity as referred to in point (c) of the first subparagraph shall be subject to prudential regulation and ongoing supervision and shall satisfy the following minimum requirements: (a) it shall have the infrastructure necessary to keep in custody financial instruments that can be registered in a financial instruments account opened in the depositary’s books; (b) it shall establish adequate policies and procedures sufficient to ensure compliance of the entity, including its managers and employees, with its obligations under this Directive; (c) it shall have sound administrative and accounting procedures, internal control mechanisms, effective procedures for risk assessment and effective control and safeguard arrangements for information processing systems; (d) it shall maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest; (e) it shall arrange for records to be kept of all services, activities and transactions that it undertakes, which shall be sufficient to enable the competent authority to fulfil its supervisory tasks and to perform the enforcement actions provided for in this Directive; (f) it shall take reasonable steps to ensure continuity and regularity in the performance of its depositary functions by employing appropriate and proportionate systems, resources and procedures including to perform its depositary activities; (g) all members of its management body and senior management, shall, at all times, be of sufficiently good repute, possess sufficient knowledge, skills and experience; (h) its management body shall possess adequate collective knowledge, skills and experience to be able to understand the depositary’s activities, including the main risks; (i) each member of its management body and senior management shall act with honesty and integrity. 3. Member States shall determine which of the categories of institutions referred to in the first subparagraph of paragraph 2 shall be eligible to be depositaries. 4. Investment companies or management companies acting on behalf of the UCITS that they manage, which, before 18 March 2016, appointed as a depositary an institution that does not meet the requirements laid down in paragraph 2, shall appoint a depositary that meets those requirements before 18 March 2018.
Article 24 
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.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 25 
1. No company shall act as both management company and depositary. 2. 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.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Revised version (Article 25 ):
1. No company shall act as both management company and depositary. No company shall act as both investment company and depositary. 2. In carrying out their respective functions, the management company and the depositary shall act honestly, fairly, professionally, independently and solely in the interest of the UCITS and the investors of the UCITS. In carrying out their respective functions, the investment company and the depositary shall act honestly, fairly, professionally, independently and solely in the interest of the investors of the UCITS. A depositary shall not carry out activities with regard to the UCITS or the management company on behalf of the UCITS that may create conflicts of interest between the UCITS, the investors in the UCITS, the management company and itself, unless the depositary has functionally and hierarchically separated the performance of its depositary tasks from its other potentially conflicting tasks, and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the UCITS.
Article 26 
The law or the fund rules shall lay down the conditions for the replacement of the management company and the depositary and rules to ensure the protection of unit-holders in the event of such replacement.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 27 
Access to the business of an investment company shall be subject to prior authorisation to be granted by the competent authorities of the investment company’s home Member State. Member States shall determine the legal form which an investment company must take. The registered office of the investment company shall be situated in the investment company’s home Member State.
Article 28 
No investment company may engage in activities other than those referred to in Article 1(2).
Article 29 
1. Without prejudice to other conditions of general application laid down by national law, the competent authorities of the investment company’s home Member State shall not grant authorisation to an investment company that has not designated a management company unless the investment company has a sufficient initial capital of at least EUR 300 000. In addition, when an investment company has not designated a management company authorised pursuant to this Directive, the following conditions shall apply: (a) the authorisation must not be granted unless the application for authorisation is accompanied by a programme of operations setting out, at least, the organisational structure of the investment company; (b) the directors of the investment company must be of sufficiently good repute and be sufficiently experienced also in relation to the type of business pursued by the investment company and, to that end: the names of the directors and of every person succeeding them in office must be communicated forthwith to the competent authorities; the conduct of an investment company’s business must be decided by at least two persons meeting such conditions; and ‘directors’ shall mean those persons who, under the law or the instruments of incorporation, represent the investment company, or who effectively determine the policy of the company; and (c) where close links exist between the investment company and other natural or legal persons, the competent authorities must grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions. The competent authorities of the investment company’s home Member State shall also refuse authorisation if the laws, regulations or administrative provisions of a third country governing one or more natural or legal persons with which the investment company has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions. The competent authorities of the investment company’s home Member State shall require investment companies to provide them with the information they need. 2. Where an investment company has not designated a management company, the investment company shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused. 3. An investment company may start business as soon as authorisation has been granted. 4. The competent authorities of the investment company’s home Member State may withdraw the authorisation issued to an investment company subject to this Directive only where that company: (a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity covered by this Directive more than six months previously, unless the Member State concerned has provided for authorisation to lapse in such cases; (b) has obtained the authorisation by making false statements or by any other irregular means; (c) no longer fulfils the conditions under which authorisation was granted; (d) has seriously or systematically infringed the provisions adopted pursuant to this Directive; or (e) falls within any of the cases where national law provides for withdrawal. 5. In order to ensure consistent harmonisation of this Directive, ESMA may develop draft regulatory technical standards to specify: (a) the information to be provided to the competent authorities in the application for the authorisation of the investment company, including the programme of operations; and (b) the obstacles which may prevent effective exercise of the supervisory functions of the competent authority under paragraph 1(c). Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 6. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to establish standard forms, templates and procedures for the provision of information referred to in point (a) of the first subparagraph of paragraph 5. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Each undertaking for collective investment in transferable securities (UCITS) must provide ‘k ey investor information’ in accordance with Directive 2009/65/EC 1 . The information on objectives and investment policy, risk and reward profile, charges, past performance and other practical details helps investors to understand the essential characteristics of the UCITS and to make informed investment decisions. Articles 78 to 82, and 94 of the Directive specify the main principles of the k ey investor information . Commission Regulation (EU) No 583/2010 2 lays down further rules on its content and format . UCITS qualify as packaged retail and insurance-based investment products (PRIIPs) within the meaning of Regulation (EU) No 1286/2014 3 , which requires that all PRIIPs be accompanied by a ‘key information document’. The document contains i nformation on the PRIIP’s risk and reward profile, including the possible maximum loss of invested capital and appropriate performance scenarios, the costs retail investors have to bear when investing in it, and other details. Again, this information helps retail investors to understand the essential characteristics of the product and to make informed investment decisions. Commission Delegated Regulation (EU) 2017/653 4 lays down detailed rules on the presentation, content, review, revision and provision of the document. Delegated Regulation (EU) 2016/1904 5 lays down rules on product intervention. Article 32 of Regulation (EU) No 1286/2014 provides for a transitional arrangement whereby management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS are temporarily exempted from the requirement to provide retail investors with a key information document. The arrangement currently applies until 31 December 2021. This Directive is accompanied by two further measures. First, the Commission is proposing that the transitional arrangement in Regulation (EU) No 1286/2014 be extended to 30 June 2022. This will allow the time necessary to prepare for the end of the transitional arrangement and to implement the other measure (which involves amendments to Delegated Regulation (EU) 2017/653) from 1 July 2022. The three measures are therefore synchronised in terms of application dates. As things stand, as of 1 July 2022 retail investors in UCITS would receive both a key information document in accordance with Regulation (EU) No 1286/2014 and key investor information in accordance with Directive 2009/65/EC. It is desirable to avoid a situation where retail investors receive two different pre-contractual disclosure documents in respect of the same UCITS. This Directive ensures that a key information document drawn up, provided, revised and translated for a given UCITS in accordance with the Regulation is considered as satisfying the key investor information requirements of Directive 2009/65/EC. This initiative is not part of the regulatory fitness programme (REFIT). 
Revised version (Article 29 ):
1. Without prejudice to other conditions of general application laid down by national law, the competent authorities of the investment company’s home Member State shall not grant authorisation to an investment company that has not designated a management company unless the investment company has a sufficient initial capital of at least EUR 300 000 . In addition, when an investment company has not designated a management company authorised pursuant to this Directive, the following conditions shall apply: (a) the authorisation must not be granted unless the application for authorisation is accompanied by a programme of operations setting out, at least, the organisational structure of the investment company; (b) the directors of the investment company must be of sufficiently good repute and be sufficiently experienced also in relation to the type of business pursued by the investment company and, to that end: the names of the directors and of every person succeeding them in office must be communicated forthwith to the competent authorities; the conduct of an investment company’s business must be decided by at least two persons meeting such conditions; and ‘directors’ shall mean those persons who, under the law or the instruments of incorporation, represent the investment company, or who effectively determine the policy of the company; and (c) where close links exist between the investment company and other natural or legal persons, the competent authorities must grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions. The competent authorities of the investment company’s home Member State shall also refuse authorisation if the laws, regulations or administrative provisions of a third country governing one or more natural or legal persons with which the investment company has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions. The competent authorities of the investment company’s home Member State shall require investment companies to provide them with the information they need. 2. Where an investment company has not designated a management company, the investment company shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused. 3. An investment company may start business as soon as authorisation has been granted. The competent authorities of the investment company’s home Member State may withdraw the authorisation issued to an investment company subject to this Directive only where that company: (a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity covered by this Directive more than six months previously, unless the Member State concerned has provided for authorisation to lapse in such cases; (b) has obtained the authorisation by making false statements or by any other irregular means; (c) no longer fulfils the conditions under which authorisation was granted; (d) has seriously or systematically infringed the provisions adopted pursuant to this Directive; or (e) falls within any of the cases where national law provides for withdrawal. In order to ensure consistent harmonisation of this Directive, ESMA may develop draft regulatory technical standards to specify: (a) the information to be provided to the competent authorities in the application for the authorisation of the investment company, including the programme of operations; and (b) the obstacles which may prevent effective exercise of the supervisory functions of the competent authority under paragraph 1(c). Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 6. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to establish standard forms, templates and procedures for the provision of information referred to in point (a) of the first subparagraph of paragraph 5. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to establish standard forms, templates and procedures for the provision of information referred to in point (a) of the first subparagraph of paragraph 5. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Article 30 
Articles 13 and 14 shall apply mutatis mutandis to investment companies that have not designated a management company authorised pursuant to this Directive. For the purpose of the Articles referred to in the first paragraph, ‘management company’ means ‘investment company’. Investment companies shall manage only assets of their own portfolio and shall not, under any circumstances, receive any mandate to manage assets on behalf of a third party.
Article 31 
Each investment company’s home Member State shall draw up prudential rules which shall be observed at all times by investment companies that have not designated a management company authorised pursuant to this Directive. In particular, the competent authorities of the investment company’s home Member State, having regard also to the nature of the investment company, shall require that the company has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees or for the holding or management of investments in financial instruments in order to invest its initial capital and ensuring, at least, that each transaction involving the company may be reconstructed according to its origin, the parties to it, its nature, and the time and place at which it was effected and that the assets of the investment company are invested according to the instruments of incorporation and the legal provisions in force.
Article 32 
1. The assets of an investment company shall be entrusted to a depositary for safe-keeping. 2. A depositary’s liability as referred to in Article 34 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. 3. A depositary shall ensure the following: (a) that the sale, issue, repurchase, redemption and cancellation of units effected by or on behalf of an investment company are carried out in accordance with the law and with the investment company’s instruments of incorporation; (b) that in transactions involving an investment company’s assets any consideration is remitted to it within the usual time limits; and (c) that an investment company’s income is applied in accordance with the law and its instruments of incorporation. 4. An investment company’s home Member State may decide that investment companies established on its territory which market their units exclusively through one or more stock exchanges on which their units are admitted to official listing are not required to have depositaries within the meaning of this Directive. Articles 76, 84 and 85 shall not apply to such investment companies. However, the rules for the valuation of such investment companies’ assets shall be stated in the applicable national law or in their instruments of incorporation. 5. An investment company’s home Member State may decide that investment companies established on its territory which market at least 80 % of their units through one or more stock exchanges designated in their instruments of incorporation are not required to have depositaries within the meaning of this Directive provided that their units are admitted to official listing on the stock exchanges of those Member States within the territories of which the units are marketed, and that any transactions which such an investment company may effect outwith stock exchanges are effected at stock exchange prices only. The instruments of incorporation of an investment company shall specify the stock exchange in the country of marketing the prices on which shall determine the prices at which that investment company will effect any transactions outwith stock exchanges in that country. A Member State shall avail itself of the derogation provided for in the first subparagraph only if it considers that unit-holders have protection equivalent to that of unit-holders in UCITS which have depositaries within the meaning of this Directive. Investment companies referred to in this paragraph and in paragraph 4, shall, in particular: (a) in the absence of national law to this effect, state in their instruments of incorporation the methods of calculation of the net asset values of their units; (b) intervene on the market to prevent the stock exchange values of their units from deviating by more than 5 % from their net asset values; (c) establish the net asset values of their units, communicate them to the competent authorities at least twice a week and publish them twice a month. At least twice a month, an independent auditor shall ensure that the calculation of the value of units is effected in accordance with the law and the instruments of incorporation of the investment company. On such occasions, the auditor shall ensure that the investment company’s assets are invested in accordance with the rules laid down by law and the instruments of incorporation of the investment company. 6. Member States shall inform ESMA and the Commission of the identities of the investment companies benefiting from the derogations provided for in paragraphs 4 and 5.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 33 
1. A depositary shall either have its registered office or be established in the same Member State as that of the investment company. 2. A depositary shall be an institution which is subject to prudential regulation and ongoing supervision. 3. Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to be depositaries. 4. The depositary shall enable the competent authorities of the UCITS home Member State to obtain, on request, all information that the depositary has obtained while discharging its duties and that is necessary for the competent authorities to supervise compliance of the UCITS with this Directive. 5. Where the management company’s home Member State is not the UCITS home Member State, the depositary shall sign a written agreement with the management company regulating the flow of information deemed necessary to allow it to perform the functions set out in Article 32 and in other laws, regulations or administrative provisions which are relevant for depositaries in the UCITS home Member State. 6. The Commission may adopt, by means of delegated acts in accordance with Article 112(2), (3) and (4), and subject to the conditions of Articles 112a and 112b, measures in relation to the measures to be taken by a depositary in order to fulfil its duties regarding a UCITS managed by a management company established in another Member State, including the particulars that need to be included in the standard agreement to be used by the depositary and the management company in accordance with paragraph 5.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 34 
A depositary shall, in accordance with the national law of the investment company’s home Member State, be liable to the investment 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.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 35 
1. No company shall act as both investment company and depositary. 2. In carrying out its role as depositary, the depositary shall act solely in the interests of the unit-holders.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Article 36 
The law or the instruments of incorporation of the investment company shall lay down the conditions for the replacement of the depositary and rules to ensure the protection of unit-holders in the event of such replacement.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Revised version (Article 26 ):
1. The law or the fund rules of the common fund shall lay down the conditions for the replacement of the management company and of the depositary and rules to ensure the protection of unit-holders in the event of such a replacement. 2. The law or the instruments of incorporation of the investment company shall lay down the conditions for the replacement of the management company and of the depositary and rules to ensure the protection of unit-holders in the event of such a replacement.
Article 37 
For the purposes of this Chapter, a UCITS shall include investment compartments thereof.
Article 38 
1. Member States shall, subject to the conditions set out in this Chapter and irrespective of the manner in which UCITS are constituted under Article 1(3), allow for cross-border and domestic mergers as defined in Article 2(1)(q) and (r) in accordance with one or more of the merger techniques provided for in Article 2(1)(p). 2. The merger techniques used for cross-border mergers as defined in Article 2(1)(q) must be provided for under the laws of the merging UCITS home Member State. The merger techniques used for domestic mergers as defined in Article 2(1)(r) must be provided for under the laws of the Member State, in which the UCITS are established.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Each undertaking for collective investment in transferable securities (UCITS) must provide ‘k ey investor information’ in accordance with Directive 2009/65/EC 1 . The information on objectives and investment policy, risk and reward profile, charges, past performance and other practical details helps investors to understand the essential characteristics of the UCITS and to make informed investment decisions. Articles 78 to 82, and 94 of the Directive specify the main principles of the k ey investor information . Commission Regulation (EU) No 583/2010 2 lays down further rules on its content and format . UCITS qualify as packaged retail and insurance-based investment products (PRIIPs) within the meaning of Regulation (EU) No 1286/2014 3 , which requires that all PRIIPs be accompanied by a ‘key information document’. The document contains i nformation on the PRIIP’s risk and reward profile, including the possible maximum loss of invested capital and appropriate performance scenarios, the costs retail investors have to bear when investing in it, and other details. Again, this information helps retail investors to understand the essential characteristics of the product and to make informed investment decisions. Commission Delegated Regulation (EU) 2017/653 4 lays down detailed rules on the presentation, content, review, revision and provision of the document. Delegated Regulation (EU) 2016/1904 5 lays down rules on product intervention. Article 32 of Regulation (EU) No 1286/2014 provides for a transitional arrangement whereby management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS are temporarily exempted from the requirement to provide retail investors with a key information document. The arrangement currently applies until 31 December 2021. This Directive is accompanied by two further measures. First, the Commission is proposing that the transitional arrangement in Regulation (EU) No 1286/2014 be extended to 30 June 2022. This will allow the time necessary to prepare for the end of the transitional arrangement and to implement the other measure (which involves amendments to Delegated Regulation (EU) 2017/653) from 1 July 2022. The three measures are therefore synchronised in terms of application dates. As things stand, as of 1 July 2022 retail investors in UCITS would receive both a key information document in accordance with Regulation (EU) No 1286/2014 and key investor information in accordance with Directive 2009/65/EC. It is desirable to avoid a situation where retail investors receive two different pre-contractual disclosure documents in respect of the same UCITS. This Directive ensures that a key information document drawn up, provided, revised and translated for a given UCITS in accordance with the Regulation is considered as satisfying the key investor information requirements of Directive 2009/65/EC. This initiative is not part of the regulatory fitness programme (REFIT). 
Revised version (Article 38 ):
1. Member States shall, subject to the conditions set out in this Chapter and irrespective of the manner in which UCITS are constituted under Article 1(3), allow for cross-border and domestic mergers as defined in Article 2(1)(q) and (r) in accordance with one or more of the merger techniques provided for in Article 2(1)(p). 2. The merger techniques used for cross-border mergers as defined in Article 2(1)(q) must be provided for under the laws of the merging UCITS home Member State. The merger techniques used for domestic mergers as defined in Article 2(1)(r) must be provided for under the laws of the Member State, in which the UCITS are established. The merger techniques used for cross-border mergers as defined in Article 2(1)(q) must be provided for under the laws of the merging UCITS home Member State. The merger techniques used for domestic mergers as defined in Article 2(1)(r) must be provided for under the laws of the Member State, in which the UCITS are established.
Article 39 
1. Mergers shall be subject to prior authorisation by the competent authorities of the merging UCITS home Member State. 2. The merging UCITS shall provide the following information to the competent authorities of its home Member State: (a) the common draft terms of the proposed merger duly approved by the merging UCITS and the receiving UCITS; (b) an up-to-date version of the prospectus and the key investor information, referred to in Article 78, of the receiving UCITS, if established in another Member State; (c) a statement by each of the depositaries of the merging and the receiving UCITS confirming that, in accordance with Article 41, they have verified compliance of the particulars set out in points (a), (f) and (g) of Article 40(1) with the requirements of this Directive and the fund rules or instruments of incorporation of their respective UCITS; and (d) the information on the proposed merger that the merging and the receiving UCITS intend to provide to their respective unit-holders. That information shall be provided in such a manner as to enable the competent authorities of both the merging and the receiving UCITS home Member State to read them in the official language or one of the official languages of that Member State or those Member States, or in a language approved by those competent authorities. 3. Once the file is complete, the competent authorities of the merging UCITS home Member State shall immediately transmit copies of the information referred to in paragraph 2 to the competent authorities of the receiving UCITS home Member State. The competent authorities of the merging and the receiving UCITS home Member State shall, respectively, consider the potential impact of the proposed merger on unit-holders of the merging and the receiving UCITS to assess whether appropriate information is being provided to unit-holders. If the competent authorities of the merging UCITS home Member State consider it necessary, they may require, in writing, that the information to unit-holders of the merging UCITS be clarified. If the competent authorities of the receiving UCITS home Member State consider it necessary, they may require, in writing, and no later than 15 working days of receipt of the copies of the complete information referred to in paragraph 2, that the receiving UCITS modify the information to be provided to its unit-holders. In such a case, the competent authorities of the receiving UCITS home Member State shall send an indication of their dissatisfaction to the competent authorities of the merging UCITS home Member State. They shall inform the competent authorities of the merging UCITS home Member State whether they are satisfied with the modified information to be provided to the unit-holders of the receiving UCITS within 20 working days of being notified thereof. 4. The competent authorities of the merging UCITS home Member State shall authorise the proposed merger if the following conditions are met: (a) the proposed merger complies with all of the requirements of Articles 39 to 42; (b) the receiving UCITS has been notified, in accordance with Article 93, to market its units in all Member States where the merging UCITS is either authorised or has been notified to market its units in accordance with Article 93; and (c) the competent authorities of the merging and the receiving UCITS home Member State are satisfied with the proposed information to be provided to unit-holders, or no indication of dissatisfaction from the competent authorities of the receiving UCITS home Member State has been received under the fourth subparagraph of paragraph 3. 5. If the competent authorities of the merging UCITS home Member State consider that the file is not complete, they shall request additional information within 10 working days of receiving the information referred to in paragraph 2. The competent authorities of the merging UCITS home Member State shall inform the merging UCITS, within 20 working days of submission of the complete information, in accordance with paragraph 2, whether or not the merger has been authorised. The competent authorities of the merging UCITS home Member State shall also inform the competent authorities of the receiving UCITS home Member State of their decision. 6. Member States may, in accordance with the second subparagraph of Article 57(1), provide for a derogation from Articles 52 to 55 for receiving UCITS.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Commission has today adopted a package of measures to deepen the Capital Markets Union (‘CMU’) together with the Communication "Completing Capital Markets Union by 2019 – time to accelerate delivery". The package includes this proposal and a proposal f or a regulation on facilitating the cross-border distribution of collective investment funds, which also amends Regulations (No) 345/2013 1 and 346/2013 2 , as well as a proposal for an enabling EU framework on covered bonds, a proposal for an enabling frame work on European crowdfunding service providers (ECSP)for businesses , a proposal on the law applicable to the third-party effects of assignments of claims, and a Communication on the applicable law to the proprietary effects of transactions in securities. This proposal amends certain provisions in Directive 2009/65/EC 3 and Directive 2011/61/EU 4 with the purpose of reducing regulatory barriers to the cross-border distribution of investment funds in the EU. These new measures are expected to reduce the cost for fund managers of going cross-border and should support more cross-border marketing of investment funds. Increased competition in the EU will help to give investors more choice and better value. This proposal was scheduled in the Commission Work Program me 2018 5 and should be seen in the broader context of the CMU action plan 6 and the CMU Mid-Term Review 7 , to establish a genuine internal capital market by addressing fragmentation in the capital markets, removing regulatory barriers to the financing of the economy and increasing the supply of capital to businesses. Regulatory barriers, namely Member States’ marketing requirements, regulatory fees and administrative and notification requirements represent a significant disincentive to the cross-border distri bution of funds. These barriers were identified in response to the Green Paper on Capital Markets Union 8 , the Call for Evidence on the EU regulatory framework for financial services 9 and the public consultation on barriers to the cross-border distribution of investment funds 10 . Investment funds are investment products created with the sole purpose of pooling investors’ capital and investing that capital collectively through a portfolio of financial instruments such as stocks, bonds and other securities. In the EU, investment funds can be categorised as undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) managed by alternative investment fund managers. UCITS are covered by Directive 2009/65/EC and AIFs are covered by Directive 2011/61/EU. Directive 2011/61/EU is complemented by four fund frameworks: · Regulation (No) 345/2013 on European venture capital funds, · Regulation (No) 346/2013 on European social entrepreneurship funds, · Regulation 2015/460 11 on European long-term investment funds and · Regulation 2017/1131 12 on money market funds. The shared purpose of these rules is notably to make cross-border distribution easier while ensuring a high level of investor protection. Rules for EU investment fun ds allow fund managers to distribute and, with some exceptions, also to manage their funds across the EU . While EU investment funds have seen rapid growth, with a total of EUR 14 310 billion in assets under management in June 2017 13 , the EU investment fund market is still predominantly organised as a national market : 70 % of all assets under management are held by investment funds registered for sale only in their domestic market 14 . Only 37 % of UCITS and about 3 % of AIFs are registered for sale in more than three Member States. Compared to the United States, the EU market is smaller in terms of assets under management. However, there are considerably more funds in the EU (58 125 in the EU compared to 15 415 in the US) 15 . This means EU funds are on average sig nificantly smaller . This has a negative impact on economies of scale, the fees paid by investors and the way in which the internal market operates for investment funds. This proposal also recognizes that there are other factors outside the scope of this proposal which hold back the cross-border distribution of investment funds in the EU. These factors include national tax regimes applicable to investment funds and investors, vertical distribution channels and cultural preferences for domestic investment products. 
Revised version (Article 39 ):
1. Mergers shall be subject to prior authorisation by the competent authorities of the merging UCITS home Member State. 2. The merging UCITS shall provide the following information to the competent authorities of its home Member State: (a) the common draft terms of the proposed merger duly approved by the merging UCITS and the receiving UCITS; (b) an up-to-date version of the prospectus and the key investor information, referred to in Article 78, of the receiving UCITS, if established in another Member State; (d) the information on the proposed merger that the merging and the receiving UCITS intend to provide to their respective unit-holders. That information shall be provided in such a manner as to enable the competent authorities of both the merging and the receiving UCITS home Member State to read them in the official language or one of the official languages of that Member State or those Member States, or in a language approved by those competent authorities. 3. Once the file is complete, the competent authorities of the merging UCITS home Member State shall immediately transmit copies of the information referred to in paragraph 2 to the competent authorities of the receiving UCITS home Member State. The competent authorities of the merging and the receiving UCITS home Member State shall, respectively, consider the potential impact of the proposed merger on unit-holders of the merging and the receiving UCITS to assess whether appropriate information is being provided to unit-holders. If the competent authorities of the merging UCITS home Member State consider it necessary, they may require, in writing, that the information to unit-holders of the merging UCITS be clarified. If the competent authorities of the receiving UCITS home Member State consider it necessary, they may require, in writing, and no later than 15 working days of receipt of the copies of the complete information referred to in paragraph 2, that the receiving UCITS modify the information to be provided to its unit-holders. In such a case, the competent authorities of the receiving UCITS home Member State shall send an indication of their dissatisfaction to the competent authorities of the merging UCITS home Member State. They shall inform the competent authorities of the merging UCITS home Member State whether they are satisfied with the modified information to be provided to the unit-holders of the receiving UCITS within 20 working days of being notified thereof. 4. The competent authorities of the merging UCITS home Member State shall authorise the proposed merger if the following conditions are met: (a) the proposed merger complies with all of the requirements of Articles 39 to 42; (b) the receiving UCITS has been notified, in accordance with Article 93, to market its units in all Member States where the merging UCITS is either authorised or has been notified to market its units in accordance with Article 93; and (c) the competent authorities of the merging and the receiving UCITS home Member State are satisfied with the proposed information to be provided to unit-holders, or no indication of dissatisfaction from the competent authorities of the receiving UCITS home Member State has been received under the fourth subparagraph of paragraph 3. 5. If the competent authorities of the merging UCITS home Member State consider that the file is not complete, they shall request additional information within 10 working days of receiving the information referred to in paragraph 2. The competent authorities of the merging UCITS home Member State shall inform the merging UCITS, within 20 working days of submission of the complete information, in accordance with paragraph 2, whether or not the merger has been authorised. The competent authorities of the merging UCITS home Member State shall also inform the competent authorities of the receiving UCITS home Member State of their decision. 6. Member States may, in accordance with the second subparagraph of Article 57(1), provide for a derogation from Articles 52 to 55 for receiving UCITS.
Article 40 
1. Member States shall require that the merging and the receiving UCITS draw up common draft terms of merger. The common draft terms of merger shall set out the following particulars: (a) an identification of the type of merger and of the UCITS involved; (b) the background to and rationale for the proposed merger; (c) the expected impact of the proposed merger on the unit-holders of both the merging and the receiving UCITS; (d) the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio as referred to in Article 47(1); (e) the calculation method of the exchange ratio; (f) the planned effective date of the merger; (g) the rules applicable, respectively, to the transfer of assets and the exchange of units; and (h) in the case of a merger pursuant to point (p)(ii) of Article 2(1) and, where applicable, point (p)(iii) of Article 2(1), the fund rules or instruments of incorporation of the newly constituted receiving UCITS. The competent authorities shall not require that any additional information is included in the common draft terms of mergers. 2. The merging UCITS and the receiving UCITS may decide to include further items in the common draft terms of merger.
Amendment rationale: CONTEXT OF THE PROPOSAL · Reasons for and objectives of the proposal This proposal is part of a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector 1 with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a regulation on markets in crypto assets 2 , a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) 3 and a proposal for a regulation on digital operational resilience for the financial sector 4 . The reasons for, and objectives of, the two sets of legislative measures have been set out in the explanatory memoranda of the proposal for a regulation on a pilot regime for distributed ledger technology market infrastructures, proposal for a regulation on markets in crypto assets and proposal for a regulation on digital operational resilience, respectively, and apply here as well. The particular reasons for this proposal for a directive is that, in order to provide legal certainty as regards crypto assets and achieve the objectives of strengthening digital operational resilience, it is necessary to establish a temporary exemption for multilateral trading facilities and amend or clarify certain provisions in existing EU financial services directives. · Consistency with existing provisions in the policy area This proposal, similar to the proposals for regulation it accompanies, is part of a broader ongoing work at European and international level aimed at (i) strengthening the cybersecurity in financial services and address broader operational risks, and (ii) providing a clear, proportionate and enabling EU legal framework for crypto-asset service providers. · Consistency with other Union policies As stated by President von der Leyen in her Political Guidelines, 5 and set-out in the Communication ‘Shaping Europe’s digital future’, 6 it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries. As regards crypto assets, this proposal is closely linked with wider Commission policies on blockchain technology, as crypto-assets, as the main application of blockchain technologies, are inextricably linked to the promotion of blockchain technology throughout Europe. As regards operational resilience, the European strategy for data 7 sets out four pillars - data protection, fundamental rights, safety and cyber-security - as essential pre-requisites for a society empowered by the use of data. A legislative framework strengthening the digital operational resilience of the Union’s financial entities is consistent with these policy objectives. The proposal would also support policies aimed at recovering from the coronavirus, as it would ensure that increased reliance on digital finance goes hand in hand with operational resilience. Both proposals also respond to calls from the CMU High-Level Forum to establish clear rules for the use of crypto asset (recommendation 7) and to put in place new rules on cyber resilience.
Article 41 
Member States shall require that the depositaries of the merging and of the receiving UCITS verify the conformity of the particulars set out in points (a), (f) and (g) of Article 40(1) with the requirements of this Directive and the fund rules or instruments of incorporation of their respective UCITS.
Article 42 
1. The law of the merging UCITS home Member States shall entrust either a depositary or an independent auditor, approved in accordance with Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts ( 14 ), to validate the following: (a) the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio, as referred to in Article 47(1); (b) where applicable, the cash payment per unit; and (c) the calculation method of the exchange ratio as well as the actual exchange ratio determined at the date for calculating that ratio, as referred to in Article 47(1). 2. The statutory auditors of the merging UCITS or the statutory auditor of the receiving UCITS shall be considered independent auditors for the purposes of paragraph 1. 3. A copy of the reports of the independent auditor, or, where applicable, the depositary shall be made available on request and free of charge to the unit-holders of both the merging UCITS and the receiving UCITS and to their respective competent authorities.
Amendment rationale: CONTEXT OF THE PROPOSAL · Reasons for and objectives of the proposal This proposal is part of a package of measures to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the risks. It is in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. The digital finance package includes a new Strategy on digital finance for the EU financial sector 1 with the aim to ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead, making the benefits of digital finance available to European consumers and businesses. In addition to this proposal, the package also includes a proposal for a regulation on markets in crypto assets 2 , a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) 3 and a proposal for a regulation on digital operational resilience for the financial sector 4 . The reasons for, and objectives of, the two sets of legislative measures have been set out in the explanatory memoranda of the proposal for a regulation on a pilot regime for distributed ledger technology market infrastructures, proposal for a regulation on markets in crypto assets and proposal for a regulation on digital operational resilience, respectively, and apply here as well. The particular reasons for this proposal for a directive is that, in order to provide legal certainty as regards crypto assets and achieve the objectives of strengthening digital operational resilience, it is necessary to establish a temporary exemption for multilateral trading facilities and amend or clarify certain provisions in existing EU financial services directives. · Consistency with existing provisions in the policy area This proposal, similar to the proposals for regulation it accompanies, is part of a broader ongoing work at European and international level aimed at (i) strengthening the cybersecurity in financial services and address broader operational risks, and (ii) providing a clear, proportionate and enabling EU legal framework for crypto-asset service providers. · Consistency with other Union policies As stated by President von der Leyen in her Political Guidelines, 5 and set-out in the Communication ‘Shaping Europe’s digital future’, 6 it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries. As regards crypto assets, this proposal is closely linked with wider Commission policies on blockchain technology, as crypto-assets, as the main application of blockchain technologies, are inextricably linked to the promotion of blockchain technology throughout Europe. As regards operational resilience, the European strategy for data 7 sets out four pillars - data protection, fundamental rights, safety and cyber-security - as essential pre-requisites for a society empowered by the use of data. A legislative framework strengthening the digital operational resilience of the Union’s financial entities is consistent with these policy objectives. The proposal would also support policies aimed at recovering from the coronavirus, as it would ensure that increased reliance on digital finance goes hand in hand with operational resilience. Both proposals also respond to calls from the CMU High-Level Forum to establish clear rules for the use of crypto asset (recommendation 7) and to put in place new rules on cyber resilience.
Revised version (Article 42 ):
2. The statutory auditors of the merging UCITS or the statutory auditor of the receiving UCITS shall be considered independent auditors for the purposes of paragraph 1. 3. A copy of the reports of the independent auditor, or, where applicable, the depositary shall be made available on request and free of charge to the unit-holders of both the merging UCITS and the receiving UCITS and to their respective competent authorities.
Article 43 
1. Member States shall require merging and receiving UCITS to provide appropriate and accurate information on the proposed merger to their respective unit-holders so as to enable them to make an informed judgement of the impact of the proposal on their investment. 2. That information shall be provided to unit-holders of the merging and of the receiving UCITS only after the competent authorities of the merging UCITS home Member State have authorised the proposed merger under Article 39. It shall be provided at least 30 days before the last date for requesting repurchase or redemption or, where applicable, conversion without additional charge under Article 45(1). 3. The information to be provided to unit-holders of the merging and of the receiving UCITS, shall include appropriate and accurate information on the proposed merger such as to enable them to take an informed decision on the possible impact thereof on their investment and to exercise their rights under Articles 44 and 45. It shall include the following: (a) the background to and the rationale for the proposed merger; (b) the possible impact of the proposed merger on unit-holders, including but not limited to any material differences in respect of investment policy and strategy, costs, expected outcome, periodic reporting, possible dilution in performance, and, where relevant, a prominent warning to investors that their tax treatment may be changed following the merger; (c) any specific rights unit-holders have in relation to the proposed merger, including but not limited to the right to obtain additional information, the right to obtain a copy of the report of the independent auditor or the depositary on request, and the right to request the repurchase or redemption or, where applicable, the conversion of their units without charge as specified in Article 45(1) and the last date for exercising that right; (d) the relevant procedural aspects and the planned effective date of the merger; and (e) a copy of the key investor information, referred to in Article 78, of the receiving UCITS. 4. If the merging or the receiving UCITS has been notified in accordance with Article 93, the information referred to in paragraph 3 shall be provided in the official language, or one of the official languages, of the relevant UCITS host Member State, or in a language approved by its competent authorities. The UCITS required to provide the information shall be responsible for producing the translation. That translation shall faithfully reflect the content of the original. 5. The Commission may adopt, by means of delegated acts in accordance with Article 112(2), (3) and (4), and subject to the conditions of Articles 112a and 112b, measures specifying the detailed content, format and method by which to provide the information referred to in paragraphs 1 and 3. 6. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of applications of the delegated acts adopted by the Commission regarding the content, format and method by which the information referred to in paragraphs 1 and 3 of this Article is to be provided. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Amendment rationale: Context of the proposal 1.1. General Since the UCITS Directive was adopted in 1985, the rules relating to depositaries in the Directive have remained unchanged: they consist of a number of generic principles setting out the duties of depositaries. The principal UCITS rule is that all assets of a UCITS fund must be entrusted to a depositary. This depositary shall, in accordance with national law, be liable for losses suffered as a result of a failure to perform its duties. The UCITS Directive, apart from employing a negligence-based standard, makes reference to national laws in respect of the precise contours of these duties. This reference leaves considerable scope for diverging interpretations regarding the scope of a depositary's duties and the liability for the negligent performance thereof. As a result, different approaches have developed across the European Union, leading to UCITS investors facing uneven levels of protection in different jurisdictions. The potential consequences of national divergences in the liability standard came to the fore following the Lehman bankruptcy[1] and the Madoff fraud. In particular, the consequences of the Madoff fraud have been particularly acute in some EU Member States. In one instance, a particular fund that acted as a feeder fund for Madoff lost around € 1.4 billion. The large scale of the Madoff fraud essentially went undetected for a long period because the depositary had delegated custody of the assets to an entity run by Bernard Madoff, the US broker "Bernard Madoff Investment Securities". At the same time, Bernard Madoff was also the manager and broker responsible for purchasing financial instruments on behalf of the fund. The Madoff case raised several important issues in relation to UCITS funds. First, it raises the question of the precise conditions under which a depositary acting on behalf of a UCITS fund can delegate safekeeping of assets to a sub-custodian? The current UCITS Directive is silent on the precise conditions under which custody may be delegated. The Madoff case also raises the issue of conflicts of interest. More particularly, to what extent should the manager of an investment fund be allowed to belong to the same corporate group as the sub-custodian to whom custody has been delegated? Can it really be expected that a fund manager will always behave in a manner conducive to protecting the interests of a fund's investors where the manager is also the sub-custodian of the assets they invest in? In respect of conflicts of interests that may arise in relation to the independence of the depositary, the UCITS Directive is limited to stipulating the general principle that a company cannot manage a UCITS fund and also act as its depositary. The UCITS Directive contains no rule to cover the conflicts of interest that may arise in case the management function and the depositary functions are delegated to one and the same third party. Finally, the Madoff case has also revealed general uncertainties within the UCITS framework, especially in relation to the principal custodian's liability in case of delegation of custody to a sub-custodian. The issue of liability in case of delegation, in the absence of hard and fast rules in the relevant UCITS Directive, is dealt with differently in individual Member States. The Madoff case brought to the fore an essential development in the UCITS sphere: while the UCITS provisions on depositaries have remained unchanged, the investment environment for UCITS has evolved. UCITS are now able to invest in a wider range of financial assets, which may be more complex and also may be issued and held in custody outside the EU (for instance, in emerging markets); fund portfolios are increasingly diverse and international. As a consequence, holding assets through sub-custody arrangements, so as to match the fund's investment strategies, have become increasingly common. The Madoff fraud has shown that the risks associated with the use of delegated sub-custody networks are not always negligible. Assets can be lost at the level of the sub-custodian, which might include loss through fraud committed by the sub-custodian, negligence of the sub-custodian or the bankruptcy of the sub-custodian. Under the current UCITS framework, it is unclear what duties a depositary has in the selection and the oversight of the sub-custodian. As a result, there is a legal uncertainty to what extent a depositary is liable for losses at sub-custodian level. It must be noted that on 12 July 2010 the Commission proposed the extension of investor compensation schemes to cover investors in UCITS. The amendments to Directive 97/9/EC aimed to cover situations where a depositary is liable for the loss of assets of UCITS but is not able to cover its liabilities. This should serve as an additional means to increase the protection for investors in UCITS. However, at this stage this proposal has not been accepted by the Council and is subject to further negotiations. In addition, the financial crisis also revealed that the remuneration and incentive schemes commonly applied within financial institutions were themselves exacerbating the impact and scale of the crisis. Remuneration policies contributed to short-term decision making and created incentives for taking excessive risk. Finally, 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"[2] the Commission suggested setting EU minimum common standards on certain key issues, in order to promote convergence and reinforcement of national sanctioning regimes. The Commission has included such common rules, adapted to the specifics of the sectors concerned, in all its recent proposals for the review of the sectoral EU legislation concerned (CRD IV, MiFID, Market Abuse Directive, Transparency Directive). Extending this work to the UCITS framework is a natural additional step in this process. This proposal forms part of a wider legislative package dedicated to rebuilding consumer trust in financial markets. The package has two other parts. The first is an extensive overhaul of the Insurance Mediation Directive 2002/92/EC to ensure that customers benefit from a high level of protection when buying insurance products. The final part of the package aims at improving transparency in the investment market for retail investors (a proposal for a Regulation on key information documents for investment products).
Revised version (Article 43 ):
1. Member States shall require merging and receiving UCITS to provide appropriate and accurate information on the proposed merger to their respective unit-holders so as to enable them to make an informed judgement of the impact of the proposal on their investment. 2. That information shall be provided to unit-holders of the merging and of the receiving UCITS only after the competent authorities of the merging UCITS home Member State have authorised the proposed merger under Article 39. It shall be provided at least 30 days before the last date for requesting repurchase or redemption or, where applicable, conversion without additional charge under Article 45(1). 3. The information to be provided to unit-holders of the merging and of the receiving UCITS, shall include appropriate and accurate information on the proposed merger such as to enable them to take an informed decision on the possible impact thereof on their investment and to exercise their rights under Articles 44 and 45. It shall include the following: (a) the background to and the rationale for the proposed merger; (b) the possible impact of the proposed merger on unit-holders, including but not limited to any material differences in respect of investment policy and strategy, costs, expected outcome, periodic reporting, possible dilution in performance, and, where relevant, a prominent warning to investors that their tax treatment may be changed following the merger; (c) any specific rights unit-holders have in relation to the proposed merger, including but not limited to the right to obtain additional information, the right to obtain a copy of the report of the independent auditor or the depositary on request, and the right to request the repurchase or redemption or, where applicable, the conversion of their units without charge as specified in Article 45(1) and the last date for exercising that right; (d) the relevant procedural aspects and the planned effective date of the merger; and (e) a copy of the key investor information, referred to in Article 78, of the receiving UCITS. 4. If the merging or the receiving UCITS has been notified in accordance with Article 93, the information referred to in paragraph 3 shall be provided in the official language, or one of the official languages, of the relevant UCITS host Member State, or in a language approved by its competent authorities. The UCITS required to provide the information shall be responsible for producing the translation. That translation shall faithfully reflect the content of the original. 5. The Commission may adopt, by means of delegated acts in accordance with Article 112a , measures specifying the detailed content, format and method by which to provide the information referred to in paragraphs 1 and 3. 6. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of applications of the delegated acts adopted by the Commission regarding the content, format and method by which the information referred to in paragraphs 1 and 3 of this Article is to be provided. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.
Article 44 
Where the national laws of Member States require approval by the unit-holders of mergers between UCITS, Member States shall ensure that such approval does not require more than 75 % of the votes actually cast by unit-holders present or represented at the general meeting of unit-holders. The first paragraph shall be without prejudice to any presence quorum provided for under national laws. Member States shall impose neither more stringent presence quorums for cross-border than for domestic mergers nor more stringent presence quorums for UCITS mergers than for mergers of corporate entities.
Article 45 
1. The laws of Member States shall provide that unit-holders of both the merging and the receiving UCITS have the right to request, without any charge other than those retained by the UCITS to meet disinvestment costs, the repurchase or redemption of their units or, where possible, to convert them into units in another UCITS with similar investment policies and managed by the same management company or by any other company with which the management company is linked by common management or control, or by a substantial direct or indirect holding. That right shall become effective from the moment that the unit-holders of the merging UCITS and those of the receiving UCITS, have been informed of the proposed merger in accordance with Article 43 and shall cease to exist five working days before the date for calculating the exchange ratio referred to in Article 47(1). 2. Without prejudice to paragraph 1, for mergers between UCITS and by way of derogation from Article 84(1), Member States may allow the competent authorities to require or to allow the temporary suspension of the subscription, repurchase or redemption of units provided that such suspension is justified for the protection of the unit-holders.
Article 46 
Except in cases where UCITS have not designated a management company, Member States shall ensure that any legal, advisory or administrative costs associated with the preparation and the completion of the merger shall not be charged to the merging or the receiving UCITS, or to any of their unit-holders.
Article 47 
1. For domestic mergers, the laws of the Member States shall determine the date on which a merger takes effect as well as the date for calculating the exchange ratio of units of the merging UCITS into units of the receiving UCITS and, where applicable, for determining the relevant net asset value for cash payments. For cross-border mergers, the laws of the receiving UCITS home Member State shall determine those dates. Member States shall ensure that, where applicable, those dates are after the approval of the merger by unit-holders of the receiving UCITS or the merging UCITS. 2. The entry into effect of the merger shall be made public through all appropriate means in the manner prescribed by the laws of the receiving UCITS home Member State, and shall be notified to the competent authorities of the home Member States of the receiving and the merging UCITS. 3. A merger which has taken effect as provided for in paragraph 1 shall not be declared null and void.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Each undertaking for collective investment in transferable securities (UCITS) must provide ‘k ey investor information’ in accordance with Directive 2009/65/EC 1 . The information on objectives and investment policy, risk and reward profile, charges, past performance and other practical details helps investors to understand the essential characteristics of the UCITS and to make informed investment decisions. Articles 78 to 82, and 94 of the Directive specify the main principles of the k ey investor information . Commission Regulation (EU) No 583/2010 2 lays down further rules on its content and format . UCITS qualify as packaged retail and insurance-based investment products (PRIIPs) within the meaning of Regulation (EU) No 1286/2014 3 , which requires that all PRIIPs be accompanied by a ‘key information document’. The document contains i nformation on the PRIIP’s risk and reward profile, including the possible maximum loss of invested capital and appropriate performance scenarios, the costs retail investors have to bear when investing in it, and other details. Again, this information helps retail investors to understand the essential characteristics of the product and to make informed investment decisions. Commission Delegated Regulation (EU) 2017/653 4 lays down detailed rules on the presentation, content, review, revision and provision of the document. Delegated Regulation (EU) 2016/1904 5 lays down rules on product intervention. Article 32 of Regulation (EU) No 1286/2014 provides for a transitional arrangement whereby management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS are temporarily exempted from the requirement to provide retail investors with a key information document. The arrangement currently applies until 31 December 2021. This Directive is accompanied by two further measures. First, the Commission is proposing that the transitional arrangement in Regulation (EU) No 1286/2014 be extended to 30 June 2022. This will allow the time necessary to prepare for the end of the transitional arrangement and to implement the other measure (which involves amendments to Delegated Regulation (EU) 2017/653) from 1 July 2022. The three measures are therefore synchronised in terms of application dates. As things stand, as of 1 July 2022 retail investors in UCITS would receive both a key information document in accordance with Regulation (EU) No 1286/2014 and key investor information in accordance with Directive 2009/65/EC. It is desirable to avoid a situation where retail investors receive two different pre-contractual disclosure documents in respect of the same UCITS. This Directive ensures that a key information document drawn up, provided, revised and translated for a given UCITS in accordance with the Regulation is considered as satisfying the key investor information requirements of Directive 2009/65/EC. This initiative is not part of the regulatory fitness programme (REFIT). 
Revised version (Article 47 ):
1. For domestic mergers, the laws of the Member States shall determine the date on which a merger takes effect as well as the date for calculating the exchange ratio of units of the merging UCITS into units of the receiving UCITS and, where applicable, for determining the relevant net asset value for cash payments. For cross-border mergers, the laws of the receiving UCITS home Member State shall determine those dates. Member States shall ensure that, where applicable, those dates are after the approval of the merger by unit-holders of the receiving UCITS or the merging UCITS. For domestic mergers, the laws of the Member States shall determine the date on which a merger takes effect as well as the date for calculating the exchange ratio of units of the merging UCITS into units of the receiving UCITS and, where applicable, for determining the relevant net asset value for cash payments. For cross-border mergers, the laws of the receiving UCITS home Member State shall determine those dates. Member States shall ensure that, where applicable, those dates are after the approval of the merger by unit-holders of the receiving UCITS or the merging UCITS. 2. The entry into effect of the merger shall be made public through all appropriate means in the manner prescribed by the laws of the receiving UCITS home Member State, and shall be notified to the competent authorities of the home Member States of the receiving and the merging UCITS. 3. A merger which has taken effect as provided for in paragraph 1 shall not be declared null and void.
Article 48 
1. A merger effected in accordance with point (p)(i) of Article 2(1) shall have the following consequences: (a) all the assets and liabilities of the merging UCITS are transferred to the receiving UCITS or, where applicable, to the depositary of the receiving UCITS; (b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS and, where applicable, they are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and (c) the merging UCITS cease to exist on the entry into effect of the merger. 2. A merger effected in accordance with point (p)(ii) of Article 2(1) shall have the following consequences: (a) all the assets and liabilities of the merging UCITS are transferred to the newly constituted receiving UCITS or, where applicable, to the depositary of the receiving UCITS; (b) the unit-holders of the merging UCITS become unit-holders of the newly constituted receiving UCITS and, where applicable, they are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and 3. A merger effected in accordance with point (p)(iii) of Article 2(1) shall have the following consequences: (a) the net assets of the merging UCITS are transferred to the receiving UCITS or, where applicable, the depositary of the receiving UCITS; (b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS; and (c) the merging UCITS continues to exist until the liabilities have been discharged. 4. Member States shall provide for the establishment of a procedure whereby the management company of the receiving UCITS confirms to the depositary of the receiving UCITS that transfer of assets and, where applicable, liabilities is complete. Where the receiving UCITS has not designated a management company, it shall give that confirmation to the depositary of the receiving UCITS.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Commission has today adopted a package of measures to deepen the Capital Markets Union (‘CMU’) together with the Communication "Completing Capital Markets Union by 2019 – time to accelerate delivery". The package includes this proposal and a proposal f or a regulation on facilitating the cross-border distribution of collective investment funds, which also amends Regulations (No) 345/2013 1 and 346/2013 2 , as well as a proposal for an enabling EU framework on covered bonds, a proposal for an enabling frame work on European crowdfunding service providers (ECSP)for businesses , a proposal on the law applicable to the third-party effects of assignments of claims, and a Communication on the applicable law to the proprietary effects of transactions in securities. This proposal amends certain provisions in Directive 2009/65/EC 3 and Directive 2011/61/EU 4 with the purpose of reducing regulatory barriers to the cross-border distribution of investment funds in the EU. These new measures are expected to reduce the cost for fund managers of going cross-border and should support more cross-border marketing of investment funds. Increased competition in the EU will help to give investors more choice and better value. This proposal was scheduled in the Commission Work Program me 2018 5 and should be seen in the broader context of the CMU action plan 6 and the CMU Mid-Term Review 7 , to establish a genuine internal capital market by addressing fragmentation in the capital markets, removing regulatory barriers to the financing of the economy and increasing the supply of capital to businesses. Regulatory barriers, namely Member States’ marketing requirements, regulatory fees and administrative and notification requirements represent a significant disincentive to the cross-border distri bution of funds. These barriers were identified in response to the Green Paper on Capital Markets Union 8 , the Call for Evidence on the EU regulatory framework for financial services 9 and the public consultation on barriers to the cross-border distribution of investment funds 10 . Investment funds are investment products created with the sole purpose of pooling investors’ capital and investing that capital collectively through a portfolio of financial instruments such as stocks, bonds and other securities. In the EU, investment funds can be categorised as undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) managed by alternative investment fund managers. UCITS are covered by Directive 2009/65/EC and AIFs are covered by Directive 2011/61/EU. Directive 2011/61/EU is complemented by four fund frameworks: · Regulation (No) 345/2013 on European venture capital funds, · Regulation (No) 346/2013 on European social entrepreneurship funds, · Regulation 2015/460 11 on European long-term investment funds and · Regulation 2017/1131 12 on money market funds. The shared purpose of these rules is notably to make cross-border distribution easier while ensuring a high level of investor protection. Rules for EU investment fun ds allow fund managers to distribute and, with some exceptions, also to manage their funds across the EU . While EU investment funds have seen rapid growth, with a total of EUR 14 310 billion in assets under management in June 2017 13 , the EU investment fund market is still predominantly organised as a national market : 70 % of all assets under management are held by investment funds registered for sale only in their domestic market 14 . Only 37 % of UCITS and about 3 % of AIFs are registered for sale in more than three Member States. Compared to the United States, the EU market is smaller in terms of assets under management. However, there are considerably more funds in the EU (58 125 in the EU compared to 15 415 in the US) 15 . This means EU funds are on average sig nificantly smaller . This has a negative impact on economies of scale, the fees paid by investors and the way in which the internal market operates for investment funds. This proposal also recognizes that there are other factors outside the scope of this proposal which hold back the cross-border distribution of investment funds in the EU. These factors include national tax regimes applicable to investment funds and investors, vertical distribution channels and cultural preferences for domestic investment products. 
Revised version (Article 48 ):
(a) all the assets and liabilities of the merging UCITS are transferred to the receiving UCITS or, where applicable, to the depositary of the receiving UCITS; (b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS and, where applicable, they are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and (c) the merging UCITS cease to exist on the entry into effect of the merger. (a) all the assets and liabilities of the merging UCITS are transferred to the newly constituted receiving UCITS or, where applicable, to the depositary of the receiving UCITS; (b) the unit-holders of the merging UCITS become unit-holders of the newly constituted receiving UCITS and, where applicable, they are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and (a) the net assets of the merging UCITS are transferred to the receiving UCITS or, where applicable, the depositary of the receiving UCITS; (b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS; and (c) the merging UCITS continues to exist until the liabilities have been discharged. 4. Member States shall provide for the establishment of a procedure whereby the management company of the receiving UCITS confirms to the depositary of the receiving UCITS that transfer of assets and, where applicable, liabilities is complete. Where the receiving UCITS has not designated a management company, it shall give that confirmation to the depositary of the receiving UCITS.
Article 49 
Where UCITS comprise more than one investment compartment, each compartment shall be regarded as a separate UCITS for the purposes of this Chapter.
Article 50 
1. The investments of a UCITS shall comprise only one or more of the following: (a) transferable securities and money market instruments admitted to or dealt in on a regulated market as defined in Article 4(1)(14) of Directive 2004/39/EC; (b) transferable securities and money market instruments dealt in on another regulated market in a Member State, which operates regularly and is recognised and open to the public; (c) transferable securities and money market instruments admitted to official listing on a stock exchange in a third country or dealt in on another regulated market in a third country which operates regularly and is recognised and open to the public provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company; (d) recently issued transferable securities, provided that: (i) the terms of issue include an undertaking that an application will be made for admission to official listing on a stock exchange or to another regulated market which operates regularly and is recognised and open to the public, provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company; and (ii) the admission referred to in point (i) is secured within a year of issue; (d) recently issued transferable securities, provided that: (i) the terms of issue include an undertaking that an application will be made for admission to official listing on a stock exchange or to another regulated market which operates regularly and is recognised and open to the public, provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company; and (ii) the admission referred to in point (i) is secured within a year of issue; (e) units of UCITS authorised according to this Directive or other collective investment undertakings within the meaning of Article 1(2)(a) and (b), whether or not established in a Member State, provided that: (i) such other collective investment undertakings are authorised under laws which provide that they are subject to supervision considered by the competent authorities of the UCITS home Member State to be equivalent to that laid down in Community law, and that cooperation between authorities is sufficiently ensured; (ii) the level of protection for unit-holders in the other collective investment undertakings is equivalent to that provided for unit-holders in a UCITS, and in particular that the rules on asset segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments are equivalent to the requirements of this Directive; (iii) the business of the other collective investment undertakings is reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period; and (iv) no more than 10 % of the assets of the UCITS or of the other collective investment undertakings, whose acquisition is contemplated, can, according to their fund rules or instruments of incorporation, be invested in aggregate in units of other UCITS or other collective investment undertakings; (e) units of UCITS authorised according to this Directive or other collective investment undertakings within the meaning of Article 1(2)(a) and (b), whether or not established in a Member State, provided that: (i) such other collective investment undertakings are authorised under laws which provide that they are subject to supervision considered by the competent authorities of the UCITS home Member State to be equivalent to that laid down in Community law, and that cooperation between authorities is sufficiently ensured; (ii) the level of protection for unit-holders in the other collective investment undertakings is equivalent to that provided for unit-holders in a UCITS, and in particular that the rules on asset segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments are equivalent to the requirements of this Directive; (iii) the business of the other collective investment undertakings is reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period; and (iv) no more than 10 % of the assets of the UCITS or of the other collective investment undertakings, whose acquisition is contemplated, can, according to their fund rules or instruments of incorporation, be invested in aggregate in units of other UCITS or other collective investment undertakings; (f) deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more than 12 months, provided that the credit institution has its registered office in a Member State or, if the credit institution has its registered office in a third country, provided that it is subject to prudential rules considered by the competent authorities of the UCITS home Member State as equivalent to those laid down in Community law; (g) financial derivative instruments, including equivalent cash-settled instruments, dealt in on a regulated market referred to in points (a), (b) and (c) or financial derivative instruments dealt in over-the-counter (OTC) derivatives, provided that: (i) the underlying of the derivative consists of instruments covered by this paragraph, financial indices, interest rates, foreign exchange rates or currencies, in which the UCITS may invest according to its investment objectives as stated in its fund rules or instruments of incorporation; (ii) the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the competent authorities of the UCITS home Member State; and (iii) the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetting transaction at any time at their fair value at the UCITS’ initiative; or (g) financial derivative instruments, including equivalent cash-settled instruments, dealt in on a regulated market referred to in points (a), (b) and (c) or financial derivative instruments dealt in over-the-counter (OTC) derivatives, provided that: (i) the underlying of the derivative consists of instruments covered by this paragraph, financial indices, interest rates, foreign exchange rates or currencies, in which the UCITS may invest according to its investment objectives as stated in its fund rules or instruments of incorporation; (ii) the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the competent authorities of the UCITS home Member State; and (iii) the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetting transaction at any time at their fair value at the UCITS’ initiative; or (h) money market instruments other than those dealt in on a regulated market, which fall under Article 2(1)(o), if the issue or issuer of such instruments is itself regulated for the purpose of protecting investors and savings, provided that they are: (i) issued or guaranteed by a central, regional or local authority or central bank of a Member State, the European Central Bank, the Community or the European Investment Bank, a third country or, in the case of a Federal State, by one of the members making up the federation, or by a public international body to which one or more Member States belong; (ii) issued by an undertaking any securities of which are dealt in on regulated markets referred to in points (a), (b) or (c); (iii) issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by Community law, or by an establishment which is subject to and complies with prudential rules considered by the competent authorities to be at least as stringent as those laid down by Community law; or (iv) issued by other bodies belonging to the categories approved by the competent authorities of the UCITS home Member State provided that investments in such instruments are subject to investor protection equivalent to that laid down in points (i), (ii) or (iii) and provided that the issuer is a company whose capital and reserves amount to at least EUR 10 000 000 and which presents and publishes its annual accounts in accordance with Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies ( 15 ), is an entity which, within a group of companies which includes one or several listed companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line. (h) money market instruments other than those dealt in on a regulated market, which fall under Article 2(1)(o), if the issue or issuer of such instruments is itself regulated for the purpose of protecting investors and savings, provided that they are: (i) issued or guaranteed by a central, regional or local authority or central bank of a Member State, the European Central Bank, the Community or the European Investment Bank, a third country or, in the case of a Federal State, by one of the members making up the federation, or by a public international body to which one or more Member States belong; (ii) issued by an undertaking any securities of which are dealt in on regulated markets referred to in points (a), (b) or (c); (iii) issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by Community law, or by an establishment which is subject to and complies with prudential rules considered by the competent authorities to be at least as stringent as those laid down by Community law; or (iv) issued by other bodies belonging to the categories approved by the competent authorities of the UCITS home Member State provided that investments in such instruments are subject to investor protection equivalent to that laid down in points (i), (ii) or (iii) and provided that the issuer is a company whose capital and reserves amount to at least EUR 10 000 000 and which presents and publishes its annual accounts in accordance with Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies ( 15 ), is an entity which, within a group of companies which includes one or several listed companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line. 2. A UCITS shall not, however: (a) invest more than 10 % of its assets in transferable securities or money market instruments other than those referred to in paragraph 1; or (b) acquire either precious metals or certificates representing them. UCITS may hold ancillary liquid assets. 3. An investment company may acquire movable or immovable property which is essential for the direct pursuit of its business. 4. In order to ensure consistent harmonisation of this Article ESMA may develop draft regulatory technical standards to specify the provisions concerning the categories of assets in which UCITS can invest in accordance with this Article and with delegated acts adopted by the Commission which relate to such provisions. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Commission has today adopted a package of measures to deepen the Capital Markets Union (‘CMU’) together with the Communication "Completing Capital Markets Union by 2019 – time to accelerate delivery". The package includes this proposal and a proposal f or a regulation on facilitating the cross-border distribution of collective investment funds, which also amends Regulations (No) 345/2013 1 and 346/2013 2 , as well as a proposal for an enabling EU framework on covered bonds, a proposal for an enabling frame work on European crowdfunding service providers (ECSP)for businesses , a proposal on the law applicable to the third-party effects of assignments of claims, and a Communication on the applicable law to the proprietary effects of transactions in securities. This proposal amends certain provisions in Directive 2009/65/EC 3 and Directive 2011/61/EU 4 with the purpose of reducing regulatory barriers to the cross-border distribution of investment funds in the EU. These new measures are expected to reduce the cost for fund managers of going cross-border and should support more cross-border marketing of investment funds. Increased competition in the EU will help to give investors more choice and better value. This proposal was scheduled in the Commission Work Program me 2018 5 and should be seen in the broader context of the CMU action plan 6 and the CMU Mid-Term Review 7 , to establish a genuine internal capital market by addressing fragmentation in the capital markets, removing regulatory barriers to the financing of the economy and increasing the supply of capital to businesses. Regulatory barriers, namely Member States’ marketing requirements, regulatory fees and administrative and notification requirements represent a significant disincentive to the cross-border distri bution of funds. These barriers were identified in response to the Green Paper on Capital Markets Union 8 , the Call for Evidence on the EU regulatory framework for financial services 9 and the public consultation on barriers to the cross-border distribution of investment funds 10 . Investment funds are investment products created with the sole purpose of pooling investors’ capital and investing that capital collectively through a portfolio of financial instruments such as stocks, bonds and other securities. In the EU, investment funds can be categorised as undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) managed by alternative investment fund managers. UCITS are covered by Directive 2009/65/EC and AIFs are covered by Directive 2011/61/EU. Directive 2011/61/EU is complemented by four fund frameworks: · Regulation (No) 345/2013 on European venture capital funds, · Regulation (No) 346/2013 on European social entrepreneurship funds, · Regulation 2015/460 11 on European long-term investment funds and · Regulation 2017/1131 12 on money market funds. The shared purpose of these rules is notably to make cross-border distribution easier while ensuring a high level of investor protection. Rules for EU investment fun ds allow fund managers to distribute and, with some exceptions, also to manage their funds across the EU . While EU investment funds have seen rapid growth, with a total of EUR 14 310 billion in assets under management in June 2017 13 , the EU investment fund market is still predominantly organised as a national market : 70 % of all assets under management are held by investment funds registered for sale only in their domestic market 14 . Only 37 % of UCITS and about 3 % of AIFs are registered for sale in more than three Member States. Compared to the United States, the EU market is smaller in terms of assets under management. However, there are considerably more funds in the EU (58 125 in the EU compared to 15 415 in the US) 15 . This means EU funds are on average sig nificantly smaller . This has a negative impact on economies of scale, the fees paid by investors and the way in which the internal market operates for investment funds. This proposal also recognizes that there are other factors outside the scope of this proposal which hold back the cross-border distribution of investment funds in the EU. These factors include national tax regimes applicable to investment funds and investors, vertical distribution channels and cultural preferences for domestic investment products. 
Revised version (Article 50 ):
1. The investments of a UCITS shall comprise only one or more of the following: transferable securities and money market instruments admitted to or dealt in on a regulated market as defined in Article 4(1)(14) of Directive 2004/39/EC; (b) transferable securities and money market instruments dealt in on another regulated market in a Member State, which operates regularly and is recognised and open to the public; (c) transferable securities and money market instruments admitted to official listing on a stock exchange in a third country or dealt in on another regulated market in a third country which operates regularly and is recognised and open to the public provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company; recently issued transferable securities, provided that: (i) the terms of issue include an undertaking that an application will be made for admission to official listing on a stock exchange or to another regulated market which operates regularly and is recognised and open to the public, provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company; and (ii) the admission referred to in point (i) is secured within a year of issue; (i) such other collective investment undertakings are authorised under laws which provide that they are subject to supervision considered by the competent authorities of the UCITS home Member State to be equivalent to that laid down in Community law, and that cooperation between authorities is sufficiently ensured; (ii) the level of protection for unit-holders in the other collective investment undertakings is equivalent to that provided for unit-holders in a UCITS, and in particular that the rules on asset segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments are equivalent to the requirements of this Directive; (iii) the business of the other collective investment undertakings is reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period; and (iv) no more than 10 % of the assets of the UCITS or of the other collective investment undertakings, whose acquisition is contemplated, can, according to their fund rules or instruments of incorporation, be invested in aggregate in units of other UCITS or other collective investment undertakings; (f) deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more than 12 months, provided that the credit institution has its registered office in a Member State or, if the credit institution has its registered office in a third country, provided that it is subject to prudential rules considered by the competent authorities of the UCITS home Member State as equivalent to those laid down in Community law; (i) the underlying of the derivative consists of instruments covered by this paragraph, financial indices, interest rates, foreign exchange rates or currencies, in which the UCITS may invest according to its investment objectives as stated in its fund rules or instruments of incorporation; (ii) the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the competent authorities of the UCITS home Member State; and (iii) the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetting transaction at any time at their fair value at the UCITS’ initiative; or money market instruments other than those dealt in on a regulated market, which fall under Article 2(1)(o), if the issue or issuer of such instruments is itself regulated for the purpose of protecting investors and savings, provided that they are: (i) issued or guaranteed by a central, regional or local authority or central bank of a Member State, the European Central Bank, the Community or the European Investment Bank, a third country or, in the case of a Federal State, by one of the members making up the federation, or by a public international body to which one or more Member States belong; (iii) issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by Community law, or by an establishment which is subject to and complies with prudential rules considered by the competent authorities to be at least as stringent as those laid down by Community law; or 2. A UCITS shall not, however: (a) invest more than 10 % of its assets in transferable securities or money market instruments other than those referred to in paragraph 1; or (b) acquire either precious metals or certificates representing them. UCITS may hold ancillary liquid assets. 3. An investment company may acquire movable or immovable property which is essential for the direct pursuit of its business. 4. In order to ensure consistent harmonisation of this Article ESMA may develop draft regulatory technical standards to specify the provisions concerning the categories of assets in which UCITS can invest in accordance with this Article and with delegated acts adopted by the Commission which relate to such provisions. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.