Article 50a 
In order to ensure cross-sectoral consistency and to remove misalignment between the interest of firms that repackage loans into tradable securities and other financial instruments (originators) and UCITS that invest in those securities or other financial instruments, the Commission shall adopt, by means of delegated acts in accordance with Article 112a and subject to conditions of Articles 112b and 112c, measures laying down the requirements in the following areas: (a) the requirements that need to be met by the originator in order for a UCITS to be allowed to invest in securities or other financial instruments of this type issued after 1 January 2011, including requirements that ensure that the originator retains a net economic interest of not less than 5 %; (b) qualitative requirements that must be met by UCITS which invest in those securities or other financial instruments.
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 50a ):
In order to ensure cross-sectoral consistency and to remove misalignment between the interest of firms that repackage loans into tradable securities and other financial instruments (originators) and UCITS that invest in those securities or other financial instruments, the Commission shall adopt, by means of delegated acts in accordance with Article 112a , measures laying down the requirements in the following areas: (a) the requirements that need to be met by the originator in order for a UCITS to be allowed to invest in securities or other financial instruments of this type issued after 1 January 2011, including requirements that ensure that the originator retains a net economic interest of not less than 5 %; (b) qualitative requirements that must be met by UCITS which invest in those securities or other financial instruments.
Article 51 
1. A management or investment company shall employ a risk-management process which enables it to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the portfolio. It shall employ a process for accurate and independent assessment of the value of OTC derivatives. It shall communicate to the competent authorities of its home Member State regularly in regard to the types of derivative instruments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments regarding each managed UCITS. Competent authorities shall ensure that all information received under the third paragraph aggregated in respect of all the management or investment companies they supervise is accessible to ESMA in accordance with Article 35 of the Regulation (EU) No 1095/2010, and the European Systemic Risk Board (the ‘ESRB’) established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board ( 16 ) in accordance with Article 15 of that Regulation for the purpose of monitoring systemic risks at Union level. 2. Member States may authorise UCITS to employ techniques and instruments relating to transferable securities and money market instruments under the conditions and within the limits which they lay down provided that such techniques and instruments are used for the purpose of efficient portfolio management. When those operations concern the use of derivative instruments, the conditions and limits shall conform to the provisions laid down in this Directive. Under no circumstances shall those operations cause the UCITS to diverge from its investment objectives as laid down in the UCITS’ fund rules, instruments of incorporation or prospectus. 3. A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net value of its portfolio. The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, future market movements and the time available to liquidate the positions. This shall also apply to the third and fourth subparagraphs. A UCITS may invest, as a part of its investment policy and within the limit laid down in Article 52(5), in financial derivative instruments provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in Article 52. Member States may provide that, when a UCITS invests in index-based financial derivative instruments, those investments are not required to be combined for the purposes of the limits laid down in Article 52. When transferable securities or money market instruments embed a derivative, the derivative shall be taken into account when complying with the requirements of this Article. 4. Without prejudice to Article 116, the Commission shall 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 following: (a) criteria for assessing the adequacy of the risk management process employed by the management company in accordance with the first subparagraph of paragraph 1; (b) detailed rules regarding the accurate and independent assessment of the value of OTC derivatives; and (c) detailed rules regarding the content of and procedure to be followed for communicating the information referred to in the third subparagraph of paragraph 1 to the competent authorities of the management company's home Member State. 5. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the criteria and rules referred to in paragraph 4. 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 Regulation (EC) No 1060/2009 on credit rating agencies[1] (CRA Regulation) entered into full application on 7 December 2010. It requires credit rating agencies (CRAs) to comply with rigorous rules of conduct in order to mitigate possible conflicts of interest, ensure high quality and sufficient transparency of ratings and the rating process. Existing CRAs had to apply for registration and to comply with the requirements of the Regulation by 7 September 2010. On 11 May 2011 an amendment to the CRA Regulation[2] (Regulation (EU) No 513/2011) was adopted, entrusting the European Securities and Markets Authority (ESMA) with exclusive supervisory powers over CRAs registered in the EU in order to centralise and simplify their registration and supervision at European level. However, a number of issues related to credit rating activities and the use of ratings have not been sufficiently addressed in the existing CRA Regulation. One of these issues is the risk of overreliance on credit ratings by financial market participants, including undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs)[3]. The European Commission pointed to these open issues in its Communication of 2 June 2010 ("Regulating financial services for sustainable growth")[4] and in a consultation paper of the Commission services of 5 November 2011[5] announcing the need for a targeted review of the CRA Regulation which is delivered with this proposal. On 8 June 2011, the European Parliament issued a non-legislative report on CRAs[6]. The report supports, inter alia, the need to enhance the regulatory framework for credit rating agencies and to take measures to reduce the risk of over-reliance of ratings. At an informal ECOFIN meeting of 30 October 2010 the Council of the European Union acknowledged that further efforts should be made to address a number of issues related to credit rating activities, including the risk of over-reliance on credit ratings and the risk of conflict of interests stemming from the remuneration model of rating agencies. The European Council of 23 October 2011 concluded that progress is needed on reducing overreliance on credit ratings. At the international level, the Financial Stability Board (FSB) issued in October 2010 principles to reduce authorities’ and financial institutions’ reliance on external ratings[7]. The principles call for removing or replacing references to such ratings in legislation where suitable alternative standards of creditworthiness are available and for requiring investors to make their own credit assessments. Those principles were endorsed by the G 20 Seoul Summit in November 2010.
Revised version (Article 51 ):
1. A management or investment company shall employ a risk-management process which enables it to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the portfolio of a UCITS. In particular, it shall not solely or mechanistically rely on credit ratings issued by credit rating agencies as defined in Article 3(1)(b) of Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies ( 16 ), for assessing the creditworthiness of the UCITS’ assets. It shall employ a process for accurate and independent assessment of the value of OTC derivatives. It shall communicate to the competent authorities of its home Member State regularly in regard to the types of derivative instruments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments regarding each managed UCITS. Competent authorities shall ensure that all information received under the third paragraph aggregated in respect of all the management or investment companies they supervise is accessible to ESMA in accordance with Article 35 of the Regulation (EU) No 1095/2010, and the European Systemic Risk Board (the ‘ESRB’) established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board ( 17 ) in accordance with Article 15 of that Regulation for the purpose of monitoring systemic risks at Union level. 2. Member States may authorise UCITS to employ techniques and instruments relating to transferable securities and money market instruments under the conditions and within the limits which they lay down provided that such techniques and instruments are used for the purpose of efficient portfolio management. When those operations concern the use of derivative instruments, the conditions and limits shall conform to the provisions laid down in this Directive. Under no circumstances shall those operations cause the UCITS to diverge from its investment objectives as laid down in the UCITS’ fund rules, instruments of incorporation or prospectus. 3. A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net value of its portfolio. The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, future market movements and the time available to liquidate the positions. This shall also apply to the third and fourth subparagraphs. A UCITS may invest, as a part of its investment policy and within the limit laid down in Article 52(5), in financial derivative instruments provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in Article 52. Member States may provide that, when a UCITS invests in index-based financial derivative instruments, those investments are not required to be combined for the purposes of the limits laid down in Article 52. When transferable securities or money market instruments embed a derivative, the derivative shall be taken into account when complying with the requirements of this Article. 3a. Taking into account the nature, scale and complexity of the UCITS’ activities, the competent authorities shall’ monitor the adequacy of the credit assessment processes of the management or investment companies, assess the use of references to credit ratings, as referred to in the first subparagraph of paragraph 1, in the UCITS’ investment policies and, where appropriate, encourage mitigation of the impact of such references, with a view to reducing sole and mechanistic reliance on such credit ratings. 4. Without prejudice to Article 116, the Commission shall 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 following: (a) criteria for assessing the adequacy of the risk-management process employed by the management or investment company in accordance with the first subparagraph of paragraph 1; (b) detailed rules regarding the accurate and independent assessment of the value of OTC derivatives; and (c) detailed rules regarding the content of and procedure to be followed for communicating the information referred to in the third subparagraph of paragraph 1 to the competent authorities of the management company's home Member State. The criteria referred to in point (a) of the first subparagraph shall ensure that the management or investment company is prevented from relying solely or mechanistically on credit ratings, as referred to in the first subparagraph of paragraph 1, for assessing the creditworthiness of the UCITS’ assets. 5. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the criteria and rules referred to in paragraph 4. 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 52 
1. A UCITS shall invest no more than: (a) 5 % of its assets in transferable securities or money market instruments issued by the same body; or (b) 20 % of its assets in deposits made with the same body. The risk exposure to a counterparty of the UCITS in an OTC derivative transaction shall not exceed either: (a) 10 % of its assets when the counterparty is a credit institution referred to in Article 50(1)(f); or (b) 5 % of its assets, in other cases. 2. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 10 %. If they do so, however, the total value of the transferable securities and the money market instruments held by the UCITS in the issuing bodies in each of which it invests more than 5 % of its assets shall not exceed 40 % of the value of its assets. That limitation shall not apply to deposits or OTC derivative transactions made with financial institutions subject to prudential supervision. Notwithstanding the individual limits laid down in paragraph 1, a UCITS shall not combine, where this would lead to investment of more than 20 % of its assets in a single body, any of the following: (a) investments in transferable securities or money market instruments issued by that body; (b) deposits made with that body; or (c) exposures arising from OTC derivative transactions undertaken with that body. 3. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 35 % if the transferable securities or money market instruments are issued or guaranteed by a Member State, by its local authorities, by a third country or by a public international body to which one or more Member States belong. 4. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 25 % where bonds are issued by a credit institution which has its registered office in a Member State and is subject by law to special public supervision designed to protect bond-holders. In particular, sums deriving from the issue of those bonds shall be invested in accordance with the law in assets which, during the whole period of validity of the bonds, are capable of covering claims attaching to the bonds and which, in the event of failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest. Where a UCITS invests more than 5 % of its assets in the bonds referred to in the first subparagraph which are issued by a single issuer, the total value of these investments shall not exceed 80 % of the value of the assets of the UCITS. Member States shall send to ESMA and to the Commission a list of the categories of bonds referred to in the first subparagraph together with the categories of issuers authorised, in accordance with the laws and supervisory arrangements mentioned in that subparagraph, to issue bonds complying with the criteria set out in this Article. A notice specifying the status of the guarantees offered shall be attached to those lists. The Commission and ESMA shall immediately forward that information to the other Member States together with any comments they consider appropriate and shall make the information available to the public on their website. Such communications may be the subject of exchanges of views within the European Securities Committee referred to in Article 112(1). 5. The transferable securities and money market instruments referred to in paragraphs 3 and 4 shall not be taken into account for the purpose of applying the limit of 40 % referred to in paragraph 2. The limits provided for in paragraphs 1 to 4 shall not be combined, and thus investments in transferable securities or money market instruments issued by the same body or in deposits or derivative instruments made with this body carried out in accordance with paragraphs 1 to 4 shall not exceed in total 35 % of the assets of the UCITS. Companies which are included in the same group for the purposes of consolidated accounts, as defined in Directive 83/349/EEC or in accordance with recognised international accounting rules, shall be regarded as a single body for the purpose of calculating the limits contained in this Article. Member States may allow cumulative investment in transferable securities and money market instruments within the same group up to a limit of 20 %.
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 52 ):
1. A UCITS shall invest no more than: (a) 5 % of its assets in transferable securities or money market instruments issued by the same body; or 5 % of its assets in transferable securities or money market instruments issued by the same body; or (b) 20 % of its assets in deposits made with the same body. 20 % of its assets in deposits made with the same body. The risk exposure to a counterparty of the UCITS in an OTC derivative transaction shall not exceed either: 10 % of its assets when the counterparty is a credit institution referred to in Article 50(1)(f); or (b) 5 % of its assets, in other cases. 5 % of its assets, in other cases. 2. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 10 %. If they do so, however, the total value of the transferable securities and the money market instruments held by the UCITS in the issuing bodies in each of which it invests more than 5 % of its assets shall not exceed 40 % of the value of its assets. That limitation shall not apply to deposits or OTC derivative transactions made with financial institutions subject to prudential supervision. Notwithstanding the individual limits laid down in paragraph 1, a UCITS shall not combine, where this would lead to investment of more than 20 % of its assets in a single body, any of the following: (a) investments in transferable securities or money market instruments issued by that body; (b) deposits made with that body; or (c) exposures arising from OTC derivative transactions undertaken with that body. 3. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 35 % if the transferable securities or money market instruments are issued or guaranteed by a Member State, by its local authorities, by a third country or by a public international body to which one or more Member States belong. 4. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 25 % where bonds were issued before 8 July 2022 and met the requirements set out in this paragraph as applicable on the date of their issue, or where bonds fall under the definition of covered bonds in point (1) of Article 3 of Directive (EU) 2019/2162 of the European Parliament and of the Council ( 18 ). Where a UCITS invests more than 5 % of its assets in the bonds referred to in the first subparagraph which are issued by a single issuer, the total value of these investments shall not exceed 80 % of the value of the assets of the UCITS. 5. The transferable securities and money market instruments referred to in paragraphs 3 and 4 shall not be taken into account for the purpose of applying the limit of 40 % referred to in paragraph 2. The limits provided for in paragraphs 1 to 4 shall not be combined, and thus investments in transferable securities or money market instruments issued by the same body or in deposits or derivative instruments made with this body carried out in accordance with paragraphs 1 to 4 shall not exceed in total 35 % of the assets of the UCITS. Companies which are included in the same group for the purposes of consolidated accounts, as defined in Directive 83/349/EEC or in accordance with recognised international accounting rules, shall be regarded as a single body for the purpose of calculating the limits contained in this Article. Member States may allow cumulative investment in transferable securities and money market instruments within the same group up to a limit of 20 %.
Article 53 
1. Without prejudice to the limits laid down in Article 56, Member States may raise the limits laid down in Article 52 to a maximum of 20 % for investment in shares or debt securities issued by the same body when, according to the fund rules or instruments of incorporation, the aim of the UCITS’ investment policy is to replicate the composition of a certain stock or debt securities index which is recognised by the competent authorities, on the following basis: (a) its composition is sufficiently diversified; (b) the index represents an adequate benchmark for the market to which it refers; and (c) it is published in an appropriate manner. 2. Member States may raise the limit laid down in paragraph 1 to a maximum of 35 % where that proves to be justified by exceptional market conditions in particular in regulated markets where certain transferable securities or money market instruments are highly dominant. The investment up to that limit shall be permitted only for a single issuer.
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 53 ):
2. Member States may raise the limit laid down in paragraph 1 to a maximum of 35 % where that proves to be justified by exceptional market conditions in particular in regulated markets where certain transferable securities or money market instruments are highly dominant. The investment up to that limit shall be permitted only for a single issuer.
Article 54 
1. By way of derogation from Article 52, Member States may authorise UCITS to invest in accordance with the principle of risk-spreading up to 100 % of their assets in different transferable securities and money market instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong. The competent authorities of the UCITS home Member State shall grant such a derogation only if they consider that unit-holders in the UCITS have protection equivalent to that of unit-holders in UCITS complying with the limits laid down in Article 52. Such a UCITS shall hold securities from at least six different issues, but securities from any single issue shall not account for more than 30 % of its total assets. 2. The UCITS referred to in paragraph 1 shall make express mention in the fund rules or in the instruments of incorporation of the investment company of the Member States, local authorities, or public international bodies issuing or guaranteeing securities in which they intend to invest more than 35 % of their assets. Such fund rules or instruments of incorporation shall be approved by the competent authorities. 3. Each UCITS referred to in paragraph 1 shall include a prominent statement in its prospectus and marketing communications drawing attention to such authorisation and indicating the Member States, local authorities, or public international bodies in the securities of which it intends to invest or has invested more than 35 % of its assets.
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 54 ):
1. By way of derogation from Article 52, Member States may authorise UCITS to invest in accordance with the principle of risk-spreading up to 100 % of their assets in different transferable securities and money market instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong. The competent authorities of the UCITS home Member State shall grant such a derogation only if they consider that unit-holders in the UCITS have protection equivalent to that of unit-holders in UCITS complying with the limits laid down in Article 52. Such a UCITS shall hold securities from at least six different issues, but securities from any single issue shall not account for more than 30 % of its total assets. By way of derogation from Article 52, Member States may authorise UCITS to invest in accordance with the principle of risk-spreading up to 100 % of their assets in different transferable securities and money market instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong. The competent authorities of the UCITS home Member State shall grant such a derogation only if they consider that unit-holders in the UCITS have protection equivalent to that of unit-holders in UCITS complying with the limits laid down in Article 52. Such a UCITS shall hold securities from at least six different issues, but securities from any single issue shall not account for more than 30 % of its total assets. 2. The UCITS referred to in paragraph 1 shall make express mention in the fund rules or in the instruments of incorporation of the investment company of the Member States, local authorities, or public international bodies issuing or guaranteeing securities in which they intend to invest more than 35 % of their assets. Such fund rules or instruments of incorporation shall be approved by the competent authorities. The UCITS referred to in paragraph 1 shall make express mention in the fund rules or in the instruments of incorporation of the investment company of the Member States, local authorities, or public international bodies issuing or guaranteeing securities in which they intend to invest more than 35 % of their assets. Such fund rules or instruments of incorporation shall be approved by the competent authorities. 3. Each UCITS referred to in paragraph 1 shall include a prominent statement in its prospectus and marketing communications drawing attention to such authorisation and indicating the Member States, local authorities, or public international bodies in the securities of which it intends to invest or has invested more than 35 % of its assets.
Article 55 
1. A UCITS may acquire the units of UCITS or other collective investment undertakings referred to in Article 50(1)(e), provided that no more than 10 % of its assets are invested in units of a single UCITS or other collective investment undertaking. Member States may raise that limit to a maximum of 20 %. 2. Investments made in units of collective investment undertakings other than UCITS shall not exceed, in aggregate, 30 % of the assets of the UCITS. Member States may, where a UCITS has acquired units of another UCITS or collective investment undertakings, provide that the assets of the respective UCITS or other collective investment undertakings are not required to be combined for the purposes of the limits laid down in Article 52. 3. Where a UCITS invests in the units of other UCITS or collective investment undertakings that are managed, directly or by delegation, 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 management company or other company shall not charge subscription or redemption fees on account of the UCITS’ investment in the units of such other UCITS or collective investment undertakings. A UCITS that invests a substantial proportion of its assets in other UCITS or collective investment undertakings shall disclose in its prospectus the maximum level of the management fees that may be charged both to the UCITS itself and to the other UCITS or collective investment undertakings in which it intends to invest. It shall indicate in its annual report the maximum proportion of management fees charged both to the UCITS itself and to the other UCITS or collective investment undertaking in which it invests.
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 55 ):
1. A UCITS may acquire the units of UCITS or other collective investment undertakings referred to in Article 50(1)(e), provided that no more than 10 % of its assets are invested in units of a single UCITS or other collective investment undertaking. Member States may raise that limit to a maximum of 20 %. 2. Investments made in units of collective investment undertakings other than UCITS shall not exceed, in aggregate, 30 % of the assets of the UCITS. Member States may, where a UCITS has acquired units of another UCITS or collective investment undertakings, provide that the assets of the respective UCITS or other collective investment undertakings are not required to be combined for the purposes of the limits laid down in Article 52. Investments made in units of collective investment undertakings other than UCITS shall not exceed, in aggregate, 30 % of the assets of the UCITS. Member States may, where a UCITS has acquired units of another UCITS or collective investment undertakings, provide that the assets of the respective UCITS or other collective investment undertakings are not required to be combined for the purposes of the limits laid down in Article 52. 3. Where a UCITS invests in the units of other UCITS or collective investment undertakings that are managed, directly or by delegation, 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 management company or other company shall not charge subscription or redemption fees on account of the UCITS’ investment in the units of such other UCITS or collective investment undertakings. A UCITS that invests a substantial proportion of its assets in other UCITS or collective investment undertakings shall disclose in its prospectus the maximum level of the management fees that may be charged both to the UCITS itself and to the other UCITS or collective investment undertakings in which it intends to invest. It shall indicate in its annual report the maximum proportion of management fees charged both to the UCITS itself and to the other UCITS or collective investment undertaking in which it invests. Where a UCITS invests in the units of other UCITS or collective investment undertakings that are managed, directly or by delegation, 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 management company or other company shall not charge subscription or redemption fees on account of the UCITS’ investment in the units of such other UCITS or collective investment undertakings. A UCITS that invests a substantial proportion of its assets in other UCITS or collective investment undertakings shall disclose in its prospectus the maximum level of the management fees that may be charged both to the UCITS itself and to the other UCITS or collective investment undertakings in which it intends to invest. It shall indicate in its annual report the maximum proportion of management fees charged both to the UCITS itself and to the other UCITS or collective investment undertaking in which it invests.
Article 56 
1. An investment company or a management company acting in connection with all of the common funds which it manages and which fall within the scope of this Directive shall not acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body. Pending further coordination, Member States shall take account of existing rules defining the principle stated in the first subparagraph in the law of other Member States. 2. A UCITS may acquire no more than: (a) 10 % of the non-voting shares of a single issuing body; (b) 10 % of the debt securities of a single issuing body; (c) 25 % of the units of a single UCITS or other collective investment undertaking within the meaning of Article 1(2)(a) and (b); or (d) 10 % of the money market instruments of a single issuing body. The limits laid down in points (b), (c) and (d) may be disregarded at the time of acquisition if at that time the gross amount of the debt securities or of the money market instruments, or the net amount of the securities in issue, cannot be calculated. 3. A Member State may waive the application of paragraphs 1 and 2 as regards: (a) transferable securities and money market instruments issued or guaranteed by a Member State or its local authorities; (b) transferable securities and money market instruments issued or guaranteed by a third country; (c) transferable securities and money market instruments issued by a public international body to which one or more Member States belong; (d) shares held by a UCITS in the capital of a company incorporated in a third country investing its assets mainly in the securities of issuing bodies having their registered offices in that country, where under the legislation of that country such a holding represents the only way in which the UCITS can invest in the securities of issuing bodies of that country; or (e) shares held by an investment company or investment companies in the capital of subsidiary companies pursuing only the business of management, advice or marketing in the country where the subsidiary is established, in regard to the repurchase of units at unit-holders’ request exclusively on its or their behalf. The derogation referred to in point (d) of the first subparagraph of this paragraph shall apply only if in its investment policy the company from the third country complies with the limits laid down in Articles 52 and 55 and in paragraphs 1 and 2 of this Article. Where the limits set in Articles 52 and 55 are exceeded, Article 57 shall apply mutatis mutandis .
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 56 ):
1. An investment company or a management company acting in connection with all of the common funds which it manages and which fall within the scope of this Directive shall not acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body. Pending further coordination, Member States shall take account of existing rules defining the principle stated in the first subparagraph in the law of other Member States. 2. A UCITS may acquire no more than: (a) 10 % of the non-voting shares of a single issuing body; 10 % of the non-voting shares of a single issuing body; (b) 10 % of the debt securities of a single issuing body; 10 % of the debt securities of a single issuing body; (d) 10 % of the money market instruments of a single issuing body. 10 % of the money market instruments of a single issuing body. 3. A Member State may waive the application of paragraphs 1 and 2 as regards: (a) transferable securities and money market instruments issued or guaranteed by a Member State or its local authorities; (b) transferable securities and money market instruments issued or guaranteed by a third country; (c) transferable securities and money market instruments issued by a public international body to which one or more Member States belong; (d) shares held by a UCITS in the capital of a company incorporated in a third country investing its assets mainly in the securities of issuing bodies having their registered offices in that country, where under the legislation of that country such a holding represents the only way in which the UCITS can invest in the securities of issuing bodies of that country; or (e) shares held by an investment company or investment companies in the capital of subsidiary companies pursuing only the business of management, advice or marketing in the country where the subsidiary is established, in regard to the repurchase of units at unit-holders’ request exclusively on its or their behalf. The derogation referred to in point (d) of the first subparagraph of this paragraph shall apply only if in its investment policy the company from the third country complies with the limits laid down in Articles 52 and 55 and in paragraphs 1 and 2 of this Article. Where the limits set in Articles 52 and 55 are exceeded, Article 57 shall apply mutatis mutandis .
Article 57 
1. UCITS are not required to comply with the limits laid down in this Chapter when exercising subscription rights attaching to transferable securities or money market instruments which form part of their assets. While ensuring observance of the principle of risk spreading, Member States may allow recently authorised UCITS to derogate from Articles 52 to 55 for six months following the date of their authorisation. 2. If the limits referred to in paragraph 1 are exceeded for reasons beyond the control of a UCITS or as a result of the exercise of subscription rights, that UCITS shall adopt as a priority objective for its sales transactions the remedying of that situation, taking due account of the interests of its unit-holders.
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 57 ):
1. UCITS are not required to comply with the limits laid down in this Chapter when exercising subscription rights attaching to transferable securities or money market instruments which form part of their assets. While ensuring observance of the principle of risk spreading, Member States may allow recently authorised UCITS to derogate from Articles 52 to 55 for six months following the date of their authorisation. UCITS are not required to comply with the limits laid down in this Chapter when exercising subscription rights attaching to transferable securities or money market instruments which form part of their assets. While ensuring observance of the principle of risk spreading, Member States may allow recently authorised UCITS to derogate from Articles 52 to 55 for six months following the date of their authorisation. 2. If the limits referred to in paragraph 1 are exceeded for reasons beyond the control of a UCITS or as a result of the exercise of subscription rights, that UCITS shall adopt as a priority objective for its sales transactions the remedying of that situation, taking due account of the interests of its unit-holders.
Article 58 
1. A feeder UCITS is a UCITS, or an investment compartment thereof, which has been approved to invest, by way of derogation from Article 1(2)(a), Articles 50, 52 and 55, and Article 56(2)(c), at least 85 % of its assets in units of another UCITS or investment compartment thereof (the master UCITS). 2. A feeder UCITS may hold up to 15 % of its assets in one or more of the following: (a) ancillary liquid assets in accordance with the second subparagraph of Article 50(2); (b) financial derivative instruments, which may be used only for hedging purposes, in accordance with Article 50(1)(g) and Article 51(2) and (3); (c) movable and immovable property which is essential for the direct pursuit of the business, if the feeder UCITS is an investment company. For the purposes of compliance with Article 51(3), the feeder UCITS shall calculate its global exposure related to financial derivative instruments by combining its own direct exposure under point (b) of the first subparagraph with either: (a) the master UCITS’ actual exposure to financial derivative instruments in proportion to the feeder UCITS’ investment into the master UCITS; or (b) the master UCITS’ potential maximum global exposure to financial derivative instruments provided for in the master UCITS’ fund rules or instruments of incorporation in proportion to the feeder UCITS investment into the master UCITS. 3. A master UCITS is a UCITS, or an investment compartment thereof, which: (a) has, among its unit-holders, at least one feeder UCITS; (b) is not itself a feeder UCITS; and (c) does not hold units of a feeder UCITS. 4. The following derogations for a master UCITS shall apply: (a) if a master UCITS has at least two feeder UCITS as unit-holders, Article 1(2)(a) and Article 3(b) shall not apply, giving the master UCITS the choice whether or not to raise capital from other investors; (b) If a master UCITS does not raise capital from the public in a Member State other than that in which it is established, but only has one or more feeder UCITS in that Member State, Chapter XI and the second subparagraph of Article 108(1) shall not apply.
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 58 ):
2. A feeder UCITS may hold up to 15 % of its assets in one or more of the following: (a) ancillary liquid assets in accordance with the second subparagraph of Article 50(2); (c) movable and immovable property which is essential for the direct pursuit of the business, if the feeder UCITS is an investment company. For the purposes of compliance with Article 51(3), the feeder UCITS shall calculate its global exposure related to financial derivative instruments by combining its own direct exposure under point (b) of the first subparagraph with either: (a) the master UCITS’ actual exposure to financial derivative instruments in proportion to the feeder UCITS’ investment into the master UCITS; or (b) the master UCITS’ potential maximum global exposure to financial derivative instruments provided for in the master UCITS’ fund rules or instruments of incorporation in proportion to the feeder UCITS investment into the master UCITS. 3. A master UCITS is a UCITS, or an investment compartment thereof, which: (a) has, among its unit-holders, at least one feeder UCITS; (b) is not itself a feeder UCITS; and (c) does not hold units of a feeder UCITS. 4. The following derogations for a master UCITS shall apply: (b) If a master UCITS does not raise capital from the public in a Member State other than that in which it is established, but only has one or more feeder UCITS in that Member State, Chapter XI and the second subparagraph of Article 108(1) shall not apply.
Article 59 
1. Member States shall ensure that the investment of a feeder UCITS into a given master UCITS which exceeds the limit applicable under Article 55(1) for investments into other UCITS be subject to prior approval by the competent authorities of the feeder UCITS home Member State. 2. The feeder UCITS shall be informed within 15 working days following the submission of a complete file, whether or not the competent authorities have approved the feeder UCITS’ investment into the master UCITS. 3. The competent authorities of the feeder UCITS home Member State shall grant approval if the feeder UCITS, its depositary and its auditor, as well as the master UCITS, comply with all the requirements set out in this Chapter. For such purposes, the feeder UCITS shall provide to the competent authorities of its home Member State the following documents: (a) the fund rules or instruments of incorporation of the feeder UCITS and the master UCITS; (b) the prospectus and the key investor information referred to in Article 78 of the feeder and the master UCITS; (c) the agreement between the feeder and the master UCITS or the internal conduct of business rules referred to in Article 60(1); (d) where applicable, the information to be provided to unit-holders referred to in Article 64(1); (e) if the master UCITS and the feeder UCITS have different depositaries, the information-sharing agreement referred to in Article 61(1) between their respective depositaries; and (f) if the master UCITS and the feeder UCITS have different auditors, the information-sharing agreement referred to in Article 62(1) between their respective auditors. Where the feeder UCITS is established in a Member State other than the master UCITS home Member State, the feeder UCITS shall also provide an attestation by the competent authorities of the master UCITS home Member State that the master UCITS is a UCITS, or an investment compartment thereof, which fulfils the conditions set out in Article 58(3)(b) and (c). Documents shall be provided by the feeder UCITS in the official language, or one of the official languages, of the feeder UCITS home Member State or in a language approved by its 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.
Article 60 
1. Member States shall require that the master UCITS provide the feeder UCITS with all documents and information necessary for the latter to meet the requirements laid down in this Directive. For this purpose, the feeder UCITS shall enter into an agreement with the master UCITS. The feeder UCITS shall not invest in excess of the limit applicable under Article 55(1) in units of that master UCITS until the agreement referred to in the first subparagraph has become effective. That agreement shall be made available, on request and free of charge, to all unit-holders. In the event that both master and feeder UCITS are managed by the same management company, the agreement may be replaced by internal conduct of business rules ensuring compliance with the requirements set out in this paragraph. 2. The master and the feeder UCITS shall take appropriate measures to coordinate the timing of their net asset value calculation and publication in order to avoid market timing in their units, preventing arbitrage opportunities. 3. Without prejudice to Article 84, if a master UCITS temporarily suspends the repurchase, redemption or subscription of its units, whether at its own initiative or at the request of its competent authorities, each of its feeder UCITS is entitled to suspend the repurchase, redemption or subscription of its units notwithstanding the conditions laid down in Article 84(2) within the same period of time as the master UCITS. 4. If a master UCITS is liquidated, the feeder UCITS shall also be liquidated, unless the competent authorities of its home Member State approve: (a) the investment of at least 85 % of the assets of the feeder UCITS in units of another master UCITS; or (b) the amendment of its fund rules or instruments of incorporation in order to enable the feeder UCITS to convert into a UCITS which is not a feeder UCITS. Without prejudice to specific national provisions regarding compulsory liquidation, the liquidation of a master UCITS shall take place no sooner than three months after the master UCITS has informed all of its unit-holders and the competent authorities of the feeder UCITS home Member State of the binding decision to liquidate. 5. If a master UCITS merges with another UCITS or is divided into two or more UCITS, the feeder UCITS shall be liquidated, unless the competent authorities of the feeder UCITS home Member State grant approval to the feeder UCITS to: (a) continue to be a feeder UCITS of the master UCITS or another UCITS resulting from the merger or division of the master UCITS; (b) invest at least 85 % of its assets in units of another master UCITS not resulting from the merger or the division; or (c) amend its fund rules or its instruments of incorporation in order to convert into a UCITS which is not a feeder UCITS. No merger or division of a master UCITS shall become effective, unless the master UCITS has provided all of its unit-holders and the competent authorities of its feeder UCITS home Member States with the information referred to, or comparable with that referred to, in Article 43 by 60 days before the proposed effective date. Unless the competent authorities of the feeder UCITS home Member State has granted approval pursuant to point (a) of the first subparagraph, the master UCITS shall enable the feeder UCITS to repurchase or redeem all units in the master UCITS before the merger or division of the master UCITS becomes effective. 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 specifying: (a) the content of the agreement or of the internal conduct of business rules referred to in paragraph 1; (b) which measures referred to in paragraph 2 are deemed appropriate; and (c) the procedures for the required approvals pursuant to paragraphs 4 and 5 in the event of a liquidation, merger or division of a master UCITS. 7. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the agreement, measures and procedures referred to in paragraph 6. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with the 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 60 ):
1. Member States shall require that the master UCITS provide the feeder UCITS with all documents and information necessary for the latter to meet the requirements laid down in this Directive. For this purpose, the feeder UCITS shall enter into an agreement with the master UCITS. The feeder UCITS shall not invest in excess of the limit applicable under Article 55(1) in units of that master UCITS until the agreement referred to in the first subparagraph has become effective. That agreement shall be made available, on request and free of charge, to all unit-holders. In the event that both master and feeder UCITS are managed by the same management company, the agreement may be replaced by internal conduct of business rules ensuring compliance with the requirements set out in this paragraph. 2. The master and the feeder UCITS shall take appropriate measures to coordinate the timing of their net asset value calculation and publication in order to avoid market timing in their units, preventing arbitrage opportunities. 3. Without prejudice to Article 84, if a master UCITS temporarily suspends the repurchase, redemption or subscription of its units, whether at its own initiative or at the request of its competent authorities, each of its feeder UCITS is entitled to suspend the repurchase, redemption or subscription of its units notwithstanding the conditions laid down in Article 84(2) within the same period of time as the master UCITS. 4. If a master UCITS is liquidated, the feeder UCITS shall also be liquidated, unless the competent authorities of its home Member State approve: (a) the investment of at least 85 % of the assets of the feeder UCITS in units of another master UCITS; or (b) the amendment of its fund rules or instruments of incorporation in order to enable the feeder UCITS to convert into a UCITS which is not a feeder UCITS. Without prejudice to specific national provisions regarding compulsory liquidation, the liquidation of a master UCITS shall take place no sooner than three months after the master UCITS has informed all of its unit-holders and the competent authorities of the feeder UCITS home Member State of the binding decision to liquidate. 5. If a master UCITS merges with another UCITS or is divided into two or more UCITS, the feeder UCITS shall be liquidated, unless the competent authorities of the feeder UCITS home Member State grant approval to the feeder UCITS to: (a) continue to be a feeder UCITS of the master UCITS or another UCITS resulting from the merger or division of the master UCITS; (b) invest at least 85 % of its assets in units of another master UCITS not resulting from the merger or the division; or (c) amend its fund rules or its instruments of incorporation in order to convert into a UCITS which is not a feeder UCITS. No merger or division of a master UCITS shall become effective, unless the master UCITS has provided all of its unit-holders and the competent authorities of its feeder UCITS home Member States with the information referred to, or comparable with that referred to, in Article 43 by 60 days before the proposed effective date. Unless the competent authorities of the feeder UCITS home Member State has granted approval pursuant to point (a) of the first subparagraph, the master UCITS shall enable the feeder UCITS to repurchase or redeem all units in the master UCITS before the merger or division of the master UCITS becomes effective. 6. The Commission may adopt, by means of delegated acts in accordance with Article 112a , measures specifying: (a) the content of the agreement or of the internal conduct of business rules referred to in paragraph 1; (b) which measures referred to in paragraph 2 are deemed appropriate; and (c) the procedures for the required approvals pursuant to paragraphs 4 and 5 in the event of a liquidation, merger or division of a master UCITS. 7. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the agreement, measures and procedures referred to in paragraph 6. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with the Article 15 of Regulation (EU) No 1095/2010.
Article 61 
1. Member States shall require that, if the master and the feeder UCITS have different depositaries, those depositaries enter into an information-sharing agreement in order to ensure the fulfilment of the duties of both depositaries. The feeder UCITS shall not invest in units of the master UCITS until such agreement has become effective. Where they comply with the requirements laid down in this Chapter, neither the depositary of the master UCITS nor that of the feeder UCITS shall be found to be in breach of any rules that restrict the disclosure of information or relate to data protection where such rules are provided for in a contract or in a law, regulation or administrative provision. Such compliance shall not give rise to any liability on the part of such depositary or any person acting on its behalf. Member States shall require that the feeder UCITS or, when applicable, the management company of the feeder UCITS be in charge of communicating to the depositary of the feeder UCITS any information about the master UCITS which is required for the completion of the duties of the depositary of the feeder UCITS. 2. The depositary of the master UCITS shall immediately inform the competent authorities of the master UCITS home Member State, the feeder UCITS or, where applicable, the management company and the depositary of the feeder UCITS about any irregularities it detects with regard to the master UCITS which are deemed to have a negative impact on the feeder UCITS. 3. 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 further specifying the following: (a) the particulars that need to be included in the agreement referred to in paragraph 1; and (b) the types of irregularities referred to in paragraph 2 which are deemed to have a negative impact on the feeder UCITS. 4. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the agreement, measures and types of irregularities referred to in paragraph 3. 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 61 ):
1. Member States shall require that, if the master and the feeder UCITS have different depositaries, those depositaries enter into an information-sharing agreement in order to ensure the fulfilment of the duties of both depositaries. The feeder UCITS shall not invest in units of the master UCITS until such agreement has become effective. Where they comply with the requirements laid down in this Chapter, neither the depositary of the master UCITS nor that of the feeder UCITS shall be found to be in breach of any rules that restrict the disclosure of information or relate to data protection where such rules are provided for in a contract or in a law, regulation or administrative provision. Such compliance shall not give rise to any liability on the part of such depositary or any person acting on its behalf. Member States shall require that the feeder UCITS or, when applicable, the management company of the feeder UCITS be in charge of communicating to the depositary of the feeder UCITS any information about the master UCITS which is required for the completion of the duties of the depositary of the feeder UCITS. 2. The depositary of the master UCITS shall immediately inform the competent authorities of the master UCITS home Member State, the feeder UCITS or, where applicable, the management company and the depositary of the feeder UCITS about any irregularities it detects with regard to the master UCITS which are deemed to have a negative impact on the feeder UCITS. 3. The Commission may adopt, by means of delegated acts in accordance with Article 112a , measures further specifying the following: (a) the particulars that need to be included in the agreement referred to in paragraph 1; and (b) the types of irregularities referred to in paragraph 2 which are deemed to have a negative impact on the feeder UCITS. 4. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the agreement, measures and types of irregularities referred to in paragraph 3. 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 62 
1. Member States shall require that if the master and the feeder UCITS have different auditors, those auditors enter into an information-sharing agreement in order to ensure the fulfilment of the duties of both auditors, including the arrangements taken to comply with the requirements of paragraph 2. The feeder UCITS shall not invest in units of the master UCITS until such agreement has become effective. 2. In its audit report, the auditor of the feeder UCITS shall take into account the audit report of the master UCITS. If the feeder and the master UCITS have different accounting years, the auditor of the master UCITS shall make an ad hoc report on the closing date of the feeder UCITS. The auditor of the feeder UCITS shall, in particular, report on any irregularities revealed in the audit report of the master UCITS and on their impact on the feeder UCITS. 3. Where they comply with the requirements laid down in this Chapter, neither the auditor of the master UCITS nor that of the feeder UCITS shall be found to be in breach of any rules that restrict the disclosure of information or relate to data protection where such rules are provided for in a contract or in a law, regulation or administrative provision. Such compliance shall not give rise to any liability on the part of such auditor or any person acting on its behalf. 4. 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 content of the agreement referred to in the first subparagraph of paragraph 1.
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 62 ):
1. Member States shall require that if the master and the feeder UCITS have different auditors, those auditors enter into an information-sharing agreement in order to ensure the fulfilment of the duties of both auditors, including the arrangements taken to comply with the requirements of paragraph 2. The feeder UCITS shall not invest in units of the master UCITS until such agreement has become effective. 2. In its audit report, the auditor of the feeder UCITS shall take into account the audit report of the master UCITS. If the feeder and the master UCITS have different accounting years, the auditor of the master UCITS shall make an ad hoc report on the closing date of the feeder UCITS. The auditor of the feeder UCITS shall, in particular, report on any irregularities revealed in the audit report of the master UCITS and on their impact on the feeder UCITS. 3. Where they comply with the requirements laid down in this Chapter, neither the auditor of the master UCITS nor that of the feeder UCITS shall be found to be in breach of any rules that restrict the disclosure of information or relate to data protection where such rules are provided for in a contract or in a law, regulation or administrative provision. Such compliance shall not give rise to any liability on the part of such auditor or any person acting on its behalf. 4. The Commission may adopt, by means of delegated acts in accordance with Article 112a , measures specifying the content of the agreement referred to in the first subparagraph of paragraph 1.
Article 63 
1. Member States shall require that, in addition to the information provided for in Schedule A of Annex I, the prospectus of the feeder UCITS contains the following information: (a) a declaration that the feeder UCITS is a feeder of a particular master UCITS and as such permanently invests 85 % or more of its assets in units of that master UCITS; (b) the investment objective and policy, including the risk profile and whether the performance of the feeder and the master UCITS are identical, or to what extent and for which reasons they differ, including a description of investment made in accordance with Article 58(2); (c) a brief description of the master UCITS, its organisation, its investment objective and policy, including the risk profile, and an indication of how the prospectus of the master UCITS may be obtained; (d) a summary of the agreement entered into between the feeder UCITS and the master UCITS or of the internal conduct of business rules pursuant to Article 60(1); (e) how the unit-holders may obtain further information on the master UCITS and the agreement entered into between the feeder UCITS and the master UCITS pursuant to Article 60(1); (f) a description of all remuneration or reimbursement of costs payable by the feeder UCITS by virtue of its investment in units of the master UCITS, as well as of the aggregate charges of the feeder UCITS and the master UCITS; and (g) a description of the tax implications of the investment into the master UCITS for the feeder UCITS. 2. In addition to the information provided for in Schedule B of Annex I, the annual report of the feeder UCITS shall include a statement on the aggregate charges of the feeder UCITS and the master UCITS. The annual and the half-yearly reports of the feeder UCITS shall indicate how the annual and the half-yearly report of the master UCITS can be obtained. 3. In addition to the requirements laid down in Articles 74 and 82, the feeder UCITS shall send the prospectus, the key investor information referred to in Article 78 and any amendment thereto, as well as the annual and half-yearly reports of the master UCITS, to the competent authorities of its home Member State. 4. A feeder UCITS shall disclose in any relevant marketing communications that it permanently invests 85 % or more of its assets in units of such master UCITS. 5. A paper copy of the prospectus, and the annual and half-yearly reports of the master UCITS shall be delivered by the feeder UCITS to investors on request and free of charge.
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 63 ):
1. Member States shall require that, in addition to the information provided for in Schedule A of Annex I, the prospectus of the feeder UCITS contains the following information: (a) a declaration that the feeder UCITS is a feeder of a particular master UCITS and as such permanently invests 85 % or more of its assets in units of that master UCITS; (b) the investment objective and policy, including the risk profile and whether the performance of the feeder and the master UCITS are identical, or to what extent and for which reasons they differ, including a description of investment made in accordance with Article 58(2); (c) a brief description of the master UCITS, its organisation, its investment objective and policy, including the risk profile, and an indication of how the prospectus of the master UCITS may be obtained; (d) a summary of the agreement entered into between the feeder UCITS and the master UCITS or of the internal conduct of business rules pursuant to Article 60(1); (e) how the unit-holders may obtain further information on the master UCITS and the agreement entered into between the feeder UCITS and the master UCITS pursuant to Article 60(1); (f) a description of all remuneration or reimbursement of costs payable by the feeder UCITS by virtue of its investment in units of the master UCITS, as well as of the aggregate charges of the feeder UCITS and the master UCITS; and (g) a description of the tax implications of the investment into the master UCITS for the feeder UCITS. 2. In addition to the information provided for in Schedule B of Annex I, the annual report of the feeder UCITS shall include a statement on the aggregate charges of the feeder UCITS and the master UCITS. The annual and the half-yearly reports of the feeder UCITS shall indicate how the annual and the half-yearly report of the master UCITS can be obtained. In addition to the information provided for in Schedule B of Annex I, the annual report of the feeder UCITS shall include a statement on the aggregate charges of the feeder UCITS and the master UCITS. The annual and the half-yearly reports of the feeder UCITS shall indicate how the annual and the half-yearly report of the master UCITS can be obtained. 3. In addition to the requirements laid down in Articles 74 and 82, the feeder UCITS shall send the prospectus, the key investor information referred to in Article 78 and any amendment thereto, as well as the annual and half-yearly reports of the master UCITS, to the competent authorities of its home Member State. 4. A feeder UCITS shall disclose in any relevant marketing communications that it permanently invests 85 % or more of its assets in units of such master UCITS. 5. A paper copy of the prospectus, and the annual and half-yearly reports of the master UCITS shall be delivered by the feeder UCITS to investors on request and free of charge.
Article 64 
1. Member States shall require that a feeder UCITS which already pursues activities as a UCITS, including those of a feeder UCITS of a different master UCITS, shall provide the following information to its unit-holders: (a) a statement that the competent authorities of the feeder UCITS home Member State approved the investment of the feeder UCITS in units of such master UCITS; (b) the key investor information referred to in Article 78 concerning the feeder and the master UCITS; (c) the date when the feeder UCITS is to start to invest in the master UCITS or, if it has already invested therein, the date when its investment will exceed the limit applicable under Article 55(1); and (d) a statement that the unit-holders have the right to request within 30 days the repurchase or redemption of their units without any charges other than those retained by the UCITS to cover disinvestment costs; that right shall become effective from the moment the feeder UCITS has provided the information referred to in this paragraph. That information shall be provided at least 30 days before the date referred to in point (c) of the first subparagraph. 2. In the event that the feeder UCITS has been notified in accordance with Article 93, the information referred to in paragraph 1 shall be provided in the official language, or one of the official languages, of the feeder UCITS host Member State or in a language approved by its competent authorities. The feeder UCITS shall be responsible for producing the translation. That translation shall faithfully reflect the content of the original. 3. Member States shall ensure that the feeder UCITS does not invest into the units of the given master UCITS in excess of the limit applicable under Article 55(1) before the period of 30 days referred to in the second subparagraph of paragraph 1 has elapsed. 4. 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: (a) the format and the manner in which to provide the information referred to in paragraph 1; or (b) in the event that the feeder UCITS transfers all or parts of its assets to the master UCITS in exchange for units, the procedure for valuing and auditing such a contribution in kind and the role of the depositary of the feeder UCITS in that process. 5. In order to ensure uniform conditions of application in which the information is provided, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the format and the manner of the information provided and procedure referred to in paragraph 4. 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 64 ):
1. Member States shall require that a feeder UCITS which already pursues activities as a UCITS, including those of a feeder UCITS of a different master UCITS, shall provide the following information to its unit-holders: (a) a statement that the competent authorities of the feeder UCITS home Member State approved the investment of the feeder UCITS in units of such master UCITS; (b) the key investor information referred to in Article 78 concerning the feeder and the master UCITS; (c) the date when the feeder UCITS is to start to invest in the master UCITS or, if it has already invested therein, the date when its investment will exceed the limit applicable under Article 55(1); and (d) a statement that the unit-holders have the right to request within 30 days the repurchase or redemption of their units without any charges other than those retained by the UCITS to cover disinvestment costs; that right shall become effective from the moment the feeder UCITS has provided the information referred to in this paragraph. That information shall be provided at least 30 days before the date referred to in point (c) of the first subparagraph. 2. In the event that the feeder UCITS has been notified in accordance with Article 93, the information referred to in paragraph 1 shall be provided in the official language, or one of the official languages, of the feeder UCITS host Member State or in a language approved by its competent authorities. The feeder UCITS shall be responsible for producing the translation. That translation shall faithfully reflect the content of the original. 3. Member States shall ensure that the feeder UCITS does not invest into the units of the given master UCITS in excess of the limit applicable under Article 55(1) before the period of 30 days referred to in the second subparagraph of paragraph 1 has elapsed. 4. The Commission may adopt, by means of delegated acts in accordance with Article 112a , measures specifying: (a) the format and the manner in which to provide the information referred to in paragraph 1; or (b) in the event that the feeder UCITS transfers all or parts of its assets to the master UCITS in exchange for units, the procedure for valuing and auditing such a contribution in kind and the role of the depositary of the feeder UCITS in that process. 5. In order to ensure uniform conditions of application in which the information is provided, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission regarding the format and the manner of the information provided and procedure referred to in paragraph 4. 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 65 
1. The feeder UCITS shall monitor effectively the activity of the master UCITS. In performing that obligation, the feeder UCITS may rely on information and documents received from the master UCITS or, where applicable, its management company, depositary and auditor, unless there is reason to doubt their accuracy. 2. Where, in connection with an investment in the units of the master UCITS, a distribution fee, commission or other monetary benefit is received by the feeder UCITS, its management company, or any person acting on behalf of either the feeder UCITS or the management company of the feeder UCITS, the fee, commission or other monetary benefit shall be paid into the assets of the feeder UCITS.
Article 66 
1. The master UCITS shall immediately inform the competent authorities of its home Member State of the identity of each feeder UCITS which invests in its units. If the master UCITS and the feeder UCITS are established in different Member States, the competent authorities of the master UCITS home Member State shall immediately inform those of the feeder UCITS home Member State of such investment. 2. The master UCITS shall not charge subscription or redemption fees for the investment of the feeder UCITS into its units or the divestment thereof. 3. The master UCITS shall ensure the timely availability of all information that is required in accordance with this Directive, other Community law, the applicable national law, the fund rules or the instruments of incorporation to the feeder UCITS or, where applicable, its management company, and to the competent authorities, the depositary and the auditor of the feeder UCITS.
Article 67 
1. If the master UCITS and the feeder UCITS are established in the same Member State, the competent authorities shall immediately inform the feeder UCITS of any decision, measure, observation of non-compliance with the conditions of this Chapter or of any information reported pursuant to Article 106(1) with regard to the master UCITS or, where applicable, its management company, depositary or auditor. 2. If the master UCITS and the feeder UCITS are established in different Member States, the competent authorities of the master UCITS home Member State shall immediately communicate any decision, measure, observation of non-compliance with the conditions of this Chapter or information reported pursuant to Article 106(1) with regard to the master UCITS or, where applicable, its management company, depositary or auditor, to the competent authorities of the feeder UCITS home Member State. The latter shall then immediately inform the feeder UCITS.
Article 68 
1. An investment company and, for each of the common funds it manages, a management company, shall publish the following: (a) a prospectus; (b) an annual report for each financial year; and (c) a half-yearly report covering the first six months of the financial year. 2. The annual and half-yearly reports shall be published within the following time limits, with effect from the end of the period to which they relate: (a) four months in the case of the annual report; or (b) two months in the case of the half-yearly report.
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 68 ):
An investment company and, for each of the common funds it manages, a management company, shall publish the following: (a) a prospectus; (b) an annual report for each financial year; and (c) a half-yearly report covering the first six months of the financial year. 2. The annual and half-yearly reports shall be published within the following time limits, with effect from the end of the period to which they relate: (a) four months in the case of the annual report; or (b) two months in the case of the half-yearly report. The annual and half-yearly reports shall be published within the following time limits, with effect from the end of the period to which they relate: (a) four months in the case of the annual report; or (b) two months in the case of the half-yearly report.
Article 69 
1. The prospectus shall include the information necessary for investors to be able to make an informed judgement of the investment proposed to them, and, in particular, of the risks attached thereto. The prospectus shall include, independent of the instruments invested in, a clear and easily understandable explanation of the fund’s risk profile. 2. The prospectus shall contain at least the information provided for in Schedule A of Annex I, in so far as that information does not already appear in the fund rules or instruments of incorporation annexed to the prospectus in accordance with Article 71(1). 3. The annual report shall include a balance-sheet or a statement of assets and liabilities, a detailed income and expenditure account for the financial year, a report on the activities of the financial year and the other information provided for in Schedule B of Annex I as well as any significant information which will enable investors to make an informed judgement on the development of the activities of the UCITS and its results. 4. The half-yearly report shall include at least the information provided for in Sections I to IV of Schedule B of Annex I. Where a UCITS has paid or proposes to pay an interim dividend, the figures must indicate the results after tax for the half-year concerned and the interim dividend paid or proposed. 5. In order to ensure consistent harmonisation of this Article, ESMA may develop draft regulatory technical standards to specify the provisions concerning the content of the prospectus, the annual report and the half-yearly report as laid down in Annex I, and the format of those documents. 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 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 69 ):
1. The prospectus shall include the information necessary for investors to be able to make an informed judgement of the investment proposed to them, and, in particular, of the risks attached thereto. The prospectus shall include, independent of the instruments invested in, a clear and easily understandable explanation of the fund’s risk profile. The prospectus shall include either: (a) the details of the up-to-date remuneration policy, including, but not limited to, a description of how remuneration and benefits are calculated, the identities of persons responsible for awarding the remuneration and benefits including the composition of the remuneration committee, where such a committee exists; or (b) a summary of the remuneration policy and a statement to the effect that the details of the up-to-date remuneration policy, including, but not limited to, a description of how remuneration and benefits are calculated, the identity of persons responsible for awarding the remuneration and benefits, including the composition of the remuneration committee where such a committee exists, are available by means of a website – including a reference to that website – and that a paper copy will be made available free of charge upon request. 2. The prospectus shall contain at least the information provided for in Schedule A of Annex I, in so far as that information does not already appear in the fund rules or instruments of incorporation annexed to the prospectus in accordance with Article 71(1). 3. The annual report shall include a balance-sheet or a statement of assets and liabilities, a detailed income and expenditure account for the financial year, a report on the activities of the financial year and the other information provided for in Schedule B of Annex I as well as any significant information which will enable investors to make an informed judgement on the development of the activities of the UCITS and its results. The annual report shall also include: (a) the total amount of remuneration for the financial year, split into fixed and variable remuneration paid by the management company and by the investment company to its staff, and the number of beneficiaries, and where relevant, any amount paid directly by the UCITS itself, including any performance fee; (b) the aggregate amount of remuneration broken down by categories of employees or other members of staff as referred to in Article 14a(3); (c) a description of how the remuneration and the benefits have been calculated; (d) the outcome of the reviews referred to in points (c) and (d) of Article 14b(1) including any irregularities that have occurred; (e) material changes to the adopted remuneration policy. 4. The half-yearly report shall include at least the information provided for in Sections I to IV of Schedule B of Annex I. Where a UCITS has paid or proposes to pay an interim dividend, the figures must indicate the results after tax for the half-year concerned and the interim dividend paid or proposed. 5. In order to ensure consistent harmonisation of this Article, ESMA may develop draft regulatory technical standards to specify the provisions concerning the content of the prospectus, the annual report and the half-yearly report as laid down in Annex I, and the format of those documents. 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.
Article 70 
1. The prospectus shall indicate in which categories of assets a UCITS is authorised to invest. It shall mention if transactions in financial derivative instruments are authorised, in which case it shall include a prominent statement indicating whether those operations may be carried out for the purpose of hedging or with the aim of meeting investment goals, and the possible outcome of the use of financial derivative instruments on the risk profile. 2. Where a UCITS invests principally in any category of assets defined in Article 50 other than transferable securities or money market instruments, or where a UCITS replicates a stock or debt securities index in accordance with Article 53, its prospectus and, where necessary, marketing communications shall include a prominent statement drawing attention to the investment policy. 3. Where the net asset value of a UCITS is likely to have a high volatility due to its portfolio composition or the portfolio management techniques that may be used, its prospectus and, where necessary, marketing communications shall include a prominent statement drawing attention to that characteristic. 4. Upon request of an investor, the management company shall also provide supplementary information relating to the quantitative limits that apply in the risk management of the UCITS, to the methods chosen to this end and to the recent evolution of the main risks and yields of the instrument categories.
Article 71 
1. The fund rules or instruments of incorporation of an investment company shall form an integral part of the prospectus and shall be annexed thereto. 2. The documents referred to in paragraph 1 are not, however, required to be annexed to the prospectus provided that the investor is informed that, on request, he or she will be sent those documents or be apprised of the place where, in each Member State in which the units are marketed, he or she may consult them.
Article 72 
The essential elements of the prospectus shall be kept up to date.
Article 73 
The accounting information given in the annual report shall be audited by one or more persons empowered by law to audit accounts in accordance with Directive 2006/43/EC. The auditor’s report, including any qualifications, shall be reproduced in full in the annual report.
Article 74 
UCITS shall send their prospectus and any amendments thereto, as well as their annual and half-yearly reports, to the competent authorities of the UCITS home Member State. UCITS shall provide that documentation to the competent authorities of the management company’s home Member State on request.
Article 75 
1. The prospectus and the latest published annual and half-yearly reports shall be provided to investors on request and free of charge. 2. The prospectus may be provided in a durable medium or by means of a website. A paper copy shall be delivered to the investors on request and free of charge. 3. The annual and half-yearly reports shall be available to investors in the manner specified in the prospectus and in the key investor information referred to in Article 78. A paper copy of the annual and half-yearly reports shall be delivered to the investors on request and free of charge. 4. 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 which define the specific conditions which need to be met when providing the prospectus in a durable medium other than paper or by means of a website which does not constitute a durable medium.
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 75 ):
1. The prospectus and the latest published annual and half-yearly reports shall be provided to investors on request and free of charge. 2. The prospectus may be provided in a durable medium or by means of a website. A paper copy shall be delivered to the investors on request and free of charge. 3. The annual and half-yearly reports shall be available to investors in the manner specified in the prospectus and in the key investor information referred to in Article 78. A paper copy of the annual and half-yearly reports shall be delivered to the investors on request and free of charge. 4. The Commission may adopt, by means of delegated acts in accordance with Article 112a , measures which define the specific conditions which need to be met when providing the prospectus in a durable medium other than paper or by means of a website which does not constitute a durable medium.
Article 76 
A UCITS shall make public in an appropriate manner the issue, sale, repurchase or redemption price of its units each time it issues, sells, repurchases or redeems them, and at least twice a month. The competent authorities may, however, permit a UCITS to reduce the frequency to once a month on condition that such derogation does not prejudice the interests of the unit-holders.
Article 77 
All marketing communications to investors shall be clearly identifiable as such. They shall be fair, clear and not misleading. In particular, any marketing communication comprising an invitation to purchase units of UCITS that contains specific information about a UCITS shall make no statement that contradicts or diminishes the significance of the information contained in the prospectus and the key investor information referred to in Article 78. It shall indicate that a prospectus exists and that the key investor information referred to in Article 78 is available. It shall specify where and in which language such information or documents may be obtained by investors or potential investors or how they may obtain access to them.
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 78 
1. Member States shall require that an investment company and, for each of the common funds it manages, a management company draw up a short document containing key information for investors. That document shall be referred to as ‘key investor information’ in this Directive. The words ‘key investor information’ shall be clearly stated in that document, in one of the languages referred to in Article 94(1)(b). 2. Key investor information shall include appropriate information about the essential characteristics of the UCITS concerned, which is to be provided to investors so that they are reasonably able to understand the nature and the risks of the investment product that is being offered to them and, consequently, to take investment decisions on an informed basis. 3. Key investor information shall provide information on the following essential elements in respect of the UCITS concerned: (a) identification of the UCITS; (b) a short description of its investment objectives and investment policy; (c) past-performance presentation or, where relevant, performance scenarios; (d) costs and associated charges; and (e) risk/reward profile of the investment, including appropriate guidance and warnings in relation to the risks associated with investments in the relevant UCITS. Those essential elements shall be comprehensible to the investor without any reference to other documents. 4. Key investor information shall clearly specify where and how to obtain additional information relating to the proposed investment, including but not limited to where and how the prospectus and the annual and half-yearly report can be obtained on request and free of charge at any time, and the language in which such information is available to investors. 5. Key investor information shall be written in a concise manner and in non-technical language. It shall be drawn up in a common format, allowing for comparison, and shall be presented in a way that is likely to be understood by retail investors. 6. Key investor information shall be used without alterations or supplements, except translation, in all Member States where the UCITS is notified to market its units in accordance with Article 93. 7. The Commission shall 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 which define the following: (a) the detailed and exhaustive content of the key investor information to be provided to investors as referred to in paragraphs 2, 3 and 4; (b) the detailed and exhaustive content of the key investor information to be provided to investors in the following specific cases: (i) for UCITS having different investment compartments, the key investor information to be provided to investors subscribing to a specific investment compartment, including how to pass from one investment compartment into another and the costs related thereto, (ii) for UCITS offering different share classes, the key investor information to be provided to investors subscribing to a specific share class, (iii) for fund of funds structures, the key investor information to be provided to investors subscribing to a UCITS, which invests itself in other UCITS or other collective investment undertakings referred to in Article 50(1)(e), (iv) for master-feeder structures, the key investor information to be provided to investors subscribing to a feeder UCITS, (v) for structured, capital protected and other comparable UCITS, the key investor information to be provided to investors in relation to the special characteristics of such UCITS; and (b) the detailed and exhaustive content of the key investor information to be provided to investors in the following specific cases: (i) for UCITS having different investment compartments, the key investor information to be provided to investors subscribing to a specific investment compartment, including how to pass from one investment compartment into another and the costs related thereto, (ii) for UCITS offering different share classes, the key investor information to be provided to investors subscribing to a specific share class, (iii) for fund of funds structures, the key investor information to be provided to investors subscribing to a UCITS, which invests itself in other UCITS or other collective investment undertakings referred to in Article 50(1)(e), (iv) for master-feeder structures, the key investor information to be provided to investors subscribing to a feeder UCITS, (v) for structured, capital protected and other comparable UCITS, the key investor information to be provided to investors in relation to the special characteristics of such UCITS; and (c) the specific details of the format and presentation of the key investor information to be provided to investors as referred to in paragraph 5. 8. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission in accordance with paragraph 7 regarding the information referred to in paragraph 3. 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 78 ):
1. Member States shall require that an investment company and, for each of the common funds it manages, a management company draw up a short document containing key information for investors. That document shall be referred to as ‘key investor information’ in this Directive. The words ‘key investor information’ shall be clearly stated in that document, in one of the languages referred to in Article 94(1)(b). 2. Key investor information shall include appropriate information about the essential characteristics of the UCITS concerned, which is to be provided to investors so that they are reasonably able to understand the nature and the risks of the investment product that is being offered to them and, consequently, to take investment decisions on an informed basis. 3. Key investor information shall provide information on the following essential elements in respect of the UCITS concerned: (a) identification of the UCITS and of the competent authority of the UCITS; (b) a short description of its investment objectives and investment policy; (c) past-performance presentation or, where relevant, performance scenarios; (d) costs and associated charges; and (e) risk/reward profile of the investment, including appropriate guidance and warnings in relation to the risks associated with investments in the relevant UCITS. Those essential elements shall be comprehensible to the investor without any reference to other documents. 4. Key investor information shall clearly specify where and how to obtain additional information relating to the proposed investment, including but not limited to where and how the prospectus and the annual and half-yearly report can be obtained on request and free of charge at any time, and the language in which such information is available to investors. Key investor information shall also include a statement to the effect that the details of the up-to-date remuneration policy, including, but not limited to, a description of how remuneration and benefits are calculated, the identity of persons responsible for awarding the remuneration and benefits including the composition of the remuneration committee, where such a committee exists, are available by means of a website – including a reference to that website – and that a paper copy will be made available free of charge upon request. 5. Key investor information shall be written in a concise manner and in non-technical language. It shall be drawn up in a common format, allowing for comparison, and shall be presented in a way that is likely to be understood by retail investors. 6. Key investor information shall be used without alterations or supplements, except translation, in all Member States where the UCITS is notified to market its units in accordance with Article 93. 7. The Commission shall adopt, by means of delegated acts in accordance with Article 112a , measures which define the following: (a) the detailed and exhaustive content of the key investor information to be provided to investors as referred to in paragraphs 2, 3 and 4; (b) the detailed and exhaustive content of the key investor information to be provided to investors in the following specific cases: (i) for UCITS having different investment compartments, the key investor information to be provided to investors subscribing to a specific investment compartment, including how to pass from one investment compartment into another and the costs related thereto, (ii) for UCITS offering different share classes, the key investor information to be provided to investors subscribing to a specific share class, (iii) for fund of funds structures, the key investor information to be provided to investors subscribing to a UCITS, which invests itself in other UCITS or other collective investment undertakings referred to in Article 50(1)(e), (iv) for master-feeder structures, the key investor information to be provided to investors subscribing to a feeder UCITS, (v) for structured, capital protected and other comparable UCITS, the key investor information to be provided to investors in relation to the special characteristics of such UCITS; and (b) the detailed and exhaustive content of the key investor information to be provided to investors in the following specific cases: (i) for UCITS having different investment compartments, the key investor information to be provided to investors subscribing to a specific investment compartment, including how to pass from one investment compartment into another and the costs related thereto, (ii) for UCITS offering different share classes, the key investor information to be provided to investors subscribing to a specific share class, (iii) for fund of funds structures, the key investor information to be provided to investors subscribing to a UCITS, which invests itself in other UCITS or other collective investment undertakings referred to in Article 50(1)(e), (iv) for master-feeder structures, the key investor information to be provided to investors subscribing to a feeder UCITS, (v) for structured, capital protected and other comparable UCITS, the key investor information to be provided to investors in relation to the special characteristics of such UCITS; and (c) the specific details of the format and presentation of the key investor information to be provided to investors as referred to in paragraph 5. 8. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to determine the conditions of application of the delegated acts adopted by the Commission in accordance with paragraph 7 regarding the information referred to in paragraph 3. 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 79 
1. Key investor information shall constitute pre-contractual information. It shall be fair, clear and not misleading. It shall be consistent with the relevant parts of the prospectus. 2. Member States shall ensure that a person does not incur civil liability solely on the basis of the key investor information, including any translation thereof, unless it is misleading, inaccurate or inconsistent with the relevant parts of the prospectus. Key investor information shall contain a clear warning in this respect.
Article 80 
1. Member States shall require that an investment company and, for each of the common funds it manages, a management company, which sells UCITS directly or through another natural or legal person who acts on its behalf and under its full and unconditional responsibility provides investors with key investor information on such UCITS in good time before their proposed subscription of units in such UCITS. 2. Member States shall require that an investment company and, for each of the common funds it manages, a management company, which does not sell UCITS directly or through another natural or legal person who acts on its behalf and under its full and unconditional responsibility to investors provides key investor information to product manufacturers and intermediaries selling or advising investors on potential investments in such UCITS or in products offering exposure to such UCITS upon their request. Member States shall require that the intermediaries selling or advising investors on potential investments in UCITS, provide key investor information to their clients or potential clients. 3. Key investor information shall be provided to investors free of charge.