UCITS depositaries and remuneration - Commission consultation
Interest Representative Register ID number: 2673356395-13
Commission’s consultation paper on the UCITS depositary function and on the UCITS managers’ remuneration
The Swedish Investment Fund Association[1] (SIFA) is a member of the European Fund and Asset Management Association (EFAMA) and concurs with their reply. SIFA wishes to put extra emphasis on the following topics.
Box 1
SIFA agrees.
Box 2
SIFA agrees with the proposals. However, it should be clarified that the custody/safekeeping duties are limited to assets that can be held with a Central Securities Depositary. The rules regarding safekeeping duties should be aligned with the AIFMD and SLD.
SIFA also wishes to stress that the rules regarding depositary monitoring must be adapted to the financial instruments in question.
Box 3
SIFA agrees.
Box 4
SIFA supports the proposal of harmonized rules regarding the supervisory duties in order to create a level playing field and to limit the possibility to choose a location in a certain member state because it has got less stringent rules. When it comes to calculation of the NAV, referred to in the box, it ought to be clarified that the calculation has to be performed by the fund manager and that the function of the depositary is limited to verifying that the methodology is accurate.
Box 5
SIFA supports an alignment of the rules regarding delegation with those provided in the AIFMD. We agree in principle with the requirement on additional information concerning sub custody situations but in those cases it should be noted that the risks normally are very low. In addition, the information included should be kept at a general level and focus on descriptions on relevant risks (and not provide details about i.e. the name of the sub custodian in question), in order for the investors to be able to assimilate the information and for the fund managers to be able to administer the information.
Box 6
SIFA agrees.
Box 7 and 8
SIFA would like to stress the importance of harmonizing the UCITS-rules with those in the AIFMD also when it comes to the depositary’s liability for its own actions and the liability if some duties are performed by a sub custodian. A reference to force majeure should be avoided since the meaning of this concept varies between the member states. If the exemptions in the AIFMD (such as the possibility for the depositary to contractually discharge the liability combined with increased transparency requirements regarding risks, as mentioned under box 5) are not introduced also regarding UCITS, and the depositary’s liability thus is extended, SIFA predicts that the number of depositaries will be limited. Another consequence that SIFA foresees is that the supply of funds and investment options will decrease. This would mean that some markets – especially emerging markets – will receive much less investment capital and thus the growth potential of those countries will be curbed.
Box 9
SIFA thinks that a reversal of the burden of proof as suggested by the Commission could be appropriate in this context.
Box 10
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Box 11
SIFA supports in principle aligning the eligibility criteria with those in the AIFMD. However, it should be noted that the suggested new UCITS-rules imply increased responsibility for the depositaries. In order to be able to cope with the new duties and liability regimes, the depositaries must fulfill quite strict rules on for instance the level of capital. Box 12
SIFA supports the idea to consider the possibility of introducing an EU-passport for depositaries within a few years.
Box 13
SIFA is in favor of a better harmonization of the supervisors’ competencies.
Box 14
SIFA questions whether an annual certification, as described by the Commission, can be justified when taking into account that this would be very expensive and that the fact that the depositary has the duty to control the assets. The role of supervisory authorities should not be neglected and local FSA’s can also check that the duties are fulfilled.
Box 15
SIFA agrees.
Box 16
SIFA agrees.
Box 17
SIFA agrees.
Box 18
SIFA agrees that the supervisory authorities must have access to information from depositaries but it should be clarified that the requests must be reasonable when it comes to the amount of information and that the information requested is relevant.
Box 19
SIFA agrees.
Proposals to adapt the UCITS-directive to include remuneration principles for UCITS managers
Like EFAMA, SIFA welcomes the idea that the requirements should be, as far as possible, consistent with those proposed for AIFM:s as well as for credit institutions and investment firms. However, it is essential that the principles should be similar and not identical, as stated by the Commission.
SIFA thinks that it is crucial that the Commission fully considers the final guidelines by CEBS on the requirements contained in CRD III. The Swedish Financial Supervisory Authority (Finansinspektionen) has issued guidelines based on the CEBS guidelines that will come into force on March 1st, hence these rules will apply for those fund managers who also perform MiFID activities. For a fund management industry which is heterogeneous in terms of size and corporate organization all relevant aspects must be taken into consideration when the fund manager assesses its business and determines how the requirements should be applied in a proportionate manner.
According to SIFA, because of the diversification in the industry the adaptation of the principles on sound remuneration should be permeated with the principle of proportionality. For example, an individual asset manager employed by a fund manager may work with more than one fund in the company’s offering.
As UCITS managers by definition do not take risk against their balance sheet but instead manage UCITS assets, remuneration structures in the asset management industry should not have as main objective the limitation of risk taking. Instead rules for the asset management industry need to address the specific issues arising out of the activities of the asset managers. Existing regulatory provisions on remuneration policy for UCITS management companies take this business model into account and address conflicts of interest instead of effective risk management. They provide that the remuneration policy of a UCITS management company has to align the interests of the UCITS Management company with the interests of the UCITS it manages (Article 14 of Directive 2009/65/EC).
In the light of the above-mentioned, SIFA wishes that it is clarified that the relevant risks to be assessed for fund managers are the risks for failure within the management company. Based on the organizational structure and way of working, the connection to the risk/performance in individual funds may be relevant, however this must be a decision that the fund management company is best suited to take. It is therefore not appropriate to, as suggested in the consultation under 2.4.2. “Scope of the application – to whom requirements should apply”, apply remuneration policies to those categories of staff whose professional activities may have a material impact on the risk profile of a managed UCITS. This should instead refer to the management company or, where relevant, the self-managed UCITS.
Also, SIFA wishes that the Commission clarifies that the particularities of the fund management industry are taken into consideration when it comes to the translation, if any, of requirement 1 (m) of Annex II in the AIFM-directive where it is stated that a substantial portion of any variable remuneration shall consist of units or shares of the AIF in question (or equivalent ownership). As described above, all fund management companies are different and apply different working procedures. For some smaller managers it might be appropriate that the variable remuneration consist of units in a UCITS while for others it might be appropriate to include shares in the management company itself (or its holding company). For yet others such a requirement would not be appropriate at all. SIFA thinks that the fulfillment of this requirement should be subject to the manager’s judgment and that it, if at all, should only apply to managers that are significant in terms of their size.
THE SWEDISH INVESTMENT FUND ASSOCIATION
Eva Broms Emelie Antonisen
[1] The Swedish Investment Fund Association is an association of 37 fund management
companies representing approximately 95 percent of the Swedish fund market.
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