EC Adopts Delegated Regulation Clarifying Depositaries’ Safe-keeping Obligations under UCITS


On July 12, 2018, the European Commission (“EC“) published a Delegated Regulation it has adopted amending Delegated Regulation (EU) 2016/438 as regards safe-keeping duties of depositaries (C(2018) 4379 final).

Delegated Regulation (EU) 2016/438 supplements the UCITS Directive (2009/65/EC) (as amended by the UCITS V Directive (2014/91/EU)). In particular, the Delegated Regulation further specifies depositaries’ duties with regard to safe-keeping UCITS clients’ assets. Article 22a(3)(c) of the UCITS Directive requires that where a depositary delegates safe-keeping functions to third parties (custodians), the assets also need to be segregated at the level of the delegate. Article 16 of Delegated Regulation (EU) 2016/438 details how this obligation is to be fulfilled.

Experience gained since October 13, 2016 (the application date of Delegated Regulation (EU) 2016/438) has shown that further clarification is needed on the requirements laid down in Article 22a(3)(c). The Commission acknowledges that securities and insolvency laws are not harmonized at the EU level. This should lead to the clear identification of assets belonging to a particular UCITS, and to the protection of these assets in the case of insolvency of the depositary or the custodian.

The provisions of the UCITS Directive and Delegated Regulation (EU) 2016/438 pursue these objectives. However, the Commission considers that diverging applications by national competent authorities (“NCAs“) and market participants of depositaries’ obligations as regards safe-keeping of UCITS clients’ assets risks undermining the objectives. As a result, the new Delegated Regulation amends Delegated Regulation (EU) 2016/438 (Articles 13(1)(c), 13(2), 15, 16, 17(2), 17(3) and 22(3)) to clarify the requirements in this area.

The Commission consulted on a draft of the new Delegated Regulation in May 2018. In response to industry requests, it has decided to defer the application date of the new Delegated Regulation for 18 months. The Commission has also made some amendments that it considers improve the overall clarity of the legal text.

The new Delegated Regulation states that it will enter into force twenty days after publication in the Official Journal of the EU (“OJ“), and will apply from the date 18 months after publication. The next step is for the Delegated Regulation to be considered by the European Parliament and the Council of the EU.