The Undertakings for Collective Investment in Transferable Securities Regulations 2016

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations implement in part Directive 2014/91/EU of the European Parliament and of the Council of 23rd July 2014 (OJ L 257, 28.8.2014, p.186) amending Directive 2009/65/EC (“the UCITS Directive”) on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions (“the UCITS V Directive”).

Regulation 2 makes amendments to the Financial Services and Markets Act 2000 (“FSMA”) (c.8) to transpose Article 1.16 of the UCITS V Directive, providing that the disciplinary powers in FSMA that are exercisable against authorised persons, approved persons and senior managers can be applied in the case of contraventions of requirements in the Undertakings for Collective Investments in Transferable Securities Regulations 2011 (S.I. 2011/1613) (“UCITS Regulations 2011”), in addition to contraventions of requirements imposed “by or under” FSMA. It also seeks to transpose Article 1.16 of the UCITS V Directive by providing that the FCA can exercise its power to cancel an authorised person’s Part 4A permission in the case of serious breaches of requirements imposed by or under FSMA, or by the UCITS Regulations 2011.

Regulation 2 also transposes the requirements in Article 1.17 of the UCITS V Directive relating to the reporting and publication of sanctions and measures to which Article 99 of the UCITS Directive applies.

Regulation 3 inserts Parts 5A and 5B (regulations 15A to 15I) into the UCITS Regulations 2011. Regulations 15B-15D transpose Article 1.7 of the UCITS V Directive by making provision as to the liability of a depositary to the UCITS, or the management company of the UCITS, in the case of a loss of a financial instrument held in custody, or in respect of other losses suffered by them as a result of the depositary’s negligent or intentional failure to properly fulfil its obligations pursuant to the UCITS Directive.

Regulation 15F transposes Article 1.10 of the UCITS V Directive by making provision for the Financial Conduct Authority to share information received from a UK or EEA depositary with competent authorities of other EEA States that are responsible for the UCITS or of the management company of the UCITS.

Regulation 15G transposes Article 1.16(4) of the UCITS V Directive by setting out the limited circumstances in which the FCA may refuse to act on a request for information or a request to cooperate with an investigation into possible infringements of the directive from the competent authority of another EEA State.

Regulation 15H and 15I also transposes Article 1.17 of the UCITS V Directive by requiring the FCA to establish specific procedures for the receipt and follow-up of reports on infringements in accordance with Article 99d of the directive, and to provide ESMA annually with aggregated information regarding all penalties and measures imposed in accordance with Article 99e of the directive.

Regulation 4 makes an amendment to the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (S.I. 2001/2188) (“DCI Regulations”) to transpose the requirement in Article 1.18 of the UCITS V Directive that the processing of personal data be carried out subject to Directive 95/46/EC of the European Parliament and of the Council of 24th October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (OJ L 281, 23/11/1995, p.31). It inserts Article 104a.1 of the UCITS Directive into the definition of “single market restrictions” in the DCI Regulations, meaning that disclosure of confidential information (including disclosures by the FCA) must not contravene the requirement in Article 104a.1.

Regulation 5 makes amendments to the Public Interest Disclosure (Prescribed Persons) Order 2014 (S.I. 2014/2418) to transpose the requirement in Article 1.17 of the UCITS V Directive. This provides that any “whistle-blowing” reports to ESMA by employees of UCITS management companies or depositaries (in addition to reports to the competent authorities) must not subject the person reporting to liability of any kind relating to the report. By adding ESMA to the list of prescribed persons, reports as to infringements of the UCITS Directive will be considered to be qualifying disclosures for the purposes of the Employment Rights Act 1996 (c. 18) and will be afforded the protections under that Act.

A full impact assessment of the effect that these Regulations will have on the costs of business and the voluntary sector will be available from Her Majesty’s Treasury, 1 Horse Guards Road, London, SW1A 2HQ or on www.gov.uk and will be published alongside these Regulations on www.legislation.gov.uk.

A transposition note setting out how these Regulations transpose the provisions of the UCITS V Directive is available from Her Majesty’s Treasury, 1 Horse Guards Road, London, SW1A 2HQ and is published on www.legislation.gov.uk alongside these Regulations.