UCITS: organisational requirements and rules of conduct
Following the recast of the Directive on undertakings for collective investment in transferable securities (UCITS), the European Commission intends to take measures concerning rules of conduct and organisational requirements for investment companies. This Directive reflects that intention, laying down administrative procedures, and control and risk management mechanisms for UCITS.
Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company (Text with EEA relevance).
This Directive is an implementing measure of the Directive on the rules applying to UCITS. It specifies the organisational requirements with which management companies managing UCITS must comply, as well as rules of conduct and rules on handling conflicts of interest. Furthermore, the Directive establishes requirements concerning the risk management process for UCITS.
Entities concerned by the Directive
This Directive applies to:
- management companies which manage UCITS;
- investment companies that have not designated a management company.
Administrative procedures and control mechanism
Management companies have a duty to:
- implement decision-making procedures, and an organisational structure;
- ensure that information is transmitted to the relevant persons * in the proper way;
- implement appropriate internal control mechanisms;
- maintain records of their business and internal organisation.
Management companies must safeguard the security, integrity and confidentiality of information.
They must put in place operational accounting procedures in such a way that all assets and liabilities of the UCITS can be directly identified at all times. The accounting procedures must be in accordance with the accounting rules of the UCITS’ home Member States.
As regards internal control mechanisms, the senior management of management companies are responsible for general investment policy. They oversee the approval of investment strategies for each UCITS.
Management companies must ensure permanent compliance. This consists of evaluating the adequacy and effectiveness of the measures taken to address any failures of the management company in complying with its obligations. Compliance also consists of advising and assisting the persons responsible for carrying out the services and activities of the management company. This work is to be carried out by a person designated for this purpose.
Management companies shall be responsible for maintaining a risk management function at all times, independently of operational units, in particular responsible for:
- implementing the risk management policy and procedures;
- ensuring compliance with the UCITS risk limit system;
- providing advice to the board of directors as regards the identification of the risk profile of each managed UCITS;
- reviewing and supporting the arrangements and procedures for the valuation of over-the-counter (OTC) derivatives.
Management companies shall put in place a procedure to prevent certain relevant persons * from:
- performing a personal financial transaction or advising another person to perform such a transaction;
- divulging information that might influence the behaviour of other persons as regards the choice of their transactions.
Portfolio transactions must be recorded in order facilitate future reconstructions of the details of the order, as must be subscription and redemption orders. These records are then to be retained for at least five years.
Conflict of interests
The following situations may lead to conflicts of interest, where:
- the management company is likely to make a financial gain, or avoid a financial loss, at the expense of the UCITS;
- the management company has an interest in the outcome of a service provided to the UCITS or another client which does not share the interests of the UCITS;
- the management company has an incentive to favour the interest of another client;
- the management company carries out the same activities for the UCITS as for another client;
- the management company receives money, goods or services illegally.
Management companies are therefore obliged to define in writing an effective policy as regards conflict of interest, which preserves the independence of the relevant persons.
Rules of conduct
Management companies must treat UCITS unit-holders * fairly. Where they have carried out a subscription or redemption order for a unit-holder, they must send the unit-holder notice containing in particular the following information:
- the management company identification;
- the name of the unit-holder;
- the date and time of receipt of the order and method of payment;
- the date of execution;
- the UCITS identification;
- the number of units involved.
Management companies are not permitted to carry out a UCITS order in aggregate with an order of another UCITS or another client or with an order on their own account.
Management companies must implement an operational risk management policy. They are to calculate the global exposure of the UCITS once a day.
|Act||Entry into force||Deadline for transposition in the Member States||Official Journal|
OJ L 176 of 10.7.2010