Speaking on a panel on the implementation of UCITS V, Isabelle Lebbe, vice president of international transfer agency at Franklin Templeton Investments, noted that, globally, “the clients we advise are now compliant with the new regime, with a few exceptions.”
Some aspects of the regulation remain unclear, she said, and these aspect are being addressed in different ways because “we don’t have sufficient guidance”.
Under UCITS V, depositories have a duty to verify their instruction with the laws, regulation and fund rules, and this “proves to be difficult”, Lebbe said. She questioned how far the depository should be expected to go in these cases—for sharia-compliant funds, for example, it is unclear whether a depository is responsible for verifying compliance with sharia rules.
Lebbe suggested that funds and depositories should “clarify this in the depository document” in order to avoid further confusion.
The panel moderator, Andrea Mornato of Invesco Asset Management, moved on to address the issue of remuneration under UCITS V, suggesting that there are challenges from local regulators, where some have adopted clear guidelines and other have not.
He also pointed to the rage of other regimes such as the second Markets in Financial Instruments Directive and the Alternative Investment Fund Managers Directive, which are attempting to address the same issue, but tackling it from different angles, leading to inconsistencies.
Lebbe pointed out that, for remuneration, UCITS V includes a proportionality rule, allowing institutions to adapt the guidelines to meet their own situation. While some management companies have been quite risk averse in their implementation, others have stretched the rules, trying to stick, as far as possible, to their current position.
According to Lebbe, the Luxembourg regulator asked for proposals of implementation of the new rules, but so far “we have seen no reaction at all”.
While she argued that, while there are no clear rules there will be no strict expectation of compliance, one audience member suggested that, in fact, the regulator is purposely leaving regulations open to interpretation so that when an issue arises, it can “nail” those companies with more relaxed versions in place.
The audience member went on to say that management companies are still using these kinds of freedoms “for competitive advantage”, calling this “a fundamental problem in the industry”.