What is going to be in UCITS VI?

Mon Jul 9, 2012

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Comment by Joy Dunbar, Editor of Absolute UCITS

UCITS V was published earlier this week. Even though in an ideal world this would probably be the last Directive for a decade – at least – I suspect that UCITS VI will be proposed before the ink dries on the latest version which is expected to be enforced by 2014.

This is because increased global regulation will affect all areas of the financial services industry and this is likely to continue for the next few years.

UCITS V focuses on the clarification of the depositary's functions, the introduction of rules on remuneration policies and the harmonisation of the minimum administrative sanctions that are to be available to supervisors in case of key violations of the UCITS rules.

Ever since UCITS were first introduced in 1985 the overarching objective was to allow investment schemes to operate freely within European member states.

The next directive, I suspect, will happen sooner rather than later because of the instability in the sector – not least due to changing public opinion against the financial services sector as a whole.

The public outrage surrounding the manipulation of Libor, even though doesn’t affect the asset management sector directly, is just the latest scandal to hit financial services, increasing the chances that the industry will change forever –with its damaged reputation seemingly certain to lead to tougher regulation.

The next directive will attempt to iron out the unwitting problems arising from earlier directives and will resolve ongoing issues like whether certain UCITS should be classed as complex products. Or it will be realigned to reflect the mood of public opinion.

Legislators may also change certain rules to allow the directive to become friendlier to longer term investors especially if they become the investment building blocks for a European-wide pensions’ scheme.

So a wider investment universe could be included for UCITS – including more esoteric investments like loans or less liquid investment strategies – though I suspect this is unlikely.

More regulation is definitely on its way, the financial services industry is changing as a result of the amount of billions of taxpayers’ money that have been pumped into some institutions, most notably banks, and the content of UCITS VI is likely to be the inevitable consequence of this.

What do you think is going to be in UCITS VI? Please comment below.

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