The Ucits V level 2 delays will reduce time for investment managers to renegotiate contracts, according to BNY Mellon.

The second part of the Ucits V directive, which the EU will use to implement further clarifying legislation for more than 36,000 Ucits funds had been expected in Q2 2015, but is now expected in the second half of 2015.

"The Level 2 measures will include the particulars that need to be included in the contract between the fund and its depositary," said Rolf Bachner, managing director, Emea funds product manager at BNY Mellon. 

"As a result, it will now be more than a year after the publication of the Level 1 directive before investment managers, funds and their depositaries gain the legal certainty they require to re-contract under the new directive."

The time between the publication of the level 2 measures and the date when Ucits V will be effective on March 18 2016 is short, Bachner continues. Previous experience has taught managers is that the legal costs associated with regulations such as the AIFM directive can be significant.

A shorter timeframe for negotiation risks pushing up costs considerably as it puts undue pressure on legal resources available to conclude contracts. 

Bachner recommends that investment managers, funds and depositaries review template agreements ahead of the publication of Level 2 but warns that this approach carries the risk of parties having to go back closer to actual publication and re-negotiate points that have already been reviewed, which could significantly add to the total effort required. 

"The alternative approach is for the impacted parties to await further clarity in respect of the Level 2 measures, as well as the consultation and transposition processes in individual member states, Esma’s guidelines on client asset segregation, and specific guidance to the market and depositary trade associations by regulatory authorities," he said.

"Once there is greater legal certainty, firms will be better positioned to successfully conclude the necessary agreements in the short timeframe they will have available.”