UCITS V is to be implemented next Friday but several clarifications are still necessary, a legal expert warned at the Association of the Luxembourg Funds Industry (ALFI) Spring Conference.

Frédérique Lifrange, partner at Elvinger Hoss Prussen, said collateral management is an area in need of particular attention, preferably before the regulation’s rollout on 18 March.

For UCITS funds, ESMA set up rules on received collateral. In particular, four aspects are relevant including scoping of collateral, diversification, eligibility and usage. 

Despite the reservations most agree that banks are prepared for the new regulation, which is largely aimed at retail investor protection with requirements in the areas of depositaries, sanctions and restrictions on fund manager performance fees.

Judith Robinson, managing counsel at BNY Mellon, praised the directive for clarifying the location of a fund's assets.

“It’s a more collaborative, transparent process now than it was before,” and stated that as a whole the directive was “a positive thing.”

She highlighted the importance of both extensive due diligence and working with the client to establish service requirements ahead of its introduction.

Robinson also emphasised that the process should be “a dialogue with the client”, identifying market coverage and investment strategies, in order to optimise the service that a bank can provide. 

Jean-Marc Crepin, partner at Brown Brothers Harriman, said that thanks to AIFMD preparations, as well as internal developments, most depository banks had various UCITS V requirements fulfilled well before 2016.

 AIFMD, another regulation aimed at hedge funds, has considerable overlap with UCITS V around depositaries’ delegated acts.

In many cases, requirements such as cash flow monitoring - which are regulated for the first time by UCITS V - were already in place in most banks and required only minor adaptations to fulfil the new directive.

Crepin said that depository banks understand the reasoning behind the UCITS V directive, which has “led to an improvement of the operational risk framework that a depository bank has”.

He added that relationship managers are “the first line of defence” and integral to successful operation.

Crepin also praised the regulation saying “UCITS V has a cost, but is bringing to the front the value of a depository bank,” adding that in the future he has hopes for UCITS VI and passporting for depository banks.