Transposition of UCITS V into Norwegian law

The UCITS V Directive (2014/91/EU) which amends the UCITS IV Directive (2009/65/EC) was published in the Official Journal (OJ) on 28 August 2014 and came into force on 17 September 2014 with EU member states required to achieve full transposition of the rules into national law by 18 March 2016. The Directive must also be transposed into Norwegian law, but the implementation has been delayed pending the incorporation of Regulations on the European supervisory authorities in financial markets into the EEA Agreement. Following Parliament’s consent to the latter on 13 June this year, the Ministry of Finance published a legislative proposal for the implementation of the UCITS V into Norwegian law on the 26 August 2016 (Prop. 154 L (2015-2016).
Thursday, September 8, 2016

Author: Partner Klaus Henrik Wiese-Hansen and Associate Heidi Magnussen, Advokatfirmaet Steenstrup Stordrange DA

UCITS V was the EUs response to the financial crisis and the collapse of Lehman Brothers which exposed a divergence in the application of UCITS rules across member states. UCITS V aimed to create uniform market conditions and enhance investor protection by introducing change in three key areas: (i) remuneration — introducing a regime consistent with that under the Alternative Investment Fund Managers Directive (AIFMD) and the Capital Requirements Directive (CRD); (ii) the harmonisation of the sanctions regime across member states; and (iii) changes to depositary eligibility, duties, responsibilities and liabilities.

The above changes are reflected in the Ministry’s proposal for the transposition of the Directive into Norwegian law. In addition, the Ministry proposes a new legal protection rule in the Financial Collateral Arrangements Act (lov om finansiell sikkerhetsstillelse) for security in the banks’ loan portfolios with underlying collateral for their loans in the Central Bank of Norway. Further, there are proposed amendments to section 9-21 of the Securities Trading Act concerning consolidation of capital and solvency requirements, and proposed new provisions in section 10-16 b in the Securities Trading Act, and in section 1-5 of the Securities Funds Act which gives the Ministry of Finance the authority to establish via Regulation that investment firms and managers of securities’ funds must be linked to price information on online price portals.



1                 UCITS depositary function

The provisions concerning the depositary function have been largely unchanged since the UCITS Directive (UCITS I) was adopted in 1985. UCITS V contains some of the original provisions on the depositary function, but introduces a number of new and expanded rules on the role of depositaries, cf. UCITS V Art. 22-26.

1.1             Appointment of a depositary

A UCITS manager must ensure that a depositary is appointed using a written contract (Article 22(2)). The written contract regulates the flow of information necessary to allow the depositary to perform its functions for the UCITS for which it is appointed.

1.2            Duties of a depositary

Article 22 sets out the duties a depositary has. For each UCITS that a depositary is responsible for, it should:

  • Ensure that the sale, issue, re-purchase, redemption and cancellation of units of the UCITS are carried out in accordance with applicable national laws and the fund rules or instruments of incorporation.
  • Ensure that the value of the units of the UCITS is calculated in accordance with applicable national laws and the fund rules or the instruments of incorporation.
  • Carry out instructions of the management company or an investment company (unless they conflict with applicable national laws or the fund rules or the instruments of incorporation).
  • Ensure that where a transaction involves the assets of the UCITS, any consideration is remitted to the UCITS within usual time limits.
  • Ensure that the income of the UCITS is applied in accordance with applicable national laws and the fund rules or the instruments of incorporation.
  • Ensure that the cash flows of the UCITS are properly monitored. This means ensuring that all payments made by or on behalf of investments when subscribing for units in the UCITS have been received, and that all cash of the UCITS has been booked in cash accounts. Cash accounts must meet specified conditions.
  • Ensure the safe-keeping of the UCITS’ assets.
  • On a regular basis, provide the management company or the investment company with a comprehensive inventory of all of the assets of the UCITS.
  • Ensure that any assets held in custody by the depositary are not reused by it or by any third party to whom the custody function has been delegated. Reuse means any transaction of assets held in custody including transferring, pledging, selling and lending.
  • When performing these duties, a depositary should act honestly, fairly, professionally, independently and solely in the interests of a UCITS and its investors. This includes avoiding conflicts of interest (Article 25).

1.3            Liabilities of a depositary

A depositary is liable to the UCITS (and its unit holders (that is, investors)) for loss by a depositary or delegate of financial instruments held in custody. A depositary should return a financial instrument of identical type or the corresponding amount without undue delay.

A depositary will not be liable if it can prove that the loss has arisen as a result of an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary.

A depositary is liable for all other losses suffered by a UCITS and its investors as a result of a depositary’s negligent or intentional failure to properly fulfill its obligations under the UCITS IV Directive (Article 24).

 2                Remuneration

UCITS management companies are required to establish and apply remuneration policies and practices that are consistent with, and promote, sound and effective risk management, and do not encourage risk-taking that is inconsistent with the risk profiles, rules or instruments of incorporation of the UCITS they manage. The policies and procedures must also not impair compliance with the management company’s duty to act in the best interests of the UCITS (Article 14a).

2.1            Who do remuneration policies and practices apply to?

Remuneration policies and practices apply to those categories of staff whose professional activities have a material impact on the risk profiles of the management companies or of the UCITS they manage. This includes:

  • Senior management.
  • Risk takers.
  • Control functions.
  • Employees receiving total remuneration that falls within the remuneration bracket of senior management.

2.2           What must be included in a remuneration policy?

A remuneration policy must cover fixed and variable components of salaries and discretionary pension benefits. In a proportionate manner, a remuneration policy should:

  • Be consistent with and promote sound and effective risk management that does not encourage risk-taking that is inconsistent with the risk profiles, rules or instruments of incorporation of the UCITS under management.
  • Be in line with the business strategy, objectives, values and interests of the management company, its UCITS, and investors. This includes measures to avoid conflicts of interest.

2.3           How should remuneration be set?

Where remuneration is performance related, the total amount of remuneration must be based on a combination of the assessment of the performance of the individual and of the business unit or UCITS concerned and their risks, and of the overall results of the management company. When assessing individual performance, both financial and non-financial criteria should be taken into account.

Staff engaged in control functions should be compensated in accordance with the achievement of their objectives linked to their functions, independent of the performance of the business areas they control.

Guaranteed variable remuneration is “exceptional”, meaning that it should only occur in the context of hiring new staff and should be limited to the first year.

Fixed and variable components of total remuneration should be appropriately balanced. The fixed component should represent a high enough proportion of the total remuneration to allow a flexible policy on the variable remuneration (including the possibility of paying no variable remuneration).

In relation to variable remuneration: 

  • At least 50% of variable remuneration should consist in units of the managed UCITS (or equivalent) (subject to a couple of exceptions).
  • At least 40% of variable remuneration should be deferred for at least three years. 

2.4           Do details of the remuneration policy need to be published?

Details about a management company’s remuneration policy must be published in accordance with the points below.

UCITS prospectus

  • Details of the remuneration policy, including a description of how remuneration and benefits are calculated, and the identities of persons responsible for awarding the remuneration and benefits.
  • A statement that the details of the remuneration policy are available by means of a website and that a paper copy will be made freely available if requested. 

 Annual report

  • The total amount of remuneration for the financial year, split into fixed and variable remuneration paid by the management company and by the investment company to its staff, the number of beneficiaries, and any amount paid directly by the UCITS itself, including performance fee.
  • The aggregate amount of remuneration broken down by categories of employee.
  • A description of how the remuneration and benefits have been calculated.
  • Outcomes of remuneration reviews, including any irregularities that have occurred.
  • Material changes to the adopted remuneration policy.

Key investor information (KII or KID)

  • A statement that the details of the remuneration policy are available by means of a website and that a paper copy will be made freely available if requested.


3                 Sanctions

UCITS V aims to achieve minimum harmonisation of UCITS sanctioning regimes by requiring:

  • A minimum catalogue of administrative sanctions and measures (including harmonisation of the lower bound of the maximum amounts of administrative fines).
  • A minimum list of sanctioning criteria.
  • Competent authorities and UCITS managers to establish whistle-blowing mechanisms.

The sanctions regime applies to breaches of the main investor protection safeguards in UCITS IV.


According to the recent legislative proposal, the Ministry of Finance proposes amendments to both primary and secondary Norwegian financial markets legislation. The transposition of the Directive into Norwegian law will, according to the proposal, necessitate amendments to both the Securities Funds Act and the Securities Trading Act.

Amongst the most important changes is the new sanctions regime explained above, which gives the Ministry the authority to impose administrative sanctions in response to breaches of the main investor protection safeguards in UCITS IV.

The Ministry proposes no amendments to the rules on who can act as depositaries for securities’ funds, and there is widespread agreement between the bodies entitled to comment on the proposal that only credit institutions should be able to assume the role of depositaries. Certain changes and clarifications are, however, proposed in relation to the duties and responsibilities of the depositaries, in order to bring the domestic legislation in line with the provisions of the Directive.  

The Ministry of Finance is further proposing a new legal protection rule in the Financial Collateral Arrangements Act (lov om finansiell sikkerhetsstillelse). The purpose behind this provision is to facilitate payments of extraordinary liquidity loans from the Central Bank of Norway.

The bill also contains proposed amendments to the Securities Trading Act regarding the consolidation of capital and solvency limits. Under current consolidation rules for investment firms the consolidation requirement for the rules on large counterparty exposure are somewhat narrower than the consolidation rules in place for capital adequacy requirements, with the latter being in line with EU rules. The proposal implies that also participating interests (in undertakings other than investment firms and financial institutions) and undertakings with joint management will be covered by the obligation to apply the rules on large counterparty exposure on a consolidated Level.

The Ministry finally proposes new provisions in the Securities Funds Act and the Securities Trading Act. The proposal means that investment firms and investment fund managers which offer products that are visible on online portals may be ordered by the Ministry to include a link to online price portals, on an equal footing with financial institutions.


Steenstrup Stordrange has an experienced team of lawyers specialised in financial markets legislation. The team has comprehensive knowledge of the legislative proposal, and can advise on all aspects of the transposition process and the likely consequences for undertakings operating in Norwegian financial markets.