UCITS in practice: depositary, PRIIPs KID and Irish rules

Each Member State decides which eligible categories it allows (Art 23(3)). Eligible categories are a central bank, an EU credit institution, or another entity meeting the Article 23(2)(c) conditions. An "other legal entity" is authorised for depositary activities, with capital and own-funds minimums. It is under prudential regulation and ongoing supervision, and meets the Art 23(2) organisational requirements.

A written contract governs the appointment. It is made with the investment company, or the management company for each common fund, and covers at least sixteen items. Among them are services by asset type, safekeeping by country, termination and hand-over, and information flows. Escalation and the depositary's right to enquire and visit on site are also covered (Delegated Regulation 2016/438, Art 2(1) and (2)). One contract may cover several common funds, unless national law requires otherwise. It names the law that governs it (Art 2(4) and (5)). The Delegated Regulation applies from 13 October 2016 (Art 25).

A depositary may carry out other tasks that could conflict with its role only if it separates them functionally and hierarchically. The conflicts must also be identified, managed, monitored and disclosed to investors (UCITS Art 25(2)).

The depositary oversees how the management company deals in units, values them, applies income and settles trades. It monitors the UCITS cash flows. Under oversight, dealing and unit valuation follow national law and the fund documents. Instructions are carried out unless they conflict with them. Consideration is remitted within the usual time limits, and income is applied correctly. Under cash monitoring, subscription payments are received and cash is booked properly. Instruments that can be registered in the depositary's books sit in segregated accounts. Ownership of other assets is verified from documents and, where available, external evidence, and a record is kept up to date.

Instruments that can be physically delivered to the depositary are always in its custody scope. Instruments registered directly in the UCITS name with the issuer or its agent only, such as a transfer agent, are not held in custody (Reg. 2016/438 Art 12(2) and (3)). The depositary carries out the manager's instructions unless they conflict with national law or the fund rules (UCITS Art 22(3)(c)).

Reuse of custody assets needs all four conditions. It is for the account of the UCITS, on the manager's instructions, and for the benefit of the UCITS and its investors. It is also covered by high-quality, liquid collateral received under a title transfer arrangement. The collateral's market value must at all times be at least the market value of the reused assets plus a premium (UCITS Art 22(7)).

Safekeeping may be delegated only if the depositary does not aim to avoid the Directive and can show an objective reason. It applies due skill, care and diligence in choosing and appointing the delegate, except an investor CSD, and in reviewing and monitoring it. A custody delegate is under effective prudential regulation, capital rules and supervision, has an external periodic audit, and segregates client assets (UCITS Art 22a(2) and (3)). A narrow exception applies in a third country whose law requires a local entity, while no compliant local entity exists. Investors must be informed before investing, and the UCITS must instruct the delegation (Art 22a(3)).

If the depositary or an EU custody delegate becomes insolvent, the UCITS assets held in custody are not available to its creditors (UCITS Art 22(8)). For a third-country delegate, the depositary ensures that the delegate receives independent legal advice that the local insolvency law recognises the segregation (Reg. 2016/438 Art 17(2)(a)).

A loss is deemed in three cases. A stated right of ownership is shown not to be valid. The UCITS is definitively deprived of its ownership. Or it is definitively unable to dispose of the instrument. An instrument substituted by, or converted into, another is not deemed lost (Reg. 2016/438 Art 18(3)). The management or investment company ascertains a loss by a documented process; investors are then notified immediately in a durable medium (Art 18(2)).

Delegation does not affect this liability, and no agreement may exclude or limit it; such an agreement is void (Art 24(2) to (4)). Step 4 asks whether the depositary could reasonably have prevented the event with the precautions of a diligent depositary under common industry practice. Step 5 asks whether it could have prevented the loss with documented, rigorous and comprehensive due diligence.

The external-event defence needs all three conditions in Article 19(1) (Reg. 2016/438 Art 19(1)). Natural events beyond human control, government or court acts affecting the instruments, and war, riots or other major upheavals may meet points (a) and (b). The depositary must still prove the due-diligence condition in point (c) (Art 19(2)). An accounting error, operational failure, fraud or a failure to segregate does not (Art 19(3)).

The defence needs a proven external event beyond the depositary's control, with consequences unavoidable despite all reasonable efforts. Delegation and contract cannot reduce this liability.

For other losses, the depositary is liable where they result from its negligent or intentional failure to fulfil its obligations under the Directive (UCITS Art 24(1)).

Article 21 applies to any relationship. No one sits on both management bodies; no manager board member employed by the depositary; no depositary board member employed by the manager or investment company. A link or group link needs a documented comparison with depositaries that have no link, and a report on it (Art 22(2)). The two may have a 10% holding or significant-influence "link", or belong to one group.

For a group link, the independence rule applies to each management body where it also has the supervisory functions, otherwise to each supervisory body (Art 24(1)). A separate supervisory body may also arise. There, no more than one third of its members may also sit on, or work for, the other side (Reg. 2016/438 Art 21). A "link" is a direct or indirect holding of 10% or more of capital or votes. A holding giving significant influence over management also counts. A "group link" means membership of the same group under Article 2(11) of Directive 2013/34/EU (Reg. 2016/438 Art 1). An independent member is not a member of the management or supervisory body, or an employee, of another group undertaking. It also has no business, family or other relationship that creates a conflict impairing its judgment (Art 24(2)).

Records of orders and transactions are kept for at least five years (Arts 14 to 16). Investors may complain, and get information on the procedure, free of charge (Art 6). The risk management function is hierarchically and functionally independent, and a Member State may allow the proportionate derogation. The documented risk policy covers market, liquidity, sustainability, counterparty and operational risks. The firm takes all reasonable steps to centralise and record received subscription and redemption orders immediately.

The conflict criteria include a likely gain, or an avoided loss, at the expense of the UCITS. Another case is an inducement beyond the standard commission or fee (Directive 2010/43 Art 17(1)). A competent authority may require records to be kept longer than five years in exceptional circumstances (Art 16(1)). Remuneration rules are outside this guide.

UCITS managers and sellers were exempt from PRIIPs until 31 December 2022 (PRIIPs Art 32(1)). The manufacturer publishes the KID before the product is made available to retail investors (PRIIPs Art 5(1)). The adviser or seller may also provide it to a person with written authority to decide for the investor (Art 13). A complaint about the KID gets a substantive reply in a timely and proper manner, and cross-border redress is available (Art 19).

A "retail investor" is a MiFID II retail client. An insurance customer who would not be a professional client also counts (PRIIPs Art 4(6)). The KID duties attach to making a product available, and providing it, to retail investors (Arts 5 and 13). The post-sale route needs all four conditions. The investor starts a distance sale, and prior provision is not possible. The investor is told it may delay the deal to read the KID, and consents (Art 13(3)).

"Good time" means early enough for the investor to consider the document, whether or not a cooling-off period applies. The adviser or seller weighs the investor's knowledge and experience and the product's complexity. Where the investor initiated the deal, it also weighs any urgency the investor expressly states (RTS 2017/653 Art 17). The manufacturer is not civilly liable on the KID alone unless it is misleading, inaccurate or inconsistent with the binding documents or Article 8. A retail investor who shows loss from relying on it may then claim damages under national law, and no contract term may limit that liability (PRIIPs Art 11).

The KID follows a fixed order of sections with set headings (PRIIPs Art 8(3)). If marketing documents in the distribution state use official languages, the KID uses at least those (PRIIPs Art 7(2)). The risk indicator combines market and credit risk. Total costs are shown over set periods, with one-off, recurring and incidental costs.

The market risk class has seven bands of VaR-equivalent volatility, from below 0.5% to 80% or more (RTS 2017/653 Annex II, point 2). The overall indicator combines that class with the credit risk class (Annex II, point 52). A manufacturer may increase the indicator where it does not reflect the risks; that decision is documented (point 52a).

Recurring costs separate portfolio transaction costs from other recurring costs. Incidental costs include performance fees and carried interest (RTS Art 5(3)). The PRIIPs Regulation's full text is summarised on the PRIIPs law page.

The revised version is made available promptly (RTS 2017/653 Art 16(1)). The 12-month count runs from first publication. A review is also due on any change that significantly affects, or is likely to significantly affect, the KID.

The review covers more than these two tests; Article 15(2) lists them (RTS 2017/653 Art 15(2)). The KIID relief applies where the investment company, or the management company for a common fund, draws up, provides, revises and translates a compliant KID (UCITS Art 82a(2)).

S.I. 316/2026 provides Central Bank requirements alongside the UCITS Regulations 2011, and provides for revoking the 2019 Regulations. Regulation 131 provides for revoking the 2019 Regulations and their 2023 amendment (reg 131). It defines the "UCITS Regulations" as S.I. 352/2011, as amended (S.I. 316/2026 reg 2).

S.I. 316/2026 provides Irish depositary rules beyond the Directive. Regulation 119 provides that listed duties are carried out in Ireland and not delegated (reg 119(1)). It covers breaches by the UCITS or depositary of the UCITS Regulations, Central Bank requirements or the prospectus. The depositary notifies the Central Bank promptly of a material breach. It also does so for a non-material one still unresolved four weeks after it learns of it, and records are kept at least six years (reg 119(3) to (5)). Regulation 121 provides that a depositary may not share a director with the management company, the administrator or the UCITS investment company. Its appointment ends only on revocation of the UCITS authorisation or appointment of a replacement (reg 121). A depositary within reg 35(2)(c) of the UCITS Regulations has at least two Irish-resident directors (reg 117(2)). A new depositary is approved in advance by the Central Bank (reg 32).

An ICAV's sole object is collective investment (ICAV Act s.9). An umbrella UCITS provides in its constitutional document that each sub-fund's assets belong only to that sub-fund and may not discharge another sub-fund's liabilities (S.I. 316/2026 reg 29). An umbrella ICAV with segregated liability says so on its letterheads and written agreements (ICAV Act s.36). A sub-fund is not a separate legal person, but the ICAV may sue and be sued for a particular sub-fund (s.37). The Central Bank UCITS Regulations page and the ICAV Act page cover each in full.