ESMA updates its Q&As on UCITS

​On 11 July 2017, the European Securities and Markets Authority (ESMA) updated its Q&As, “Application of the UCITS Directive” by including two additional questions on (a) issuer concentration and (b) group links and independence.

The update sets out ESMA’s view in the following matters:

New Q.5a, in Section I - General of the Q&A document, confirms ESMA’s view that the 40% limit set out in Article 52(2) of the UCITS Directive does not apply to index-tracking UCITS which comply with the requirements set out in Article 53.

In Q1 of a new section in the Q&A document, Section VIII - Independence of management boards and supervisory functions, ESMA considers whether, where a group link exists for the purpose of Article 24 of the Level 2 Delegated Regulation, a person will fulfil the independence requirement under Article 24(2) if that person formerly served in the management body or supervisory body of an entity within the group or was otherwise employed by such an entity but has now ceased any function within the entity.

ESMA’s view is that the independence requirement would be fulfilled only after “an appropriate cooling-off period” following the termination of the person’s relationship with the relevant entity.

The cooling off period would start from the final payment of any outstanding remuneration due which entails a margin of discretion on the part of the entity (eg, in the case where any portion of variable remuneration is deferred and may still be reduced, including through malus or clawback arrangements) and is linked to the person’s previous employment or other relationship with that entity. Note that non-discretionary outstanding payments from the entity to the person should not be taken into account for this purpose.

Without prejudice to any national corporate governance requirements, the cooling-off period should be proportionate to the length of the employment or other relationship that the individual had with any of the companies within the group and to the type of functions performed within such company or companies.

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