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EU Commission Examines Regulation of Depositaries in Member States
Washington, DC, April 6, 2004 - The EU Commission recently published a communication to the Council of Economic and Finance Ministers (ECOFIN) and the European Parliament on the regulation of UCITS depositaries in EU member states.
UCITS funds are European mutual funds that can be marketed in all EU countries. The UCITS Directive provides the framework for cross-border sales of investment funds in the European Union. The Directive allows a fund that qualifies under the Directive to be sold throughout the EU subject to regulation by its home country regulator.
When the UCITS amendments were adopted in 2001, ECOFIN requested that the Commission present a report on the regulation of depositaries and the need for further amendments to the UCITS Directive.
The Commission’s recent communication, which responds to ECOFIN’s request, reviews the regulations in the EU Member States, identifies the cross-border issues regarding a single EU market, and proposes a way forward to remedy problems.
The Commission notes that depositaries play a crucial role in protecting the interests of UCITS investors, but finds that depositaries are subject to a limited number of principles and duties at the EU level and that the vast majority of Member States do not appear to have developed more extensive rules than the Directive’s provisions. Additionally, the obligations and the liabilities of depositaries vary greatly among the Member States. The Commission also finds that there is a great deal of diversity among the Member States regarding conflicts of interest and prudential safeguards for depositaries.
The Commission’s communications discusses areas that will require additional harmonization, including:
- conflicts of interest,
- “asset safekeeping” and the specific control duties assigned to the depositary, and
- eligible depositary institutions.
Finally, the Commission believes that the highest short-term priority is to improve the quality of public information to retail investors about depositaries. In this regard, enhanced public information standards should cover the organization of the depositary’s tasks, measures taken against conflicts of interest, the depositary’s liability, and all costs connected to the depositary’s services.
The Institute has long supported harmonization among EU member states on the rules and regulations governing the UCITS market. For example, in 2000, the Institute recommended harmonizing marketing rules for UCITS funds and cooperation among member states to develop uniform interpretations of the UCITS Directive. For more information, see the links below or the section of this website devoted to global and international developments.
- Task Force Reports on Use of Derivatives by UCITS Funds, March 2003
- Proposed UCITS Directive Nears Adoption, March 2003
- Luxembourg Will Implement Amended UCITS Directive, January 2003
- The Regulation of Operational Risk in Investment Management Companies, Perspective, September 2002
- Amended UCITS Directive Becomes Effective, March 2002
- Implementation Date of EU Directive May Vary Among Member States, February 2002
- European Parliament Proposes Amendments To UCITS Directive, October 2001
- EC National Ambassadors Agree on UCITS II Proposal, March 2001
- EU Council Agrees on Amendment to UCITS Directive, January 2001
- Institute Comments on UCITS Regulation to European Committee, September 2000
- European Commission Approves Amendments to UCITS Directive, June 2000
- European Parliament Committee Proposes New Amendments to UCITS Directive, February 2000
- EU Proposals to Amend the UCITS Directive and Regulate Management Companies Under a New Directive, September 1998