.jpg)
(see IP/09/126)
Do you think that the existing Directive has been improperly implemented?
The Commission will examine the situation carefully to establish if relevant national provisions are not in conformity with the Directive.
However, at this point in time, the problem seems to be less one of improper implementation than on how to ensure sufficient convergence in the application of principles which are clear in their intent – but less clear in their application.
What are the options for completing any gaps in framework?
The Commission will consider any appropriate and efficient solution to address evidenced gaps or failures. At this stage, a wide range of options can be envisaged. They vary from a clarification of the responsibilities implied by asset safe-keeping, supported by further convergence in national practices, to a legally binding harmonisation.
The starting point will be a review that the Commission intends to initiate, in association with CESR. This will aim to clarify appropriate safe-keeping duties at member state level and the modalities by which depositaries can exercise those duties in particular when asset are kept in sub-custody with a third party. The conclusions of this review will help the Commission in assessing whether additional measures need to be taken.
If legislative changes are required, should they be integrated into UCITS IV?
The Commission does not believe that this would be appropriate or, productive. The review of depositary responsibilities is just getting underway while the legislative process for UCITS IV has already reached its final stage. The UCITS IV review has been a long running process: Member States and the European Parliament have just completed the co-decision process. It is necessary now to put those provisions to work as quickly as possible in order to help the industry respond to current market tensions and future challenges. Any issues relating to depositaries should be addressed through a separate process.
Why were these problems not identified and addressed before?
The safe keeping duties of the UCITS asset depositary have existed since the first UCITS directive was implemented in 1985. No significant difficulties have previously arisen. Today's issues have materialised due to exceptional circumstances which are hard to be foreseen and the Commission is confident in the UCITS regulatory model which has been standing steady, even in time where severe financial tension exists.
Has the Madoff scandal highlighted other problems in UCITS framework beyond depositary responsibilities?
The principal issues relate to the way in which depositaries have out-sourced functions and delegated responsibilities to other entities. The review to be undertaken will have to examine whether the conditions under which such our-sourcing and delegation tke place are sufficiently circumscribed and commonly understood. To whom can depositaries delegate functions or activities, and under what conditions? While the main focus of this work will be on depositaries, some of these lessons may be relevant for delegation and outsourcing when undertaken by other actors in the fund chain – notably the fund manager.
Why did the EU not deal with these issues in UCITS IV when it had the chance?
The Commission was very transparent in its preparation of the UCITS IV legislation that it did not regard harmonisation of depositary missions and responsibilities as a priority. It was considered that depositary role was sufficiently robust and well-understood so as not to require further harmonisation. The fundamental responsibilities and ultimate liability of the depositary were thought to have been sufficiently clear on the basis of the current Directive. There was no intention to a fund to appoint a depositary in another Member State – given the need to preserve direct control on operation of the fund in the fund domicile. On these grounds, the level of harmonisation of depositaries delivered by the Directive appeared to be adequate. With some exceptions, this approach was broadly supported. I take this opportunity to insist on the fact that the Madoff scandal has indeed raises true questions about funds' asset custody. But it does not question the entire UCITS model. Up until now, UCITS funds have weathered the financial crisis well. The regulatory model has stood up well to pressure and apart from few temporary suspensions, UCITS funds have not defaulted.
