A critical analysis of the developing role and responsibilities of depositaries in collective investment schemes

Abstract

The regulatory framework for depositaries of CISs has been tested by the collapse of Lehman Brothers as well as the Madoff scandal and the later MF Global default, which highlighted uncertainties in the role and responsibilities of CIS depositaries. Much debate and discussion ensued on the manner in which the depositary is to exercise its functions particularly in view of the modern operational practices and arrangements in place. Proposed regulatory initiatives at EU level aim to ensure more appropriate investor protection in the Union by introducing a new regime for fund depositaries. A regime that increases the importance of the depositary as a key CIS functionary as evidenced by new duties and a tighter liability regime imposed on it. In this respect, new legislative provisions provide challenges to depositaries from a regulatory and operational point of view. Several reconsiderations to principles and practices in place would need to be made to adapt to these new realities. This study considers the dynamics of the changes in this sphere and their effect on the role and responsibilities of depositaries by analysing relevant European Directives and the local framework.