BNP Paribas has called for clarification into the responsibilities and liabilities of depositories as defined by UCITS IV.
In a white paper entitled UCITS IV: The transforming event for European asset managers and distributors, the authors ask for increased recognition of the difficulties and liabilities of safekeeping assets. Some elements are indeed beyond the control of the depositary, for example the legal framework in a given country which does not recognise segregation of third-party assets.
The authors were keen to state that the depository does not provide a 100% insurance policy, claiming that such a policy would be unaffordable. The white paper also calls for greater harmonisation is an absolute requirement for the promotion of the single market, to ensure the same level of investor protection, regardless of where the EU fund is domiciled.
Focus on the role of the depository has increased after the Madff fraud and the Lehman Brothers collapse, which has led to questions about role and liability of UCITS depositaries. Depository liability law varies from country to country, resulting in different rulings for similar cases. French private bank and fund manager Oddo & Cie successfully forced UBS to reimburse EUR30 million that had been invested with Madoff in Luxalpha Sicav, a Luxembourg UCITS fund set up by UBS in 2004. In April 2009, a French court ruled that both Societe Generale and RBC Dexia were both liable for losses accrued by clients from the collapse of Lehman Brothers, forcing the banks to take responsibility for third-party losses. However, despite the announcement of the Luxemburg regulator and the original court ruling in favour of Oddo & Cie, UBS was eventually freed from its obligation to repay the LuxAlpha fund monies lost to the Madoff fraud. The Luxembourg Court of Appeal said serious doubts remain over Oddos right to the funds.
The directive will come into force in July 2011.
The report can be found herehere