A critical examination of the regulatory and supervisory mechanisms available for the establishment of an internal market passport for depositaries

Abstract

The transposition of various European directives across Member States aided in shaping the financial services industry. The various permutations of the UCITS Directive and the recently adopted AIFMD are the prominent directives regulating collective investment schemes and their service providers, including depositaries. EU law provides a framework for the free movement of services across borders, however funds are required to appoint depositaries in their home domicile. In this respect, the lack of a depositary passport has been deemed to be the missing piece to the internal market puzzle. The adoption of a depositary has been the subject of discussions for a long period of time, dating back to the proposal of the UCITS II Directive in 1993. The AIFMD introduced a de-facto depositary passport by allowing AIFs to appoint a depositary in another jurisdiction than that of the fund, but this derogation shall only apply until July 2017. Therefore, those funds benefiting from this derogation will soon have to seek alternative arrangements if a depositary passport is not adopted. In order to adopt a depositary passport, various elements need to be taken into consideration, including the harmonisation between the UCITS Directive and the AIFMD, and more importantly, the streamlining of the transposition of the said directives across different Member States. Different regulatory and supervisory mechanisms can be adopted to allow the adoption of a depositary passport, however it all depends on whether a favourable decision is taken. This dissertation attempts to identify what measures can be put in place for the effective adoption of a depositary passport.