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The changing role of custodian banks - 05/07/2013


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The world of the depositary bank is changing due to increased regulation

There has been much public debate and comment around initiatives aimed at reforming the European internal market and beyond it the global arrangements in the wake of the financial crisis.

In general such initiatives are centred around two pillars – the drive towards greater investor protection and the measures aimed at identifying and mitigating systemic risk.

One of the key areas where legislation seeks either to change or to clarify and harmonise existing practices is within the realm of the Depositary Bank and its close cousin the Custodian.

The principal instruments instituting these changes include:

  • AIFMD (Alternative Investment Fund Managers Directive) and UCITS V (fifth release of the Undertakings for Collective Investment in Transferable Securities Directive)
  • EMIR (European Market Infrastructure Regulation) and relevant clauses of its transatlantic cousin Dodd-Frank, both seeking to bring transparency and greater security to the world of Over the Counter (OTC) Derivatives
  • Other longer term infrastructure projects such as Target 2 Securities (T2S).

To translate this intent into practical actions, these pieces of legislation are supplemented by guidance and direction issued by relevant authorities and bodies such as:

  • ESMA (the relatively newly created European Securities and Markets Authority),
  • IOSCO (International Organisation of Securities Commissions)
  • US regulatory authorities operating under the general principles of the Dodd-Frank Act.

Such an ambitious legislative agenda will inevitably result in change, but in seeking to understand the dimensions of this change, and how each legislative package interacts, a brief look back as to how the current situation has arisen is a useful exercise.

Discover the whole newsletter in the attached PDF.

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