Depositaries in European Investment Law: Towards Harmonization in Europe

In practice, the same investment firms and credit institutions are acting as a custodian for discretionary mandates and ‘execution only’1 services under MiFID II/CRD IV, a depositary under the AIFMD/UCITSD V and a depositary/custodian under IORPD II. The European investment laws, i.e. MiFID II, CRD IV, the AIFMD, UCITSD V and IORPD II are inconsistent in granting a depositary/custodian passport to these depositaries/custodians. They are both inconsistent throughout the directives and on a cross-sectoral basis. On a cross-sectoral basis, MiFID II and CRD IV have an ‘ancillary’ European passport for ‘custodians’ in place. To the contrary, the AIFMD and UCITS require the depositary of UCITS and EEAAIFs to be established in the UCITS/EEA-AIF home Member State, whereas the same entities acting as a depositary/custodian under IORPD II do have a ‘de facto’ European passport. Not only are the European investment laws inconsistent throughout the directives, also the directives itself are inconsistent. The AIFMD, for example, differentiates between a strict locational requirement for EEA-AIFs, whereas there is a ‘quasi-depositary passport regime’ in place for depositaries appointed for TC-AIFs. The inconsistency in granting a European passport for depositaries under the European investment laws lead to a ‘European depositary passport paradox’.
Notwithstanding the benefits of introducing a depositary/custodian passport, a European passport for UCITS and AIFMD depositaries has so far been multiple times considered, but not introduced. MEP Perreau de Pinninck after the introduction of the ‘ancillary European passport’ under the ISD and Second Banking Directive considered that a European depositary passport for UCITS should not be introduced for two reasons. First, it was considered that the depositary function was going beyond mere performing the ‘custodian’ function under the ISD and Second Banking Directive. Second, the depositaries in the UCITS domain had not been harmonized to effectively perform the controlling function. This reasoning, however, does not explain why currently not a depositary passport has been introduced under the substantially harmonized depositary function under the AIFMD and UCITSD V. Neither does this reasoning explain why depositaries and custodians under IORPD II enjoy a ‘de facto European passport’ under a minimum harmonized regime and why the AIFMD grants transitional relief for credit institutions and a quasi-depositary passport for TC-AIFs. For this reason, this thesis explains what depositaries are and sets out to what extent depositaries and custodians are different and explains under what conditions an European/TC passport could be granted to (AIF/UCITS) depositaries. The thesis concludes by indicating that the harmonization of the entities eligible to act as a depositary/custodian would provide a solid foundation for the introduction of a cross-sectoral European depositary passport. The entities eligible and the safekeeping tasks to be performed would be harmonized under MiFID II, whereas the oversight duties could be modelled after UCITSD V on the sectoral level.