Shedding Light on Non-Financial Risks – a European Survey

Shedding Light on Non-Financial Risks – a European Survey — January 2012

3. The Need for Change in Regulation and Risk Management Practices

United Kingdom has not implemented a clear responsibility-sharing policy in the past. Tougher and clearer restitution rules must be instated More precisely, overall, respondents mostly agree to a tougher stance on restitution rules, albeit with varying degrees, in the various options we put forward. 48% of respondents (48%) think that that the restitution of assets to investors should be unconditional (28% disagree), and (39%) agree that depositaries should be responsible for the unconditional restitution of all assets (32% disagree). After all, as underlined by Amenc and Sender (2010b), this solution is extremely costly if not unfeasible. Respondents are first in favour of a clarification of the perimeter of responsibilities, which is in line with recent proposals put forward in answers to the ESMA consultation, notably by ETDF (2011): a strong majority of respondents (69%) agree that depositaries should be responsible for the unconditional restitution of assets under their custody or control (24% disagree). Likewise, 68% agree that the restitution of assets should be contractually defined between depositaries and asset managers at the creation of the fund (17% disagree). And many think that sub-custodians should be included in this contractual definition of the roles: 65% agree that the restitution on assets should be contractually defined between depositaries, sub-custodians and asset managers (17% disagree).

the creation of the fund, and for the restitution between depositaries, sub− custodians and asset managers; for the majority of respondents, this contractual definition should be declared in the Key Information Document. Respondents also agree that ‘Only if an entity fails to perform its obligations should that entity take full responsibility for the assets, so if it performs it should not take responsibility’. Attitudes, however, are very much contrasted across geographies. •  Respondents from Luxembourg are less prone to favour restitution duties, and more in favour of transparency and responsibility agreements. Historically, restitution duties in Luxembourg were more principle-based than in countries like France, and Luxembourg can been viewed as having a business friendly attitude, which also means favouring flexibility on custodial arrangements. By contrast, more responsibility lied with administrators, so responses from Luxembourg are quite linked to its regulatory culture (see Amenc and Sender 2010b for an analysis). •  France is a country that is still attached to the unconditional restitution paradigm that still prevails today for UCITS funds, even if it is arguably not sustainable and could not be accepted by other European countries. According to French respondents, depositaries should only be unconditionally responsible for 54%, and 79% for assets under their custody or control only, and as we will see France is also a country that favours the notion of secure UCITS. •  British respondents also conform to their legal origin and favour a contractual definition of responsibilities – even if, as Amenc and Sender (2010b) show, the

Clarification is also sought in the delays within which funds should be returned

50

An EDHEC-Risk Institute Publication