FCA Review - What is the point of the depositary, if nothing changes?

FCA Review - What is the point of the depositary, if nothing changes?

Sunday 12th July 2020
Ryan Johnson

The time has come for the role of the depositary to be scrutinised and questions asked is the current model fit for purpose?

The FCA recently at the Funds Congress earlier in the year made it clear that the role of the depositary is an area that needs to be reviewed and considered as part of the fund oversight review that is scheduled to be delivered by Q4 2020.

It was always inevitable and will come to no surprise of those in the industry that the role of the depositary is being scrutinised in this way.

There is a collative responsibility between the ACD and depositary as to the oversight of funds.

It is important that when assessing actions taken or made in the future by the depositary there is constant reference and assessment to the impact of the investor who is the ultimate concern.

It is vital that oversight functions such as the depositary do not blindly overreact or impose rules / restrictions without consulting with the delegated investment manager whilst fully appreciating if there is an impact to the overall investor.

The challenge with this approach is the depositary will not recognise the delegates investment manager as the client and will only work and liaise with the ACD to whom the ultimate legal and regulatory responsibility.

This is a fundamental flaw in the current system and makes it even more problematic and tense when trying to navigate through difficult periods as the depositary can and will refuse to speak or work with the delegated manager relying solely on the ACD.

I've work with many managers in the marketplace who anticipate and predict movements and as a result will have a pathway through which they must be allowed to deliver on.

Equally if there isn't a level of confidence and planning then the ACD and depositary must step in as a supportive function initially then take action when necessary.

Unfortunately until some recent test cases the level of responsibility, ownership and understanding has never been understood on any level by any of the interested parties which is why we find ourselves in this situation today.

If nothing changes as a result, What is the point of the Depositary?

In answering this question it is not the fault of the depositary or regulator that we find ourselves asking these important questions but the industry has changed and evolved much faster and in a way that we now must seriously review, change in the new landscape which makes sense, creating clear levels of responsibility, accountability.