Towards a Cross-Sectoral European Depositary Passport in European Investment Law

Abstract

A few decades after the four freedoms were introduced that allowed several types of financial intermediaries the freedom to provide services throughout all EEA Member States, it appears that this right is still undermined for depositaries providing services in European investment law. Interesting enough a de facto passport in this field already exists. CRD IV, IORPD II and MiFID II all regulate the safekeeping of securities and the provision of custody services. MiFID II lists the provisions of safekeeping services, including custodianship for financial instruments, as ancillary service and allows this service to be ‘passported’, in addition to, the principle investment activities/services for which investment firms are authorized. Similarly, CRD IV allows the safekeeping of securities and the provision of custody services to be passported, in addition to, the principle deposit-taking activity of credit institutions. Under IORPD II the safekeeping of securities and the provision of custody services are subject to a mutual recognition approach. IORPD II allows, in addition to UCITS/AIF depositaries, investment firms and credit institutions harmonized under the CRD IV and MiFID II to be appointed as a depositary regardless whether the depositary is established in the IORP home Member State. The PEPPR does not regulate this issue and, thus, also allows for a de facto depositary passport. Notwithstanding the fundamental principle of freedom to provide services, the AIFMD and UCITSD V only allow UCITS (ManCos) and AIFMs to appoint a depositary which is established or has a branch office in the EEA Member State in which the respective UCITS or AIF is established. Strictly speaking, credit institutions or investment firms which are under CRD IV, MiFID II and IORPD II allowed to provide custody services on a cross-border basis, may not exercise ‘passporting rights’ under the UCITS V and AIFMD, because these European directives preclude depositaries from doing so. It is therefore worthwhile to investigate whether depositaries under the AIFMD and UCITSD V should be allowed to enjoy passporting rights and whether and to what extent this fits in under the current ‘de facto passports’ available under European investment law. To that end, this contribution first discusses the inconsistencies in granting an European passport to depositaries/custodians under the European investment laws, i.e. the ‘European depositary passport paradox’. Second, the differences and similarities between depositaries and custodians under these laws are considered by applying the legal interpretation methods of Von Savigny on the study of positive norms to assess whether a differential treatment for the purpose of granting a European passport to (AIF/UCITS) depositaries is justified. Furthermore, this contribution addresses under what conditions a European/TC passport could be granted to (AIF/UCITS) depositaries. It concludes by suggesting a cross-sectoral depositary passport that could be considered and modelled after the cross-sectoral passport for investment management services.