08 Février 2013

ECB's Draghi calls for Ucits custody safeguards

The European Central Bank (ECB) has called for the introduction of more stringent safeguards regarding the delegation of Ucits depositories to sub-custodians located outside the European Union. So reports FT Adviser.

The ECB wants to see the Ucits directive amended to include these safeguards, which are outlined in a 10-page proposal document sent by ECB president Mario Draghi to Uwe Corsepius, the secretary general of the Council of the EU.

In the document, the bank says that non-EU sub-custodians should be subject to minimum capital requirements and effective supervision.

Other safeguards proposed by the ECB include a rule stating that custodians should not re-use any transfers made into their accounts for other ends and the introduction of eligibility criteria, which would mean that only credit institutions and investment firms could be appointed as Ucits depositories.

According to the central bank, the introduction of such measures would play a key role in preventing malpractices, as well as reducing the risk of investors being defrauded, therefore increasing investor confidence.

The idea that the role of sub-custodians needs to be addressed has gained support in the wake of Luxalpha, a Luxembourg-based fund that funnelled money into Bernard Madoff's Ponzi scheme and lost investors around €1.4bn of assets.

The funds' assets were entrusted to Mr Madoff, who was both manager and sub-custodian.

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