EDHEC has welcomed the European Commission's consultation paper on the UCITS depositary function, but believes the EC timetable has been drawn up too hastily.

In a recent position paper by Noël Amenc, director of EDHEC-Risk Institute and professor of finance at EDHEC, and Samuel Sender, director of applied research at EDHEC-Risk, EDHEC expresses its approval of the consultation paper and stresses that an in-depth study of the regulations and practices of those who are part of the value chain (to which the consultation contributes) is necessary. To take into account only the liability of the depositary in the management of non-financial risks would be a design flaw in the regulation.

EDHEC also believes that the assumption that investors must be fully protected from non-financial risk is not necessarily realistic and leads to false reassurances that may make investors overconfident and, as a result, increase risk. In addition, domestic regulation of the custodianship of assets is no longer always suitable for new alternative asset classes.

As for the restitution obligation, EDHEC"s view is that it is possible to be held liable only for what is under one’s control, and that above a protective floor offered to non-qualified investors, protection should be optional, and this protection should be subject to a cost-benefit analysis. Communication of both the degree and the cost of protection must be improved—the protection should be described in the prospectus and non-financial risks, like financial risks, should be quantified in the key investor information document.

EDHEC-Risk’s response to the European Commission consultation paper is part of the research chair on risk and regulation in the European fund management industry, a chair sponsored by CACEIS.