Ethics and governance in the European Financial centers

Almost 5 years ago the European Commission issued the following content in a Press Release (IP/04/430, dated 31/03/2004 ).

The Internet consultation flagged up significant gaps on, for example, minimum capital requirements, legal duties or the scope of liability for depositaries. A true Internal Market for depositary services will require convergence of these rules. In order to appoint depositaries based in other Member States, domestic fund managers and supervisors will want clarity on the resources of depositaries and on their obligations, whilst investors will need improved standards of information.

The Commission is therefore proposing close cooperation with EU regulators, covering four fields over the next two years.

1. Better prevention of conflicts of interests

Conflicts of interest arise when investors' interests are not at the heart of the depositary's or the fund manager's behaviour. The Commission survey revealed evidence of diverging approaches and it has therefore suggested action to boost convergence of national rules in this field. This includes the list of the functions that fund managers can outsource to depositaries and, conversely, the list of depositary activities which may be outsourced.

2. Clarifying the extent of the depositary's liability

Discrepancies in the level and scope of depositaries' liability constitute huge obstacles to ensuring a high level of investor protection throughout the EU and developing cross-border opportunities for depositaries. The Commission has identified as a key objective ensuring a common interpretation of the principal duty of depositaries which is to keep assets safe - and of the specific control duties assigned to them.

3. Convergence of prudential requirements

The prudential rules which must be applied to set up and operate a depositary differ considerably between Member States, since there are no common EU definitions of eligible institutions. The Commission proposes to foster convergence of these rules, and in particular of capital requirements, by identifying a specific group of relevant supervised institutions.

4. Enhancing transparency and investor information

In order to help create pressure to remove discrepancies in regulations, the Commission has identified the following areas for enhanced public information standards: the organisation of depositaries' tasks; measures taken against conflicts of interest; depositaries' liability; and the costs of their services.


The Madoff affair demonstrates that Luxembourg did not care of these Recs.
The Luxembourg financial center does not comply at all.

The Madoff affair demonstrates that the European Commission did not do its job.