16 February 2021
- Stand of Aurora Cuadros, Cecabank Head of Cash and Securities Services. Funds People Depository Insights
Independence, neutrality, experience and specialisation are fundamental characteristics that a depositary needs to have in order to perform its function effectively and efficiently, thus giving the saver and the manager confidence. These characteristics are particularly relevant at times such as now when certainties and realities vary at different rates.
2020 and the start of 2021 have forced us to demonstrate that digital transformation, the effective use of technology and the ability to mobilise resources were not mere abstract or advertising concepts, but essential realities in order to exercise the functions of a depositary just as in the old normal.
More functions and more tasks
The major functions granted under depositary regulations include monitoring managers and agents, the custody and administration of securities and cash, and the instrumentation of subscriptions, redemptions and payments. However, the definition of the specific tasks and functions to be performed has been growing and adapting as the regulations have changed, adapting to market events and getting standardised at the European level. These changes guarantee and allow investment vehicles and managers to fulfil their obligations and make investments with the highest level of security for the participant.
In recent years, depositaries have been increasingly required to carry out specific tasks linked to regulatory and infrastructure changes. Some of these changes which, far from being reduced continue increasing, include facilitating voting at shareholder meetings on securities worldwide where they are invested, adapting processes and systems to changes in European post-contract infrastructure with projects such as Target2 Securities, which is once again undergoing changes, supporting managers in MiFID II adaptation process and establishing rigorous control systems for international asset custody chains.
The depositary and responsible investment
The ESG (Environmental, Social and Governance) criteria in investment decisions and movements in the economy's financing flows have grown exponentially in recent years, but will undoubtedly intensify in the near future. Both international and European Union bodies as well as savers themselves are firmly committed to this direction, and the trend has accelerated even further if that were possible with the collective awareness created as a result of the COVID-19 pandemic.
In this regard, the very existence of the depositary is an element very much aligned with responsible investment as it is a guarantor for the participant ensuring that the information given to them by their agent or manager is truthful, as well as that the required standards of good governance and the inclusion of optimal ESG risk analyses in their investments are met. These circumstances bring to light the fact that the trend for the depositary to be independent and specialised in the depositary function is continuing.
Utmost security for the participant
Spanish investors are increasingly investing directly or through vehicles such as investment funds, private equity instruments, EPSV (Voluntary Social Welfare Entities) or pensions in assets traded on markets worldwide. European depositary regulations are very clear on this matter and, to provide the highest level of security to the participant, establish the depositary's responsibility over the entire chain of custody and require each of the custodians used to meet all the requirements that the depositary has to meet in the country of origin.
This principle has meant that, when a credit event has occurred in a Spanish institution's international investment, Spanish savers who had invested through a vehicle registered in our country had the highest level of protection and access to all the information significantly more specifically and faster than if they had invested via a vehicle that was not subject to the same supervision in our country.
Key role in investment processes
The depositary is key in investment processes for providing efficiency to managers, as well as supporting them in digital transformation processes. The role of technology is fundamental when it comes to making decisions, implementing investments or monitoring and controlling. Having a depositary that, due to its specialisation and size, can invest in innovation and use the right technology at any given time to meet its needs and that of managers is a critical factor in times such as we are now experiencing.
Like so much other post-contract, back office or supervisory work, the role of the depositary is only usually highlighted in times of difficulty, but we believe that it is the work of all industry members to convey that it should also be taken into account when making investment decisions differentiated depending on who is the vehicle manager and who is the agent. The vehicle agent should support the investor in their decision process, the manager should make suitable investments according to the type of investment vehicle and the depositary should independently guarantee that both carry out their functions and that the investment decisions are made optimally.
A depositary such as Cecabank, which leads with more than €180 billion under deposit in the Spanish market, is fundamental as it enables the investments of more than eight million Spanish people to be securely made through collective investment vehicles in financial instruments traded in Spain and any market worldwide.
