Thematic review on the organisation of depositary activities and the consideration of sustainability information in the supervisory duties of depositaries
In autumn 2024, the FIN-FSA conducted a thematic review on the organisation of depositary activities for UCITS and AIF funds and on the consideration of sustainability information in depositaries’ supervisory duties. The objective of the thematic review was to update the overview of the organisation of depositaries’ activities with respect to quality, extent and resources, and to verify compliance with key regulatory requirements.
Every UCITS fund and AIF managed by an authorised Alternative Investment Fund Manager must have a depositary responsible for the safekeeping of the investment funds’ assets. Depositaries play an important role from the perspective of the protection of fund investors, as they contribute to ensuring that obligations provided for UCITS and AIF funds are complied with. Ineffective or incomplete depositary functions and failures in the oversight of fund assets can erode investor protection and confidence in the markets. The importance of the role of depositaries is highlighted due to the intensifying instability and technological evolution on the financial markets.
The depositary markets in Finland (according to depositaries EUR 180.8 bn as of 30 June 2024) are very concentrated. In 2024, five entities provided depositary services in Finland. About 95% of the assets safekept were held by three depositaries. The FIN-FSA's previous thematic review of depositaries conducted in 2019 included a total of 12 entities. At present, four entities provide depositary services.
The thematic review was conducted by assessing responses given to a survey and material related to the responses. The survey was sent to all five depositaries authorised to function as a depositary for UCITS and AIF funds in Finland. Three of these depositaries were branches of a foreign EEA credit institution. The depositaries were requested to provide information on the quality and scope of the depositary activities, implementation of the oversight duties and consideration of regulatory requirements on the funds’ sustainability risks and sustainable investment in the oversight.
Key findings
- In the thematic review of depositaries in 2019, the FIN-FSA noted the scarcity of personnel resources. Depositary activities have been automated further in the subsequent years, but the FIN-FSA continues to find the current level of personnel resources still low.
- The oversight of subscriptions and redemptions for the investment funds was found to be appropriately organised in main respects. The frequency of the depositaries’ oversight checks was mainly consistent with the investment funds’ subscription and redemption flows. Some of the depositaries did not verify valuation at a frequency required by regulation.
- Shortcomings and deficient processes were found in the verification of information concerning sustainability risks and sustainability disclosures. Some of the depositaries did not review information related to sustainability risks and sustainable investing at all, and did not include sustainability risks in the risk assessment required by regulation. The depositaries named the availability of sustainability-related data and unclear regulation as particular challenges. Depositaries’ oversight procedures must be based on a fund-specific risk assessment conducted by the depositary, which must also cover information and limits related to sustainability risks and sustainable investing.
Follow-up on the thematic review
The FIN-FSA requires that the depositaries review the attached thematic review report and separate depositary-specific supervision letter, and report to the FIN-FSA the remedial actions required by the thematic review report and the supervision letter and state their implementation schedule.
After receiving the reports from the depositaries, the FIN-FSA will follow-up on the implementation of the remedial actions by the depositaries. The FIN-FSA will also consider potential depositary-specific follow-up actions as necessary.
For further information, please contact
- Marko Hovi, marko.hovi(at)fiva.fi
- Esa Pitkänen, esa.pitkanen(at)fiva.fi
- Samuli Urpalainen, samuli.urpalainen(at)fiva.fi
- Eemeli Väyrynen, eemeli.vayrynen(at)fiva.fi