Aurora Cuadros, Corporate Director of Securities Services at Cecabank.
There is an essential infrastructure behind the financial markets to ensure they work properly. It is often invisible to the end investor, but it is crucial to system stability: the depositary function. Although their role tends to be in the background, depositary entities play a critical role in the security of the investor, regulatory compliance and market efficiency. They guarantee the custody and registration of assets, protect investors, ensure that the management companies comply with regulations and facilitate transactions and settlements in the financial markets. In an increasingly sophisticated and regulated environment, their role becomes even more strategic.
The growth of the collective investment sector in Spain has driven the development of the depositary market. At the end of 2024, the assets of collective investment institutions (CIIs) reached 418 billion euros, 15% more than the previous year. This growth reflects the growing sophistication of the Spanish investor and the gradual transfer of savings from traditional products to vehicles with greater potential for returns, such as investment funds, pension plans and venture capital entities, among others. At the same time, depositary entities have experienced a similar expansion, beating records in the amount of assets under custody.
In key market trends, in particular, the growing interest in alternative investment stands out, especially in private capital. This type of vehicle has experienced significant growth, driven by expectations of greater profitability compared to the listed markets, as well as by the diversification and decorrelation they provide. These vehicles have also benefited from transfers of capital from SICAVs, which were weighed down by the regulatory changes in taxation introduced in 2021.
Beyond these trends, the asset management industry continues to grow, driven both by the increase in net subscriptions, thanks to the good work of management companies and marketers, and by the recovery of markets after the pandemic. These contextual factors are added to other structural factors, such as changes to saver behaviour, who are increasingly aware of the need to explore alternatives to deposits and current accounts.
However, the growth of the sector is far from the levels achieved by the leading European hubs such as Luxembourg and Ireland, with assets of 6 and 5 trillion euros respectively, and from other relevant countries such as France and Germany, which are six times bigger than the Spanish market. This unique feature of the Spanish market is mainly due to the lower presence of institutional investors – they represent less than 40% compared to more than 70% in the eurozone – and the greater weight of solutions such as discretionary portfolio management and advice, which are the main channels for end investors to access products, mostly retail.
Potential for development
It is important to interpret this situation with a positive outlook, considering the glass half full, as it offers great potential for the development of the depositary market. This potential, however, is accompanied by several challenges. On the one hand, the integration of new technologies, such as AI and distributed ledger technology (DLT), by depositary entities, in order to provide innovative solutions and unique value to customers, as well as strengthening capabilities to optimise processes and increase efficiency.
Secondly, adaptation to regulation. The regulatory avalanche continues, and depositary entities have earmarked huge amounts of resources for this area. One of the challenges facing the sector is regulatory standardisation and convergence in terms of supervision, to ensure equal conditions in the provision of services by entities in the asset management and depositary industry. In this regard, we have the opportunity to overcome one of these competitive disadvantages that the Spanish industry is facing, related to the regulation of the securities loan by collective investment institutions, whose regulations are currently being processed.
Another regulatory milestone in the depositary market is the full application of the Markets in Crypto-Assets Regulation (MiCA), which came into force on 30 December. This will mean a profound transformation in entity activity, who have the opportunity to start providing crypto-asset services, offering levels of trust and quality to their customers similar to those of traditional assets.
Finally, it is worth pointing out the European initiative to promote competitiveness, with a particular focus on simplifying the regulatory framework. It appears that the European Commission has become aware of the impact that regulation has on competitiveness, which is a significant step forward. In this regard, it would be advisable to pause the creation of new standards to facilitate their analysis and assessment, reflect on the results obtained and the effects generated, and to streamline both existing regulations and the process of preparing future regulations.
Although there is still some way to go, the depositary market in Spain has considerable growth potential, especially thanks to the incorporation of new technologies and the diversification of financial products.
To move forward, the sector must overcome regulatory challenges and take advantage of the opportunities offered by digital transformation. Only in this way can Spain consolidate itself as a more relevant player in the European depositary market.
