VC industry scores victory on depository rule

Much to the delight of GPs, the depository requirement in Europe’s proposed venture capital regime has been removed.

The European Commission last Friday agreed to a pan-EU venture capital regime without the unwanted depository requirement

The mandate for a depository, used by GPs to safekeep investors' assets, will be replaced with an improved audit function that will need to be confirmed in a GP's annual report. 

On top of that there will be no restrictions on the age of portfolio companies – i.e. how long portfolio companies have been held in the portfolio – that can be included in the scheme, contrary to what was originally proposed by the Commission.

In a response statement, European Private Equity and Venture Capital Association secretary general Dörte Höppner said she was “pleased that legislators have recognised the need to protect venture capital from burdensome requirements such as a depositary, which were in fact designed for financial market traders”. 

She added that the regulation will help future fundraising opportunities by allowing fund managers who have signed up to benefit from a European marketing passport while gaining an international “stamp of quality”.

Stakeholders lobbied the Commission to make sure that the final regulation reflects the practical needs of the venture capital industry. More than 180 VC EVCA members signed an open letter expressing their deep concern about the effect of the proposed depositary requirement.

The agreed text will now be officially adopted by the Council and the European Parliament before entering into force, according to the EVCA's statement.