ISLA praises ESMA’s direction on asset segregation, cautions on implementation

The European Securities and Markets Authority (ESMA) has published an opinion to the EU Commission, Council and the Parliament setting out possible clarifications of legislative provisions under the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. The suggested clarifications relate to the asset segregation requirements in case of safe-keeping duties by the appointed depository of a fund (UCITS or alternative investment fund (AIF)) and the application of depository delegation rules to central securities depositories (CSDs).

In its opinion, ESMA suggests a regime which ensures:

  • Assets are clearly identifiable as belonging to the AIF/UCITS, consistent with any reuse (where permitted); and
  • Investors receive adequately robust protection by avoiding the ownership of the assets being called into question in case of the insolvency of any of the entities in the custody chain.

ESMA concludes that only minimum EU-wide segregation ESMA Publishes Opinion on Asset Segregation requirements should be prescribed, leaving room for stricter requirements or different account structures if national laws in specific member states make them necessary.

ISLA recognizes the positive impact this will have, and is the culmination of significant effort by ISLA and its members working together to achieve this successful outcome. However, it is important to note success will be subject to how this opinion will be adopted by a member state into local laws.

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