In an attempt to implement the European Securities and Markets Authority (“ESMA”)’s recent opinion on asset segregation and depositary delegation, the EU Commission published two draft Delegated Regulations with the aim of amending UCITS V Delegated Regulation (Ares(2018)2778673) and AIFMD Delegated Regulation (Ares(2018)2778659) relating to the safe-keeping duties of depositaries.
A list of the key changes is highlighted below:
- Delegates are now subject to a requirement to ensure that assets are registered in the name of the AIF or AIFM in the records of the issuer;
- Enhanced requirements for delegates to maintain records to establish the nature, location and ownership status of assets;
- A requirement for statements to be provided by the custodian to the depositary on a regular basis. When there is a change of circumstances, the custodian must detail the assets of the clients of each depositary;
- Where the delegate is based outside the EEA, a legal opinion must be obtained as to the adequacy of insolvency law protection. Delegates also need to meet the requirements of the local regime to safeguard the assets in the event of insolvency;
- Delegates need to segregate assets on a depositary by depositary basis;
- To ensure global custodians can identify the entire custody chain, additional minimum requirements for delegation agreements are to be put in place between the depositary and the global custodian as well as any sub delegation agreements throughout the entire chain;
- The alignment of provisions under AIFMD and UCITS on segregation of delegation will be brought up to a higher standard. AIFMD will be brought up to the, already higher, UCITS standard;
- Depositaries will need to carry out reconciliation between their own internal records and those of their delegates. This means that depositaries will need to create and maintain their own books and records, separate from those maintained by the global custodian.
It is advised that firms contact those who are responsible for safekeeping the assets of the AIF(s) or the UCITS, as well as conducting internal reviews and checks of the documentation held and due diligence undertaken to ensure that the above points have been considered and addressed to their satisfaction.
If you want to discuss how these changes may affect your firm, please contact Complyport now, firstname.lastname@example.org.