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EU publishes made rules amending AIFMD and UCITS on depositary segregation of assets

  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Financial services


Further to our briefing here on the EU Commission’s proposed amendments to the safekeeping requirements for UCITS and AIFs, the Commission has published the made rules on 12 July 2018 (Regulations). The new rules seek to implement ESMA’s recent opinions on asset segregation.

The Regulations have not been materially altered in substance from the draft regulations which were put out for industry consultation and which closed on 26 June 2018. Depositaries will be particularly concerned that the Commission does not appear to have taken any account of the very detailed and forceful arguments made by the industry bodies around depositary books and records, and the practical issues that the new rules will present for the industry and the potential for market disruption. However, it could also be the case that the Commission has taken the view that certain interpretations taken by industry and as set out in detail in the responses to the consultation are correct. One such interpretation is that the Regulations do not in fact require the depositary to maintain a separate set of books and records when custody is delegated. Unfortunately the lack of clarity remains a concern for European domiciled funds and their service providers which includes investment managers, depositaries, global custodians, prime brokers and collateral agents and ultimately the underlying shareholders.

The only clear concession made in response to industry pressure, is to extend the implementation from 6 months to 18 months. On implementation, the draft regulations will have direct effect in EU member states - no further local implementation will be required. However, it is not clear at what point the 18 months period will begin - other than 20 days from the point at which the regulations are published in the Official Journal of the European Union. The end of the implementation period is likely to be in Q1 2020 (post the UK leaving the EU). Firms will need to considered this in light of the UK government Brexit White Paper, also published on 12 July, which sets out a revised approach for financial services using an outcomes-based equivalence model.

To see the made text of the UCITS Regulation click here.

To see the made text of the AIF Regulation click here.

How we can help

Eversheds Sutherland is a leading adviser to this securities services industry and was heavily involved in interpreting and advising on AIFMD and UCITS V for depositaries and custodians and their delegates - including negotiation of depositary and custody agreements and delegation agreements. We can assist with assessing the impact on your depositary and custody businesses across multiple locations, including UK, Luxembourg and Ireland, as well as advising on the repapering that may be required.