On 15 July 2016, ESMA published a call for evidence on asset segregation and custody services under AIFMD and the UCITS V Directive. Both AIFMD and UCITS V impose asset segregation rules intended to protect the interest of investors by assuring that the assets of the AIF/UCITS are not exposed to events (such as bankruptcy), which may affect third parties to whom safekeeping of assets by the depositary are delegated (or sub-delegated). ESMA first consulted on asset segregation under AIFMD in December 2014. In it, two alternative options were proposed as possible approaches to asset segregation across Europe. The two options were as follows:
- AIF and non-AIF assets should not be mixed in the same account and there should be separate accounts for AIF and non-AIF assets of each depositary when a delegate is holding assets from multiple depositary clients.
- The separation of AIF and non-AIF assets should be required, as per (1) above but it would be possible to combine AIF assets of multiple depositaries into a single account at delegate level.
The consultation process was left in abeyance because most respondents strongly objected to the two options proposed and expressed a preference for other options mentioned in the original consultation paper. The principal arguments against options 1 and 2 were that the co-mingling of both AIF and non-AIF assets by a delegate and from clients of different depositaries should be permitted in an omnibus account (and this approach broadly reflects the current market position) and that the segregation of AIF from non-AIF assets and as between clients of different depositaries would not provide additional investor protection and would add very substantially to the costs of providing these types of services.
Since the December 2014 consultation, UCITS V has been implemented across the EU and ESMA has decided to carry out a further consultation to gather more evidence to support the arguments set out by the majority of respondents to the original consultation. The new consultation also covers similar asset segregation rules for UCITS in addition to addressing any uncertainty as to whether or not the rules relating to the depositary should also apply to central securities depositaries ("CSDs") (there is a lack of clarity between certain recitals of UCITS V, its operating provisions and ESMA Q&As as to whether or not CSDs are considered to be delegates of a depositary in certain circumstances). The call for evidence closes on 23 September 2016 and ESMA will aim to finalise its work on asset segregation by the end of 2016.