30 Sept 2016 – Since late 2015, there has been some uncertainty as regards the treatment of CSDs under asset management legislation (AIFMD and UCITS) due to guidance issued by ESMA alluding to “custody” services of CSDs. The call for evidence on asset segregation and custody services issued by the European Securities and Markets Authority (ESMA) on 15 July 2016 seeks to clarify the matter.
CSDs are financial market infrastructures which operate at the top tier level of the custody chain. They are regulated by the CSD Regulation (CSDR), which provides harmonised requirements for all EUauthorised CSDs, including in terms of account segregation, reconciliation and record keeping. Treating CSDs as “delegates” under AIFMD and/or UCITS would directly conflict with the scope and spirit of the CSDR, and would negatively affect the operation of cross-CSD links, potentially making the value proposition of TARGET2-Securities less appealing. Meanwhile, it would not bring additional safety benefits for funds and their investors, and it could actually discourage the use of low risk infrastructures. ECSDA firmly believes that the provision of CSDR-authorised services should not result in CSDs being considered as delegates within the meaning of Article 21(11) of the AIFMD and Article 22a of the UCITS Directive. The recently adopted CSDR requirements on asset segregation and CSD safekeeping services are adequate to protect the assets of all CSD participants and their clients, including CSD participants acting as fund depositaries.