Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 89 This regulation is expected to come into force in December 2019. Significant work is required by impacted firms, who will discuss with relevant industry bodies to fully assess the implications and approach to implementation. The industry will be further engaging with the European Commission to understand areas such as: • Does a depositary need to mirror accounts of delegates or do they need to receive instructions from AIFs themselves? Can a depositary rely on independent legal opinions, relating to local insolvency laws and practices, obtained by the delegate? Can the sub-delegate hold omnibus accounts? Is the wording in Recital 2 (see below) sufficient or is an update to the articles required? • Would ESMA issue a Q&A to support the amendments mentioned in Recital 2? Namely: “in cases where custody function is further delegated, the sub-custodian should be able to hold assets of the delegating custodian’s clients in an omnibus account. This omnibus account should always exclude the sub- custodian’s proprietary assets and proprietary assets of the delegating custodian as well as assets belonging to other clients of the sub-custodian. This is necessary in order to achieve a healthy balance between the market efficiency and investor protection.” Irrespective of how these discussions go, it is clear that depositaries and delegates have a significant amount of work ahead of them to comply with the amendments to AIFMD regulations by end of 2019/beginning of 2020. They need to collaborate and create working groups to discuss how to streamline the implementation of these regulations. Malik Ali Senior Vice President Prime Finance Citi 1 https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=celex%3A32011L0061. Link here . 2 https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=celex%3A32013R0231. Link here . 3 https://www.esma.europa.eu/sites/default/files/ library/2015/11/2014-1326_cp_-_guidelines_on_aifmd_asset_ segregation.pdf. Link here . 4 For example, long assets held with a non-group global custodian (not prime or collateral arrangements). 5 https://www.esma.europa.eu/sites/default/files/ library/2016-1137_call_for_evidence_asset_segregation.pdf. Link here . 6 Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions. 7 Markets in Financial Instruments Directive. 8 http://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf. 9 https://www.fca.org.uk/publication/handbook/fca-handbook- notice-37.pdf. Link here . 10 https://www.handbook.fca.org.uk/handbook/ CASS/6/?view=chapter. Link here . 11 https://www.esma.europa.eu/sites/default/files/library/ esma34-45-277_opinion_34_on_asset_segregation_and_ custody_services.pdf. Link here . 12 https://ec.europa.eu/info/law/better-regulation/initiatives/ ares-2018-2778659_en. Link here . 13 https://ec.europa.eu/info/law/better-regulation/initiatives/ ares-2018-2778659/feedback_en?size=10&p_id=239521. Link here . 14 https://ec.europa.eu/info/law/better-regulation/initiatives/ ares-2018-2778659/feedback/F12347_en?p_id=239521. Link here . 15 https://ec.europa.eu/info/law/better-regulation/initiatives/ ares-2018-2778659/feedback/F12356_en?p_id=239521. Link here . 16 https://ec.europa.eu/info/law/better-regulation/initiatives/ ares-2018-2778659/feedback/F12340_en?p_id=239521. Link here . 17 http://ec.europa.eu/finance/docs/level-2-measures/aifmd- delegated-regulation-2018-4377_en.pdf. Link here . 18 http://ec.europa.eu/finance/docs/level-2-measures/ucits- directive-delegated-regulation-2018-4379_en.pdf. Link here .