Asset segregation is one of the provisions of more relevance when it comes to depositaries under Directive 2011/61/EU of the European Parliament and of the Council of June 8th 2011 on Alternative Investment Fund Managers (the "AIFMD") and it is aimed at improving investor protection.
Under AIFMD, a single depositary must be appointed for each AIF managed by an AIFM and such depositary shall ensure that the assets of the AIFs are held in segregated accounts. However, the segregation rules not only impact the depositary itself but are also of relevance at the level of its delegates, prime brokers and collateral managers.
On December 1st 2014 the European Securities and Markets Authority ("ESMA") issued a Consultation Paper on Guidelines on asset segregation under AIFMD.
"The purpose of the paper is to clarify how the segregation requirement shall be complied with at the level of the delegates in case of delegation of the safe-keeping duties by the depositary to a third party."
Indeed, for ESMA, the segregation requirement provided for under Article 99(1)(a) of the AIFMD Level 2 Regulation implies that in case of delegation of safe keeping duties to third parties such third party has to distinguish assets of AIF clients from:
i. its own assets,
ii. the assets of any other client of the third party,
iii. the assets belonging to the depositary itself as well as,
iv. the assets belonging to clients of the depositary which are not AIFs.
ESMA clarifies that the delegated third party may not hold non-AIF assets in the same account as assets of AIFs.
However questions have been raised as to whether the assets that can be held in the account are only those coming from the same delegating depositary or, alternatively, whether the account can hold assets for AIF clients coming from different delegating depositaries.
In the consultation paper, ESMA seeks views on two alternative options:
- 1st option. The account in which the AIF's assets are to be kept by the delegated third party (including a prime broker or collateral manager) may only comprise assets of the AIF and assets of other AIFs of the same delegating depositary; or
- 2nd option. A delegated third party holding assets for multiple depositary clients would not be required to have separate accounts for the AIF assets of each of the delegating depositaries.
Via a series of questions ESMA seeks feedback from interested stakeholders. The deadline for responding was January 30th 2015. ESMA intends to finalise the guidelines and publish a final report in the second quarter of 2015.
