The Forum encourages ESMA to strike an appropriate balance between the AIFM Directive objectives of ensuring a high level of investor protection, while refraining from putting unjustified liabilities on the fund depositaries at the expense of the stability of the entire banking and fund industries.
The Forum shares and supports the overall objectives of the ESMA advice, and would like to encourage ESMA to:
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propose pragmatic and flexible implementing measures at a reasonable costs for the industry; and
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clarify and ultimately contribute to the harmonisation of the fund depositaries duties and liabilities in the context of EU regulated funds.
The Forum encourages ESMA when clarifying the duties of the fund depositary to take into account the following over-arching general principles with regard to:
a) the organisation and the accountability at the level of the different stakeholders:
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recognition of the accountability of the first level of controls performed by the AIFM (or the AIF) i.e. no requirement for duplication of tasks and controls already carried out at the first level;
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proportionality of controls performed by the depository based on the characteristics of the AIF and its environment;
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compliance with the contractual arrangements between the depository and the AIFM (or the AIF).
b) the definition of the liability regime applicable to the depositary:
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depositary should not be put in a position where it would interfere with the management decision and responsibilities;
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loss of assets should be recognised as a component of the investment risk and should be borne in proportion by all actors, including the assets managers and the investors;
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a clear recognition that due diligences duties imposed on the depositary cannot go beyond the custodian tasks performed by its delegates;
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fund depositaries cannot be requested to provide legal certainty on arrangements and procedures that pertain to national legal systems;
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fund depositaries cannot be requested to compensate for, or substitute, local regulators /supervisors that are in charge of the sound functioning of the financial and banking system.
Some of the proposed advices included in this consultation have raised major concerns within the Luxembourg Fund Industry (e.g. insolvency of sub-custodian), so we urge ESMA to develop further the concept of proportionality in the advice, in order to avoid the situation where depositories would be assimilated as an insurer for the fund industry.
Furthermore, ABBL would like to take the occasion of the present response to stress once again the importance of having the level 2 provisions relating to depositary adopted by way of a directive and not by way of a regulation.
The Directive is indeed the unique EU legislative instrument which will enable the Member States to consider when transposing the Directive, the broad range of funds and of funds managers acting on their own territory, and the specificities of their own market practices.
With respect to the provisions on prime brokers and in order to avoid any discussions when applying those provisions, the Forum strongly recommends ESMA to confirm that in the event of appointment of a prime broker, all the assets received by such prime broker will be considered as “other assets” subject to recordkeeping obligations by the depositary and not subject to custody obligations.
Press release
© ABBL - Luxembourg Bankers’ Association
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