There is uncertainty about how to segregate assets for the protection of investors within the Ucits regulatory regime, a leading markets body says.
Rules for segregation of assets feature in Ucits and a number of other regulations with investor protection at their core, including the Markets in Financial Instruments Directive II (MiFID II) and the Alternative Investment Managers Directive (AIFMD). But the Association for Financial Markets in Europe (Afme) says there is no consistency in the meaning of “account segregation” between regulations.
In a report that focuses on the account segregation rules of various regulations, Afme says that in relation to Ucits there are differing views about how to interpret draft asset segregation regulations that would supplement the Ucits V directive.
“In particular, there is no common view as to whether at certain levels of intermediaries that are involved in holding Ucits assets, such assets should be held in ‘segregated omnibus accounts’, or ‘concentrated omnibus accounts’ divided between Ucits and non-Ucits clients,” the reports says.
Afme adds that uncertainty about whether a central securities depositary is considered a ‘delegate’ under Ucits V “creates further uncertainty about rules of segregation of Ucits assets…”
Werner Frey, managing director of the Afme post-trade division, said: “EU regulations currently create a fragmented approach to account segregation. Given this patchwork of legislation, asset segregation lacks coherence and creates a level of uncertainty and confusion among industry participants.”
Afme has produced a list of principles to provide a “holistic view of asset segregation” for European policymakers and financial institutions.
These include: full segregation of internal accounts – such as by a global custodian – to identify the immediate client whose assets are being held; segregation of external accounts between proprietary assets and ‘securities account holder’ assets.
Afme’s report is called ‘Principles of asset segregation, due diligence and collateral management’ and is written by 16 contributors from various banks and law firms, including Northern Trust and Barclays Bank.
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