EBF comments on ESMA’s Final Report on technical advice to the European Commission on possible implementing measures of the AIFMD

30 January 2012

The ESMA Final Report on technical advice on implementing measures for the AIFMD contributes to the clarification of the provisions of the Level 1 text on many aspects. The EBF submitted some comments on the external valuer and on the depositary aspects.

Regarding the external valuer, the EBF is of the opinion that the clarification in the ESMA advice on the role of an external valuer (i.e. a third party which carries out the calculation of the net asset value for an AIF is not considered to be an external valuer) is essential and should be retained in the Level 2 Text.

Regarding the depositary section, the EBF believes that a number of issues are still to be addressed. The objective is to clarify the duties and tasks to be performed by the depositary, due to a very strict liability regime coupled with the reversed burden of proof.

The EBF is concerned that some Level 2 measures seem to contradict the reasonable approach of the Level 1 legislative principle, whereby there are extreme situations where the depositary should be exempted from its liability. Therefore the Level 2 measures should not introduce new obligations that would lead to the unintended consequence of transforming the depositary into a “guarantor” of financial instruments held in custody.

• The EBF considers that the intensity of control (width, depth, accuracy, frequency) that the depositary is obliged to exert in order to meet its Due Diligence obligations remains to be determined (and certainly is a matter of concern).
• The requirement to notify the AIF or the AIFM promptly of any change in the risks associated with the delegation of custody would turn depositaries into a “kind of” non-recognised rating agency for the account of asset managers. Market abuse fears could arise as a result.
• The EBF objects to the requirement for depositaries to put in place some measures or arrangements that would replace the effects of the local legal framework regarding segregation. This is a matter of great concern from a legal point of view.
• The EBF believes that the scope of assets to be held in custody as defined in the ESMA advice should be amended to exclude some cases where the financial instruments are outside the control of the depositary
• The EBF requests the deletion of the requirement for safekeeping duties to be applied on a look-through basis approach. Situations will arise where this proposal is not workable, e.g. a fund of funds.
• In order to avoid double-checking of every cash movement (implying a complete change to operating model and increased costs), it should be clarified that the depositary should perform only second level controls. Reconciling cash positions would lead to reconciling cash movements. This new requirement seems in contradiction to ESMA's preferred approach.

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