Regulatory intrusion: Is regulation becoming impossible to manage?

Abstract

There is a danger that the liability provisions set out in Article 18a of AIFMD will become the template for ESMA’s eventual regulation of all asset servicing functions within the EU.Obligations created by Article 18a may not be capable of exclusion or restriction by agreement with the fund manager. Article 18a makes the depositary strictly liable for loss of assets, or failure to return assets promptly, subject to limited exceptions.Whether or not the depositary can avail itself of the exceptions will depend upon a series of conditions that are as yet unclear and uncertain, and may prove impossible to meet, even where the depositary is not in any way at fault.Whether or not global custodian banks will be willing (or allowed by their regulators) to act as depositaries, or even sub-custodians, under the conditions imposed by Article 18a, will depend upon how those conditions are further clarified and specified in the secondary legislation and implementing measures that are to follow.