02 August 2017
Reporter: Mark Dugdale

ISLA welcomes asset segregation opinion

The International Securities Lending Association has welcomed an opinion that will clarify asset segregation and the application of depository rules to central securities depositories.

The opinion of the European Securities and Markets Authority (ESMA), issued in late July for the consideration of EU authorities following a three-year consultation and evidence gathering process designed to ascertain the challenges and costs arising from the current framework on asset segregation, will have a “positive impact”.

ESMA’s clarifications cover the asset segregation requirements of depositories of UCITS or alternative investment funds and the the application of depository delegation rules to central securities depositories.

According to ISLA, the ESMA opinion stressed that the EU framework should ensure that assets are clearly identifiable as belonging to the UCITS or alternative investment fund, consistent with any reuse.

Investors must also receive adequately robust protection by avoiding the ownership of the assets being called into question in case of the insolvency of any of the entities in the custody chain

ISLA said in a note to members: “ESMA concludes that only minimum EU-wide segregation requirements should be prescribed, leaving room for stricter requirements or different account structures if national laws in specific member states make them necessary. ISLA recognises the positive impact this will have, and is the culmination of significant effort by ISLA and its members working together to achieve this successful outcome.”

“However, it is important to note success will be subject to how this opinion will be adopted by member state into local laws.”

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