Adopting a risk intelligent approach to pricing and capital needs for depositaries
Why is the risk and cost profile changing for depositaries?
The AIFMD regime introduced a range of new and more prescriptive requirements to harmonise depositary duties across the EU. In July 2014 the Luxembourg regulator, Commission de Surveillance du Secteur Financier (CSSF), published circular 14/587 focusing on UCITS depositaries, which heavily derives from the AIFMD’s provisions and pre-empted the UCITS V obligations.
The main requirements of these regulations include daily monitoring of all cash flows, more frequent reconciliations and verifications, more robust due diligence and risk assessments, stronger segregation requirements and more detailed sub-custody oversight. Underlying these requirements is a change in the standard of liability, which firmly places the burden of proof on the depositary and makes it liable for loss of assets in the first instance.
Inside magazine issue 7, February 2015
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