AIFMD: Depositary Liability – Perspectives (J.P. Morgan)

July 2013

KEYWORDS: AIFMD, depositary, financial institutions, hedge funds, alternative investment, alternative fund managers, European Union, leverage, hedge fund investor, prime broker, SEC, Securities and Exchange Commission, risk management

Authors:

Kumar Panja

Organizations:
  • JP Morgan

Summary:

The alternatives industry has long expressed concerns that the introduction of an unusually broad liability regime for fund depositaries – initially under the Alternative Investment Fund Managers Directive (AIFMD) – will compel changes to business practices that could prove problematic. As the 22 July 2013 deadline approaches for implementation of the AIFM Directive, it’s apparent that many changes remain to be made across the industry – particularly in relation to the custodial arrangements that need to be in place to allow prime brokers to act as delegates of the safekeeping function assigned to depositaries under the Directive. As expected by the industry, challenges arise from the tension between the extensive legal liability allocated to depositaries for the return of financial instruments and physical assets held in custody, and the practical need for prime brokers to hold those assets in custody in order to efficiently deliver the services they provide.

 

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