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HSBC Securities Services (Guernsey) to embrace AIFM directive’s depository clause

HSBC Securities Services (Guernsey) Limited believes new measures to improve the safeguarding and verification of assets managed in the EU will best be handled by large, multi-jurisdictional administrators and custodians with strong balance sheets.

Article 21 of the Alternative Investment Fund Manager Directive (AIFMD) introduces the new concept of a ‘depository’ responsibility into the alternative fund management value chain, a concept taken from the more regulated UCITS domain. It is envisaged that the depository will be responsible for oversight of the fund, for safe-keeping of assets that can be kept in a safe custody account (the depository generally remaining liable for any loss) and verifying the fund holds title to certain other assets. Together, these three responsibilities place a more strict liability upon the depository. It is anticipated these overarching regulations will come into play mid-2013.

Key characteristics of providers of depository services in the EU will be geographical scope and the ability to oversee and regulate activity in all jurisdictions in which a fund may be domiciled, as well as strength of balance sheet to fulfil any liability claims or for negligence. 

Amit Taylor, Managing Director of HSBC Securities Services (Guernsey) Limited says: “We have been discussing the planned changes with all our clients in great detail. We believe we have a very attractive offering to fund managers seeking depository expertise from us. HSBC Securities Services has US$ 2.5 trillion of assets under administration globally, as at 31 December 2010 and a custodian network in 92 markets, 41 of which are HSBC entities. With a strong heritage in the custodian arena, we can offer robust depository services to those funds wishing to choose to domicile either within Europe or outside.

Due to the demand for strength of balance sheet and global reach, we anticipate a shake out in the current number of providers as funds migrate to service providers with a depository footprint. Smaller administrators may struggle to meet the stringent provisions of the AIFM Directive. Those responsible for depository services will also want to control the valuation process to ensure accuracy of any potential liability. As an experienced global administrator and custodian we believe we already offer one of the most robust standards of service not only in Guernsey, but globally. Attending the Guernsey Funds Forum in London is an important way of helping to communicate that message to potential clients.”

Bill Scrimgeour, Global Head of Regulatory and Industry Affairs, HSBC Securities Services also adds: “There are obvious cost implications associated with the creation of this additional layer of protection for investors so it is imperative that some of the grey areas around the validation of ‘lost assets’ and liability are scrutinised and clarified. We are working closely with a multi-stakeholder taskforce, including other major global custodian banks around the world, to continue to debate the provisions laid out so far and offer additional insight and recommendations to ensure a smooth implementation.”

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