Thomas Murray Data Services recently met with the European Commission market infrastructure division in Brussels. Here is a summary of the main talking points arising from our meeting:

There are questions as to whether depositary banks with assets held in sub-custody at US prime brokers will be subject to strict restitution liability under the Alternative Investment Fund Managers Directive (AIFMD) for assets lost during rehypothecation, should the prime broker default.

It is a common practice under US law to allow re-use of assets by US prime brokers without transfer of legal title. The implications for depositaries of alternative investment fund managers (AIFMs) transacting in US securities held in US prime brokerage accounts, are potentially significant.

The Alternative Investment Fund Managers Directive (AIFMD) has prompted strong growth in European fund domiciles, with total Assets under Management (AuM) in the EU growing by 13 per cent to $3.7 trillion, according to a study by the Association of the Luxembourg Fund Industry (ALFI) and Oliver Wyman.

The extension of the pan-EU passport to non-EU managers as envisioned under AIFMD (the Alternative Investment Fund Managers Directive) is contingent on third countries meeting equivalence standards laid out by the EU and the effectiveness of the national private placement regimes.

A number of depositaries may not be pricing the costs of strict liability into client fees with many under charging because they are discharging the liability to their prime brokers acting as sub-custodians.