The Central Securities Depository Regulation (CSDR), the European Union’s legislation on central securities depositories, came into force in September of this year, although its application is awaiting the publication and implementation of the Level 2 technical standards. The new regulation is the latest in a wave stemming from the political backlash following the collapse of Lehman Brothers in 2008 and the ensuing Global Financial Crisis.

As regards the CSDs (central securities depositaries) and depositary banks, where are the risks for the depositaries in assuming strict liability for the restitution of assets of their underlying fund clients in the case of lost assets at a CSD? How likely is this to even happen?

One area of intrigue around depositary liability under AIFMD and UCITS V is CSDs (central securities depositories). CSDs, as systemically important financial market infrastructures, come in different guises that hold the key to the depositary liability regime under both Directives. The difference between Issuer and Investor CSDs is a crucial component.

With the advent of CSDR (Central Securities Depository Regulation) and Target2 Securities (T2S) arriving in Wave 1 on 22 June 2015, one fundamental change is occurring in the European settlement cycle this October with the switch from a general T+3 settlement cycle to settlement on T+2. This means that trades that are to be settled in Europe will have one less day to settle than they did previously.

With the 22 July AIFMD deadline soon upon us, the publication of UCITS V in the Official Journal of the European Union is anticipated to arrive at a similar time. One key aspect of UCITS V will be harmonisation with AIFMD – depositary liability under AIFMD and UCITS V will become similarly aligned.