As the Directives are written, one of the main differences between AIFMD (the Alternative Investment Fund Managers Directive) and the current text of UCTIS V is the extension of depositary liability, under the latter, down to the market level and CSDs (central securities depositories). AIFMD, at least currently, provides for depositary liability down to sub-custodian level only, it does not extend to CSDs, whereas UCITS V seeks to extend this to CSDs.

Of the several changes taking place in the European central securities depository (CSD) space, one of the biggest is the introduction of competition. CSDs have previously largely enjoyed the status of natural monopolies, servicing their own domestic markets. In the aftermath of the global financial crises that struck post-2008, CSDs have been caught up in the regulatory overhaul of the financial system and this is having a profound effect upon the European space in particular.

One of the key elements of the recently approved UCITS V directive is its extension of depositary bank liability down to the central securities depository (CSD) level. It is one of the key differences in depositary liability from the Alternative Investment Fund Managers Directive (AIFMD), as regulators look to further strengthen the oversight of the alternatives industry.

Target2-Securities (T2S) is fast approaching for the 30 European central securities depositories (CSDs) that have signed up to the central settlement system. One of the frontrunners in the new platform is the Italian CSD, Monte Titoli which is set to become one of the first CSDs to move to T2S on 22 June 2015. It will be joined by the CSDs of Greece, Malta, Romania and SIX SIS Ltd in Switzerland.

Segregation is a hot topic under the Alternative Investment Fund Managers Directive (AIFMD). Alongside the depositaries taking on overarching liability for all losses incurred in their network of sub-custodians (including collateral agents, prime brokers and transfer agents), as well as oversight, record-keeping and cash monitoring duties; they must also ensure that all assets under custody are segregated at a sub-custodian level.