UCITS ESMA

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.