UCITS V

Thomas Murray spoke to HSBC's head of product solutions - regulatory change, Paul Ellis, about how the bank managed the implementation of UCITS V and the similarities with getting over the line with AIFMD, how this directive has impacted custody arrangements and what the future holds for the UCITS brand.

One of the key points at this week’s NeMa Africa event was the growing depth and liquidity in African markets from a growing and increasingly sophisticated domestic investor base being born out of recent pension reforms across the continent. This growth in pension funds is creating a development and investment drive into African capital markets, providing a strong and positive economic outlook for Africa.

For most investors, a planned and executed trade is the end of the affair. Once a counterparty has been found and the terms of the deal agreed, we assume we’ve addressed the risks we were looking to offset in changing the composition of the portfolio.

But what if risks lurk in the post-trade processing of our transaction? How do we know that securities and cash have moved correctly, that the change of ownership is recorded accurately and, once the movement has taken place, that our ownership rights are secure?

The £126 million fine levied by the UK Financial Conduct Authority (FCA) on BNY Mellon in April for breaches of the rules on the safekeeping of client assets was the latest in a series of similar sanctions.  The fine was the eighteenth penalty levied in four years on UK financial institutions for breaches of the UK’s custody rules (or “CASS”) regime, apparently highlighting a widespread industry problem.

The rules around asset safekeeping are something that pension funds and other asset owners should make themselves fully aware of. In the European Union (EU), the Alternative Investment Fund Managers Directive (AIFMD) and UCITS V are radically overhauling asset safekeeping obligations at the sub-custodian level. The rule changes in effect provide end investors with protection against a default or major credit event at their sub-custodian, a protection that is not typically available to investors in segregated or managed accounts.

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