Asset segregation regs causing fragmentation, says Northern Trust

The introduction of regulations such as CSDR, UCITS and AIFMD have led to divisions in asset segregation according to an industry expert.
By Paul Walsh
A swathe of new regulations introduced in the aftermath of the financial crisis are causing fragmentation in asset segregation, according to one industry expert.

Michael Buzza, senior vice president for market advocacy and innovation research enterprise enablement at Northern Trust, explained how the introduction of numerous regulations launched in quick succession has impacted asset segregation.

Recent industry debate has focused on how asset segregation rules laid out under various regulations including CSDR, AIFMD and UCITS V are potentially causing confusion for market participants.

“Look at the 2007-08 environment and fast forward to now, we have unprecedented amounts of regulations, both new and existing regulations that evolved in such a short space of time,” said Buzza.

“As a result of this we have had what we can only describe as regulatory fragmentation, this is not necessarily contradiction but there is fragmentation.

“So we have CSDR offering client choice but we also have AIFMD which is segregating by client type, the same as UCITS.”

Last month, an Association for Financial Markets in Europe (AFME) report entitled “Principles of Asset Segregation, Due Diligence and Collateral Management” suggested there was no consistency in the definition of asset segregation rules across various pieces of European regulation.

Europe’s securities and markets authority (ESMA) also launched a consultation on asset segregation in July with the aim of broadening understanding of asset segregation rules and to address uncertainty across regulations.

With this in the background, Buzza suggests that regulators will continue to push for increased segregation.

“There are various types of regulations aimed at different activities that are mandating segregation and what regulation is pushing for is further segregation.

“Further segregation will be segregation by client type and over the last 12-18 months there has been a huge amount of debate over what this means. “