Conflicting asset segregation rules across different regulations have been compared to the issues and burdens that resulted from inconsistent reporting rules, according to an industry expert.
Speaking to Global Custodian, Eric De Nexon, head of strategy for market infrastructures for Societe Generale Securities Services spoke of how the approach of regulators “working in silo” may cause inconsistencies.
“What we have seen in the past is that the regulator decides the direction of a particular regulation in a text and then drafts the text without always considering if there are any potential issues or conflicts between the various regulations,” said De Nexon.
“This leads to the current situation we have concerning asset segregation.
“We have also seen this issue regarding reporting, for example between SFTR and EMIR the type of reporting is not always equivalent as we have to report transactions in different forms.”
De Nexon’s comments come following increased scrutiny on asset segregation rules within the industry.
Speaking to Global Custodian last month, Michael Buzza, senior vice president for market advocacy and innovation research enterprise enablement at Northern Trust, spoke of how a swathe of new regulations introduced in the aftermath of the financial crisis are causing fragmentation in asset segregation.
Industry governing bodies have also attempted to unify regulations with ESMA launching a consultation on asset segregation and custody services under AIFMD and UCITS regulation earlier this year.
The consultation was launched with the aim of broaden understanding of asset segregation rules under the UCITS directive as well as to address the uncertainty on how depositary rules will apply to Central Securities Depositories (CSDs).
De Nexon also suggested that regulators were aware of potential inconsistencies and that developments in the Capital Markets Union (CMU) project would look to address these.
“There was a consultation last year on the consistency across different regulations in Europe led by the EC and one of the aims was to put inconsistencies in and between regulation to the forefront of people’s thinking,” said De Nexon.
“So it is something that is known by the industry but also by the regulator as within the CMU action plan there is an indication to produce better regulations to solve these inconsistencies.”