Liability for loss of assets - AIFMD Provision: Difference between revisions
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See also Article {{aifmdprov|DR100}} of the delegated regulation for even more detail. | See also Article {{aifmdprov|DR100}} of the delegated regulation for even more detail. | ||
===“[[External event beyond its reasonable control]]”=== | |||
So the unexpected insolvency of a delegate or subcustodian is an event beyond the {{aifmdprov|depositary}}’s reasonable control, right? This was certainly the hopeful expectation of the European Bankiung Federation in its submissions to that effect of September 2013<ref>See [http://www.ebf-fbe.eu/uploads/documents/positions/FinMark/D1444E-2011_EBF_Response_to_ESMA_AIFMD_implementing_measures_consultation.pdf here].</ref>. | |||
''Wrong''. According to ESMA’s final 500-page bunker-busting advice from 2011<ref>Which you can find [https://www.esma.europa.eu/system/files_force/library/2015/11/2011_379.pdf here, at page 182].</ref>: | |||
:''The {{wasteprov|depositary}} will not be liable for the loss of financial instruments held in custody by itself or by a subcustodian if it can demonstrate that all the following conditions are met: | |||
:''1. The event which led to the loss is not a result of an act or omission of the {{wasteprov|depositary}} '''or one of its subcustodians''' to meet its obligations. | |||
:''2. The event which led to the loss was beyond its reasonable control i.e. it could not have prevented its occurrence by reasonable efforts. | |||
:''3. Despite rigorous and comprehensive due diligence, it could not have prevented the loss.'' | |||
The omission of a subcustodian to meet its obligations — albeit through its insolvency (and associated failures in internal segregation etc) is thus not an event beyond the reasonable control of the depositary. |