The European Securities and Markets Authority has updated its set of questions and answers about the application of the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive (AIFMD).

The Q&A documents include new remarks about: UCITS investing in other UCITS with different investment policies; the calculation of issuer concentration limits pursuant to article 52 of the UCITS Directive; the reuse of assets by a UCITS depositary under article 22(7); and the supervision of branches of UCITS management companies or AIFMs providing MiFID (the Markets in Financial Instruments Directive) investment services.

A bank can only take netting arrangements in accordance with the definition and conditions set out in the guidelines on the Committee of European Securities Regulators' guidelines for Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS (Ref CESR/10-788) into account when it calculates issuer concentration limits. According to Article 22(7) of the UCITS Directive, the depositary must not reuse the assets that it holds in custody for its own account. This provision does not, however, imply that a depositary (or anyone to whom the custody function has been delegated) should never act as a counterparty in a transaction of assets that he/it holds in custody (including the transfer, pledge, sale and lending of those assets).

Under both the UCITS and the AIFM Directives, the powers of regulators in relation to branches of UCITS management companies or alternative investment fund managers (AIFMs) established in a member state that is not the home member state are shared and the Q&A document goes into some detail about this. The regulator of the EU country in which the branch is located (the host country) is responsible for supervising the branch’s compliance with 'conduct' rules; the regulator of the home country is responsible for everything else.

The purpose of these Q&A documents - promulgated in Paris where ESMA resides - is to promote harmony between regulators in different EU countries.