BNY Mellon warns of serious asset segregation consequences

BNY Mellon has warned that the implementation of asset segregation rules and subsequent market fragmentation will make it difficult to move assets.

Head of the European strategic regulatory office at BNY Mellon, Ross Whitehill, made the comments in response to the European Securities and Markets Authority’s (ESMA) asset segregation consultation.

He explained segregation up the custody chain will cause fragmentation of asset and collateral pools, making it difficult to move assets when they need to be moved at market level under segregation.

“While it was clear that segregation of custody assets is conceptually and actually possible, there are very serious consequences that arguably were not intended when ESMA proposed,” Whitehill said.

He added that fragmenting collateral pools is “counterintuitive”, as collateral is needed “now more than ever to support regulatory initiatives.”

Liquidity provided by alternative investment funds (AIF) and undertakings for collective investment in transferable securities (UCITS) will also be restricted by segregation, Whitehill explained.

He describes this as being, “too high a price for Europe to bear”, for rules which fail to bring additional asset safety or quick returns of securities.

Earlier this month, the Association for Financial Markets in Europe (AFME) joined numerous industry participants calling for greater harmonisation of asset segregation rules.

It recommended key principles for asset segregation, suggesting internal accounts be fully segregated, and external accounts segregated between proprietary assets and securities account holder assets.