Risks Facing AIF Market Participants
Regulators, institutional investors, and auditors are placing greater emphasis on how fund cash is held, segregated, and safeguarded. This situation underscores several key risks that market participants are increasingly seeking to avoid:
1. Regulatory Alignment Under AIFMD and CSSF Guidance
The CSSF has clarified that only central banks, EU-authorised credit institutions, and third-country authorised banks qualify as “Eligible Entities” for holding cash accounts under Article 19(7) of the AIFM Law. Ensuring that cash accounts are held directly with such institutions is essential for maintaining compliance and avoiding reputational risk. Failure to align with AIFMD cash monitoring obligations can expose AIFMs and depositaries to increased scrutiny during supervisory reviews.
2. Direct Account Ownership and Asset Segregation
Accounts must be opened in the name of the AIF, its AIFM, or its depositary – with an Eligible Entity. Indirect or pooled bank account structures can complicate asset segregation and recovery, especially in stressed scenarios.
3. Transparency and Regulatory Oversight
Clear, direct relationships with regulated banks help ensure transparency for auditors, regulators, and investors. Misunderstandings about account structures can lead to confusion and delays during audits or investor due diligence. Issuing real IBANs rather than virtual IBANs supports the transparency investors need.
4. Operational Continuity & Comprehensive Fund Banking Solutions
Discovering issues late in the process can lead to escalations and the need to transition banking arrangements under pressure – disrupting fund operations and investor servicing. Regulation expects that new AIFs and sub-funds must be launched with compliant banking structures from the outset.
Beyond compliance, licensed credit institutions offer a breadth of services.
These include:
- Direct access to central bank payment systems (e.g., TARGET2, SEPA Instant)
- Real IBAN issuance tied to the institution’s banking license
- Deposit-taking capabilities and access to liquidity facilities
- Safeguarding and segregation of client funds under banking law
- Integrated FX, and treasury services tailored to fund operations
These capabilities are essential for ensuring operational continuity, especially in complex fund structures or during high-volume transaction periods.
5. Substance and Jurisdictional Presence
Substance matters—not just for tax and regulatory purposes, but for investor confidence. Demonstrating real banking substance strengthens the overall governance framework of the fund. Banking relationships with regulated institutions in the fund’s jurisdiction reinforce the credibility of the fund’s structure.
Why Choose FundBank
At FundBank, we are seeing a clear shift in market expectations. Clients are shifting away from intermediary or fintech-based account models and seeking banking partners who offer safety, liquidity, and speed – without compromise.
- Safety: As a credit institution licensed by the European Central Bank and regulated by the CSSF, FundBank provides the highest level of regulatory assurance and investor protection. Your accounts are held directly in your name, ensuring full transparency and asset segregation.
- Liquidity: We understand that timely access to cash is critical for fund operations. Our banking solutions are designed to optimise liquidity management, enabling you to meet capital calls, distributions, and operational needs without friction.
- Speed: In a competitive market, delays can cost financial institutions opportunities. FundBank combines robust compliance with agile processes, ensuring account opening, and client servicing happen quickly – without sacrificing control or security.
We believe that real banking – delivered by a regulated institution with a dedicated focus on funds – is not just a regulatory requirement, but a strategic advantage. Our institutional banking clients benefit from local accounts, centralised management, and a team of specialists who understand the nuances of fund operations.
As the asset management industry continues to evolve, we remain committed to listening to our clients and delivering solutions that meet their needs for safety, liquidity, and speed.