FRANCE: AMF issues recommendations to cope with Madoff scandal

Wednesday December 17 2008

In response to the infamous Madoff scandal which has seen investors and charities suffering losses amounting to USD 50 Billion, the French Regulator (AMF) has issued a set of recommendations to guide management companies.

These recommendations follow an announcement that a number of French funds may be affected by the Madoff case putting the figure to 500 Million Euros. The AMF also specifically refers to the potential exposure of UCITS to Madoff.

The recommendations include suspending purchases and redemptions in funds with more than 5% of assets linked to Madoff, valuing the instruments concerned conservatively, isolating the affected assets in a side pocket and discounting the investments affected.

The Regulator has reminded management companies that their decisions must be guided solely by their unit holders’ and shareholders’ interests, and that they must comply with the principle of equal treatment of share or unitholders and ensure that their investors receive full information.

The AMF points out that, in the case of retail funds (UCITS), such custody arrangements would require a sub-custody agreement between the depositary and the relevant entity, and that such an agreement would not mitigate the depositary’s liability for the custody of fund assets. The depositary’s obligation to return assets covered by safekeeping arrangements would not be altered and the depositary would be required to compensate for any losses arising from the disappearance of such assets.

If a management company did delegate management of a French fund to a Madoff-linked entity, it would still be liable for the financial management decisions made.

Click on the above link to download the full set of recommendations.