aifmd – depositary requirements - walkers · 2017-06-24 · aifmd and the aif’s constitutional...

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AIFMD – Depositary Requirements

The Alternative Investment Funds Management Directive (“AIFMD”) requires Alternative Investment Fund Managers (“AIFMs”) to appoint a single depository to all Alternative Investment Funds (“AIFs”) that they manage and introduces new depository requirements in relation to their AIFs.*

EligibilityIn order to act as depositary under AIFMD, the relevant entity must be (i) a credit institution; (ii) an investment firm which complies with certain capital adequacy rules and that is authorised to safe keep assets; (iii) a company which is either wholly owned by a credit institution or is wholly owned by an institution in a non-Member State which is deemed by the relevant competition authority to be equivalent or an EU or non-EU institution or company which provides unitholders with protections equivalent to that of a depositary and its liabilities are guaranteed by a credit institution or non-EU equivalent.

Oversight FunctionsAIFMD prescribes that certain functions listed below must be carried out by the depositary:

(i) Monitor AIF’s cash flow;

(ii) Safe keep the assets of the AIF in accordance with the procedures set out in the AIFMD;

(iii) Ensure that the valuation, sale, issue, re-purchase, redemption and cancellation of units of the AIFMD are carried out in accordance withAIFMD and the AIF’s constitutional documents;

(iv) Carry out the instructions of the AIFM unless they conflict with applicable law or an AIF’s constitutional document; and

(v) Ensure that an AIF’s income is applied in accordance with AIFMD.

In addition, certain operating conditions on depositaries must also be complied with.

AIFMD Factsheet

* The depositary requirements apply initially to all authorised AIFMs and to EU AIFMs. They will not apply to non-EU AIFMs until 2015 at the earliest.

http://www.walkersglobal.com/images/AIFMD/AIFMD-Directive.pdf




Delegation by the DepositaryThe oversight functions outlined above may not be delegated by the depositary, however, it may delegate the safekeeping function to an eligible third party, such as a prime broker.

Delegation of the safekeeping function is subject to a number of conditions, as set out below:

(i) The tasks must not be delegated with a view to avoiding the requirements under AIFMD and so the depositary must demonstrate that there is an objective reason for doing so;

(ii) The depositary must exercise all due skill, care and diligence in the selection and the appointment of any third party to whom it wants to delegate and on an on-going basis in relation to the tasks so delegated; and

(iii) The depositary must ensure the third party satisfies the following conditions at all times:

(a) That it has the structures and expertise that are adequate and proportionate to the nature and complexity of the AIF’s assets;

(b) That in respect of the custody of financial instruments, it is subject to appropriate prudential regulation, including minimum capital requirements and that it is subject to external periodic audits;

(c) That it segregates the assets of the AIF in such a way that they can be clearly identified at all times as belonging to the particular AIF; (d) That it may not use the AIF’s assets for its own purposes without the prior consent of the depositary.

Where a prime broker is appointed as a delegate there is additional requirements which must be contained in the contract between the depositary and the prime broker, including next day reporting requirements in relation to the assets and the use of those assets.

LiabilityAIFMD introduces a strict liability standard for depositaries and they will be liable to the AIF and its shareholders for loss by the depositary or a third party delegate of financial instruments in its custody.

Where financial instruments are lost, the depositary will be obliged to return a financial instrument of identical type or the corresponding value to the AIF without undue delay.

The depositary will not be liable where it can demonstrate that the loss was as a result of undue delay caused by an external event beyond its reasonable control, the consequences of which were unavoidable despite all reasonable efforts to the contrary.

The depositary is also liable to the AIF or to its unitholders of the AIF for all other losses suffered by them as a result of the depositary’s negligent or intentional failure to properly fulfil its obligations pursuant to AIFMD.

While the liability of the depositary is not affected by any delegation to a third party, the depositary may discharge its liability in the case of loss of financial instruments where it can prove that:

(i) all of the delegation requirements in respect of its custody tasks were met;

(ii) a written contract between the depositary and the third party expressly transfers the liability and makes it possible for the AIF to make a claim against the third party in respect of the loss of financial instruments or for the depositary to make such a claim on its behalf;

(iii) a written contract between the depositary and the AIF expressly provides for such a discharge to a third party and establishes the objective reason to contract such a discharge;

(iv) the AIF’s constitutional documents expressly allows for such a discharge; and

(v) the AIF’s unitholders are notified of that discharge and the justification for same prior to their investment in the AIF.




ConclusionDepositaries will need to review their existing contractual arrangements with sub-custodians and prime brokers and with each AIF and make the necessary changes to comply with AIFMD. The AIF will also need to review its constitutional documents to ensure that the necessary provisions are provided for and make any necessary amendments.

DisclaimerThe information contained in the factsheet is necessarily brief and general in nature and does not constitute a detailed summary of all of the relevant information or legal advice. Appropriate legal or other professional advice should be sought for any specific matter.

aifmd – depositary requirements - walkers · 2017-06-24 · aifmd and the aif’s constitutional...

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