FUND 3.11 Depositaries

This section applies in accordance with the table in FUND 3.11.2 R and FUND 3.11.3 R.

A UK depositary of a non-UK AIF or a non-UK feeder AIF8 which is marketed in the UK3 that does not perform all of the functions of cash monitoring, safekeeping and oversight for the AIF need only comply with the following rules that are applicable to the functions it performs:

1. (1)

   FUND 3.11.20 R if it performs only the cash monitoring function;

2. (2)

   FUND 3.11.21 R and FUND 3.11.23 R if it performs only the safekeeping function;

3. (3)

   FUND 3.11.25 R if it performs only the oversight function;

4. (4)

   FUND 3.11.20 R, FUND 3.11.21 R and FUND 3.11.23 R if it performs only the cash monitoring and safekeeping functions;

5. (5)

   FUND 3.11.20 R and FUND 3.11.25 R if it performs only the cash monitoring and oversight functions; and

6. (6)

   FUND 3.11.21 R, FUND 3.11.23 R and FUND 3.11.25 R if it performs only the safekeeping and oversight functions.

An AIFM must, for each UK AIF8 it manages, ensure that:

1. (1)

   a single depositary is appointed; and

2. (2)

   the assets of the AIF are entrusted to the depositary for safekeeping in accordance with FUND 3.11.21R and FUND 3.11.23R.8

[Note: article 21(1) and (8) of AIFMD]

An AIFM and a depositary must, in the context of their respective roles, act honestly, fairly, professionally, independently and in the interest of the AIF and its investors.

[Note: article 21(10) first paragraph of AIFMD]

To avoid conflicts of interest between the depositary, the AIFM, the AIF and its investors, an AIFM must ensure that:

1. (1)

   it does not act as a depositary or a delegate of a depositary; and

2. (2)

   a prime brokerage firm acting as counterparty to an AIF does not act as the depositary for that AIF, unless:

   1. (a)

      the prime brokerage firm has functionally and hierarchically separated the performance of its depositary functions from its tasks as a prime brokerage firm; and

   2. (b)

      potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF by the AIFM.

[Note: article 21(4) of AIFMD]

A depositary must not carry out activities with regard to the AIF, or the AIFM on behalf of the AIF, that may create conflicts of interest between the AIF, the investors in the AIF, the AIFM and itself, unless:

1. (1)

   the depositary has properly identified any such potential conflicts of interest;

2. (2)

   the depositary has functionally and hierarchically separated the performance of its depositary tasks from its other potentially conflicting tasks; and

3. (3)

   the potential conflicts of interest are properly managed, monitored and disclosed to the investors of the AIF.

[Note: article 21(10) second paragraph of AIFMD]

Subject to FUND 3.11.12 R, an AIFM must, for each UK AIF it manages, ensure the appointment of a depositary which is a firm established in the UK that has the Part 4A permission of acting as trustee or depositary of an AIF 9and which is one of the following:

1. (1)

   a credit institution; or

2. (2)

   a MiFID investment firm or an EEA MiFID investment firm8 which provides the ancillary service of safe-keeping and administration of financial instruments for the account of clients; or9

3. (3)

   another category of institution that is subject to prudential regulation and ongoing supervision and which, on 21 July 2011, fell within the categories of institution eligible to be a trustee of an AUT or a depositary of an ICVC.

[Note: article 21(3)(a) to (c) and (5)(a) of AIFMD]

An AIFM that manages a UK AIF which:

1. (1)

   has no redemption rights exercisable during the period of five years from the date of the initial investments; and

2. (2)

   in accordance with its core investment policy:

   1. (a)

      does not generally invest in AIF custodial assets; or

   2. (b)

      generally invests in issuers or non-listed companies in order to potentially acquire control over such companies in accordance with regulation 35 of the AIFMD UK regulation

may appoint, as its depositary, a firm which is established in the UK and which complies with FUND 3.11.14 R.

An AIFM must ensure that a depositary appointed in line with FUND 3.11.12 R is a firm:

1. (1)

   which has the Part 4A permission of acting as trustee or depositary of an AIF; and

2. (2)

   which has own funds of at least €125,000.

[Note: article 21(3) second paragraph after (c) and (5)(a) of AIFMD]

[deleted]9

[Editor’s note: this requirement has been moved to MIFIDPRU 4.4.6R.]

An AIFM and a depositary must ensure that the appointment of the depositary is evidenced by a written contract. The contract must regulate the flow of information deemed necessary to allow the depositary to perform its functions for the AIF for which it has been appointed as depositary.

[Note: article 21(2) of AIFMD]

A depositary must ensure that the AIF's cash flows are properly monitored and that:

1. (1)

   all payments made by, or on behalf of, investors upon the subscription of units or shares of an AIF have been received;

2. (2)

   all cash of the AIF has been booked in cash accounts opened:

   1. (a)

      in the name of:

      1. (i)

         the AIF; or

      2. (ii)

         the AIFM acting on behalf of the AIF; or

      3. (iii)

         the depositary acting on behalf of the AIF; and

   2. (b)

      at:

      1. (i)

         a central bank; or

      2. (ii)

         aCRD credit institution1; or

         1
      3. (iii)

         a bank authorised in a non-EEA country8; or

      4. (iv)

         another entity of the same nature, in the relevant market where cash accounts are required, provided such an entity is subject to effective prudential regulation and supervision which have the same effect as UK8 law and are effectively enforced and in accordance with the principles set out in article 27 (safeguarding of client financial instruments and funds) of the MiFID Delegated Directive7; and

3. (3)

   where cash accounts are opened in the name of the depositary acting on behalf of the AIF in accordance with (2)(a)(iii), the depositary must ensure that no cash of the entity referred to in (2)(b), and none of the depositary's own cash, is booked on such accounts.

[Note: article 21(7) of AIFMD]

1. (1)

   A depositary must hold in custody all AIF custodial assets.

2. (2)

   The depositary must ensure that all AIF custodial assets that can be registered in a financial instruments account are registered in the depositary's books within segregated accounts opened in the name of the AIF, or the AIFM acting on behalf of the AIF, so that they can be clearly identified as belonging to the AIF at all times in accordance with the applicable law and CASS 6.1.16IA R (Depositaries of AIFs).

   [Note: article 21(8)(a) of AIFMD]

For assets of the AIF that are not AIF custodial assets, a depositary must:

1. (1)

   verify that the AIF, or the AIFM acting on behalf of the AIF, is the owner of the assets based on information or documents provided by the AIF or the AIFM and, where available, on external evidence; and

2. (2)

   maintain, and keep up to date a record of those assets for which it is satisfied that the AIF, or the AIFM acting on behalf of the AIF, is the owner.

[Note: article 21(8)(b) of AIFMD]

A depositary must not reuse the assets of the AIF without the prior consent of the AIF or the AIFM acting on behalf of the AIF.

[Note: article 21(10) third paragraph of AIFMD]

A depositary must:

1. (1)

   ensure that the sale, issue, repurchase, redemption and cancellation of units or shares of the AIF are carried out in accordance with the applicable national law and the instrument constituting the fund;

2. (2)

   ensure that the value of the units or shares of the AIF is calculated in accordance with the applicable national law, the instrument constituting the fund and FUND 3.9 (Valuation);

3. (3)

   carry out the instructions of the AIFM, unless they conflict with the applicable national law or the instrument constituting the fund;

4. (4)

   ensure that in transactions involving the AIF's assets, any consideration is remitted to the AIF within the usual time limits; and

5. (5)

   ensure that an AIF's income is applied in accordance with the applicable national law and the instrument constituting the fund.

[Note: article 21(9) of AIFMD]

1. (1)

   A depositary must not delegate its functions to third parties, except as permitted by FUND 3.11.28R.4

2. (2)

   The prohibition in (1) does not apply to the delegation by the depositary of supporting administrative or technical tasks that are linked to its depositary functions.4

[Note: recital 42 and4 article 21(11) first paragraph of AIFMD]

A depositary may delegate the functions in FUND 3.11.21 R and FUND 3.11.23 R to third parties, subject to the following conditions:

1. (1)

   the tasks are not delegated with the intention of avoiding the requirements of those rules or the AIFMD level 2 regulation8;;

2. (2)

   the depositary can demonstrate that there is an objective reason for the delegation;

3. (3)

   the depositary:

   1. (a)

      has exercised all due skill, care and diligence in the selection and appointment of any third party to whom it wants to delegate parts of its tasks; and

   2. (b)

      continues to exercise all due skill, care and diligence in the periodic review and ongoing monitoring:

      1. (i)

         of any third party to whom it has delegated parts of its tasks; and

      2. (ii)

         of the arrangements of that third party in respect of the matters delegated to it;

4. (4)

   the depositary ensures that the third party delegate meets the following conditions at all times:

   1. (a)

      the third party has structures and expertise that are adequate and proportionate to the nature and complexity of the assets of the AIF, or the AIFM acting on behalf of the AIF, that have been entrusted to it;

   2. (b)

      (subject to FUND 3.11.29 R) for custody tasks in relation to AIF custodial assets, the third party is subject to:

      1. (i)

         effective prudential regulation, including minimum capital requirements, and supervision in the jurisdiction concerned; and

      2. (ii)

         an external periodic audit to ensure that the financial instruments remain in its custody;

   3. (c)

      the third party segregates the assets of the depositary's clients from its own assets and from the assets of the depositary in such a way that they can, at any time, be clearly identified as belonging to clients of a particular depositary;

   4. (d)

      the third party does not make use of the assets unless it has:

      1. (i)

         obtained the prior consent of the AIF, or the AIFM acting on behalf of the AIF; and

      2. (ii)

         given prior notification to the depositary; and

   5. (e)

      the third party complies with the general obligations and prohibitions relating to the depositary in FUND 3.11.5 R, FUND 3.11.5 G, FUND 3.11.9 R, FUND 3.11.21 R, FUND 3.11.23 R and FUND 3.11.24 R.

[Note: article 21(11) second paragraph of AIFMD]

A depositary may delegate custody tasks in relation to AIF custodial assets to an entity in a country other than the UK8 that does not satisfy the conditions in FUND 3.11.28R (4)(b), provided that:

1. (1)

   the law of that third country requires those AIF custodial assets to be held in custody by a local entity;

2. (2)

   no local entity satisfies the conditions in FUND 3.11.28R (4)(b);

3. (3)

   the depositary delegates its functions to such a local entity only to the extent required by the law of that country and only for as long as there is no local entity that satisfies the delegation conditions in FUND 3.11.28R (4)(b);

4. (4)

   the investors of the relevant AIF are informed before their investment that such delegation is required due to legal constraints in that8 country and of the reasons as to why the delegation is necessary; and

5. (5)

   the AIF, or the AIFM on behalf of the AIF, has consented to the delegation arrangements before they become effective.

[Note: article 21(11) third paragraph of AIFMD]

A depositary must ensure that a third party to whom the depositary has delegated functions does not, in turn, sub-delegate those functions unless the delegate complies with the same requirements that apply to the depositary, with any necessary changes, in relation to the delegation by the depositary of its functions in FUND 3.11.26 R to FUND 3.11.29 R.

[Note: article 21(11) fourth paragraph of AIFMD]

An AIFM of a non-UK AIF or a non-UK feeder AIF8 which is marketed in the UK must:

1. (1)

   ensure that the duties referred to in FUND 3.11.20 R, FUND 3.11.21 R, FUND 3.11.23 R and FUND 3.11.25 R are carried out in relation to that AIF by one or more:

   1. (a)

      firms that:3

      3
      1. (i)

         are established in the UK; and3

      2. (ii)

         which have the Part 4A permission of acting as trustee or depositary of an AIF; and3

      3. (iii)

         which have own funds of at least €125,000,3

      where the duties are carried out in the UK; or

   2. (b)

      entities that are not established in the UK, where the duties are not carried out in the UK; or3

   3. (c)

      firms that are established in the UK and which are carrying out the duties from a non-UK branch;3

2. (2)

   not perform the duties referred to in (1) itself; and

3. (3)

   provide the FCA with information about the identity of those entities responsible for carrying out the duties referred to in (1).

[Note: article 36(1)(a) of AIFMD]