This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF;

2. (2)

   an EEA AIF; and

3. (3)

   a non-EEA AIF.

An AIFM must, for each UK AIF4that it manages, and for each AIF it markets in the UK4, make available to AIF investors before they invest, in line with the instrument constituting the fund, the following information and any material changes to it:

1. (1)
   1. (a)

      a description of the investment strategy and objectives of the AIF;

   2. (b)

      if the AIF is a feeder AIF, information on where the master AIF is established;

   3. (c)

      if the AIF is a fund of funds, information on where the underlying funds are established;

   4. (d)

      a description of the types of assets in which the AIF may invest;

   5. (e)

      the investment techniques that the AIF, or the AIFM on behalf of the AIF, may employ and all associated risks;

   6. (f)

      any applicable investment restrictions;

   7. (g)

      the circumstances in which the AIF may use leverage;

   8. (h)

      the types and sources of leverage permitted and the associated risks;

   9. (i)

      any restrictions on the use of leverage and any collateral and asset reuse arrangements; and

   10. (j)

       the maximum level of leverage which the AIFM is entitled to employ on behalf of the AIF;

2. (2)

   a description of the procedures by which the AIF may change its investment strategy or investment policy, or both;

3. (3)

   a description of the main legal implications of the contractual relationship entered into for the purpose of investment, including information on jurisdiction, the applicable law and the existence or absence of any legal instruments providing for the recognition and enforcement of judgments in the territory where the AIF is established;

4. (4)

   the identity of the AIFM, the AIF'sdepositary, the auditor and any other service providers and a description of their duties and the investors' rights;

5. (5)

   a description of how the AIFM complies with the requirements referred to in IPRU-INV 11.3.11G (Professional negligence) relating to professional liability risk;

   1
6. (6)

   a description of:

   1. (a)

      any AIFM management function delegated by the AIFM;

   2. (b)

      any safe-keeping function delegated by the depositary;

   3. (c)

      the identity of each delegate appointed in accordance with FUND 3.10 (Delegation); and

   4. (d)

      any conflicts of interest that may arise from such delegations;

7. (7)

   a description of the AIF's valuation procedure and of the pricing methodology for valuing assets, including the methods used in valuing any hard-to-value assets, in line with FUND 3.9 (Valuation);

8. (8)

   a description of the AIF's liquidity risk management, including the redemption rights of investors in normal and exceptional circumstances, and the existing redemption arrangements with investors;

9. (9)

   a description of all fees, charges and expenses, and the maximum amounts directly or indirectly borne by investors;

10. (10)

    a description of how the AIFM ensures a fair treatment of investors;

11. (11)

    whenever an investor obtains preferential treatment or the right to obtain preferential treatment, a description of:

    1. (a)

       that preferential treatment;

    2. (b)

       the type of investors who obtain such preferential treatment; and

    3. (c)

       where relevant, their legal or economic links with the AIF or AIFM;

12. (12)

    the procedure and conditions for the issue and sale of units or shares;

13. (13)

    the latest net asset value of the AIF or the latest market price of the unit or share of the AIF, in line with FUND 3.9 (Valuation);

14. (14)

    the latest annual report, in line with FUND 3.3 (Annual report of an AIF);

15. (15)

    where available, the historical performance of the AIF;

16. (16)
    1. (a)

       the identity of the prime brokerage firm;

    2. (b)

       a description of any material arrangements of the AIF with its prime brokerage firm and the way any conflicts of interest are managed;

    3. (c)

       the provision in the contract with the depositary on the possibility of transfer and reuse of AIF assets; and

    4. (d)

       information about any transfer of liability to the prime brokerage firm that may exist; and

17. (17)

    a description of how and when the information required under FUND 3.2.5 R and FUND 3.2.6 R will be disclosed.

[Note: article 23(1) of AIFMD]

1. (1)

   An AIFM must inform investors before they invest in the AIF of any arrangement made by the depositary to contractually discharge itself of liability, in accordance with regulation 30 of the AIFMD UK Regulation.

2. (2)

   The AIFM must also inform investors without delay of any changes with respect to depositary liability.

[Note: article 23(2) of AIFMD]

Where the AIF is required to publish a prospectus under article 3 of the Prospectus Regulation5, only information referred to in FUND 3.2.2 R and 3.2.3 R that is additional to that contained in the prospectus needs to be disclosed, either separately or as additional information in the prospectus.

[Note: article 23(3) of AIFMD]

An AIFM must, for each UK AIF4it manages, and each AIF it markets in the UK4, disclose to investors periodically:

1. (1)

   the percentage of the AIF's assets that are subject to special arrangements arising from their illiquid nature;

2. (2)

   any new arrangements for managing the liquidity of the AIF; and

3. (3)

   the current risk profile of the AIF and the risk management systems employed by the AIFM to manage those risks.

   [Note: article 23(4) of AIFMD]

An AIFM that manages a UK AIF4or markets an AIF in the UK4 must, for each such AIF that employs leverage, disclose on a regular basis:

1. (1)

   any changes to:

   1. (a)

      the maximum level of leverage that the AIFM may employ on behalf of the AIF; and

   2. (b)

      any right of reuse of collateral or any guarantee granted under the leveraging arrangement; and

2. (2)

   the total amount of leverage employed by that AIF.

[Note: article 23(5) of AIFMD]

This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF; and5

2. (2)

   [deleted]5

3. (3)

   a non-UK AIF5marketed in the UK.

An AIFM must, for each UKAIF5it manages and for each AIF it markets in the UK:

1. (1)

   make an annual report available to investors for each financial year;

2. (2)

   provide the annual report to investors on request; and

3. (3)

   make the annual report available to the FCA5.

[Note: article 22(1) first paragraph and article 24(3)(a) of AIFMD]

Subject to FUND 3.3.4R (2) and FUND 3.3.4AR4, an AIFM must make the annual report available, in line with FUND 3.3.2R (1), no later than six months after the end of the financial year.

[Note: article 22(1) first paragraph of AIFMD]

1. (1)

   Where the AIF is required to make an annual financial report public under DTR 4.1.3 R (Publication of annual financial reports) or an equivalent provision in the country where the AIF is established5, only information referred to in FUND 3.3.5 R that is additional to the annual financial report needs to be provided to investors on request, either separately or as an additional part of the annual financial report.

2. (2)

   Where additional information in (1) is provided as an addition to the annual financial report, that report must be made public no later than four months following the end of the financial year, under DTR 4.1.3 R (Publication of annual financial reports) or an equivalent provision in the country where the AIF is established5.

   [Note: second paragraph, article 22(1) of AIFMD]

4 FUND 3.3.3R does not apply to a full-scope UK AIFM of a non-UCITS retail scheme.

The annual report must contain:

1. (1)

   a balance sheet or a statement of assets and liabilities;

2. (2)

   an income and expenditure account for the financial year;

3. (3)

   a report on the activities of the financial year;

4. (4)

   any material changes in the information required to be made available to investors under FUND 3.2.2 R (Prior disclosure of information to investors) during the financial year covered by the report;

5. (5)
   1. (a)

      the total amount of remuneration paid by the AIFM to its staff for the financial year, split into fixed and variable remuneration, including, where relevant, any carried interest paid by the AIF; and

   2. (b)

      the number of beneficiaries; and

6. (6)

   the aggregate amount of remuneration broken down by senior management and members of staff2 of the AIFM whose actions have a material impact on the risk profile of the AIF.2

   [Note: article 22(2) of AIFMD]

The accounting information given in the annual report must be:

1. (1)

   prepared in accordance with the accounting standards of the UK5 (or, for a non-UK AIF5, the accounting standards of the third country where it is established) and with the accounting rules set out in the AIF'sinstrument constituting the fund; and

2. (2)

   audited by one or more persons empowered by law to audit accounts under the Companies Act 2006 (or for a non-UK AIF5, under international auditing standards in force in the country where the non-UK AIF5 is established).

[Note: article 22(3) of AIFMD]

The auditor's report, including any qualifications, must be reproduced in full in the annual report.

[Note: second paragraph article 22(3) of AIFMD]

2An AIFM must comply with the provisions in this section in relation to the first financial year end date of the AIF following the AIFM's authorisation as an AIFM.

This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF;

2. (2)

   an EEA AIF; and

3. (3)

   a non-EEA AIF.

An AIFM must regularly report to the FCA on behalf of each AIF it manages:

1. (1)

   the main instruments in which it is trading;

2. (2)

   the principal markets of which it is a member or where it actively trades; and

3. (3)

   the principal exposures and most important concentrations of each AIF it manages.

[Note: article 24(1) of AIFMD]

An AIFM must, for each UK AIF and EEA AIF it manages, and for each AIF it markets in the UK4, provide the following to the FCA:

1. (1)

   the percentage of the AIF's assets that are subject to special arrangements arising from their illiquid nature;

2. (2)

   any new arrangements for managing the liquidity of the AIF;

3. (3)

   the current risk profile of the AIF and the risk management systems employed by the AIFM to manage the market risk, liquidity risk, counterparty risk and other risks, including operational risk;

4. (4)

   information on the main categories of assets in which the AIF is invested; and

5. (5)

   the results of the stress tests performed in accordance with FUND 3.6.3R (2) (Liquidity systems and procedures) and FUND 3.7.5R (2)(b) (Risk management systems).

[Note: article 24(2) of AIFMD]

An AIFM must, at the FCA's request, provide at the end of each quarter a detailed list of all AIFs which it manages.

[Note: article 24(3)(b) of AIFMD]

An AIFM managing an AIF that employs leverage on a substantial basis must make the following information available to the FCA about that AIF:

1. (1)

   the overall level of leverage employed by the AIF;

2. (2)

   a breakdown of leverage arising from borrowing of cash or securities and leverage embedded in financial derivatives;

3. (3)

   the extent to which the AIF's assets have been reused under leveraging arrangements; and

4. (4)

   the identity of the five largest sources of borrowed cash or securities for the AIF, and the amounts of leverage received from each of those sources.

[Note: article 24(4) of AIFMD]

1In addition to the information in FUND 3.4.2 R, an AIFM must regularly report the following information to the FCA:

1. (1)

   on behalf of each AIF it manages:

   1. (a)

      the geographical focus of investments expressed as a percentage of the total value of assets under management;

   2. (b)

      an indication of whether a short position is used to hedge a position with a similar economic exposure;

   3. (c)

      the Value at Risk (VaR), if this is calculated for the AIF for any other purpose; and

   4. (d)

      the portfolio's sensitivity to a change in foreign exchange rates and commodity prices, if this is calculated for the AIF for any other purpose; and

2. (2)

   the information in FUND 3.4.3 R for each non-EEA AIF it manages that is not marketed in the EEA or the UK4, if:3

   1. (a)

      the AIFM is subject to quarterly reporting under article 110 of the AIFMD level 2 regulation (see SUP 16.18.4EU); and3

   2. (b)

      that AIF is the master AIF of a feeder AIF which the AIFM also manages and that feeder AIF is:3

      1. (i)

         3an EEA AIF; or

      2. (ii)

         3a non-EEA AIF that is marketed in the EEA or the UK4.

3In addition to the information in FUND 3.4.2R, an AIFM must regularly report to the FCA the information in FUND 3.4.3R for each non-EEA AIF it manages that is not marketed in the UK4 if the AIFM is subject to quarterly reporting under article 110 of the AIFMD level 2 regulation (see SUP 16.18.4UK4) for that AIF.

[Note: article 24(5) of AIFMD]

1This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF; and2

2. (2)

   a non-UK AIF.2

3. (3)

   [deleted]2

1Where an AIFM is exposed to a securitisation that does not meet the requirements provided for in SECN and, where applicable, the Securitisation Part of the PRA Rulebook3, it must, in the best interests of the investors in the relevant AIFs, act and take corrective action, if appropriate.

[Note: Article3 17 of AIFMD]

This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF; and1

2. (2)

   [deleted]1

3. (3)

   non-UK AIF.1

An AIFM must ensure that the investment strategy, liquidity profile and redemption policy of each AIF it manages are consistent.

[Note: article 16(2) of AIFMD]

An AIFM must, for each AIF it manages that is not an unleveraged closed-ended AIF:

1. (1)

   employ an appropriate liquidity management system and adopt procedures which:

   1. (a)

      enable it to monitor the liquidity risk of the AIF; and

   2. (b)

      ensure that the liquidity profile of the investments of the AIF complies with the AIF's underlying obligations; and

2. (2)

   regularly conduct stress tests, under normal and exceptional liquidity conditions, which enable it to assess the liquidity risk of the AIF and monitor that risk.

[Note: article 16(1) of AIFMD]

This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF; and2

2. (2)

   [deleted]2

3. (3)

   a non-UK AIF2.

1. (1)

   An AIFM must functionally and hierarchically separate the functions of risk management from the operating units, including from the functions of portfolio management.

2. (2)

   An AIFM must, in any event, be able to demonstrate that:

   1. (a)

      specific safeguards against conflicts of interest allow for the independent performance of risk management activities; and

   2. (b)

      the risk management process satisfies the requirements of this section and is consistently effective.

[Note: article 15(1) of AIFMD]

1. (1) 1
   1. (a)

      An AIFM must implement adequate risk management systems to identify, measure, manage and monitor all risks relevant to each AIF investment strategy and to which each AIF is, or may be, exposed.1

   2. (b)

      In particular, an AIFM must not solely or mechanistically rely on credit ratings issued by credit rating agencies, as defined in article 3(1)(b) of Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, for assessing the creditworthiness of the AIF's assets.1

2. (2)

   An AIFM must, at least:

   1. (a)

      implement an appropriate, documented and regularly updated due diligence process when investing on behalf of the AIF, according to the investment strategy, objectives and risk profile of the AIF;

   2. (b)

      ensure that the risks associated with each investment position of the AIF and their overall effect on the AIF's portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedures; and

   3. (c)

      ensure that the risk profile of the AIF corresponds to the size, portfolio structure and investment strategies and objectives of the AIF as set out in the instrument constituting the fund, prospectus and offering documents.

[Note: article 15(2) first paragraph and article 15(3) of AIFMD]

An AIFM must:

1. (1)

   review the risk management systems with appropriate frequency and, in any event, at least once a year; and

2. (2)

   adapt them whenever necessary.

[Note: article 15(2) second paragraph of AIFMD]

1. (1)

   An AIFM must:

   1. (a)

      set a maximum level of leveraging which it may employ on behalf of each AIF it manages; and

   2. (b)

      where the leverage arrangement allows the right to reuse collateral or the granting of a guarantee, set out the extent of that right or guarantee.

2. (2)

   An AIFM, in complying with (1), must take into account relevant matters including:

   1. (a)

      the type of AIF;

   2. (b)

      the investment strategy of the AIF;

   3. (c)

      the sources of leverage of the AIF;

   4. (d)

      any other link or relevant relationship with other financial services institutions which could pose systemic risk;

   5. (e)

      the need to limit the exposure to any single counterparty;

   6. (f)

      the extent to which the leverage is collateralised;

   7. (g)

      the asset-liability ratio; and

   8. (h)

      the scale, nature and extent of the activity of the AIFM on the markets concerned.

[Note: article 15(4) of AIFMD]

An AIFM must demonstrate that the leverage limits it sets under FUND 3.7.7R (1)(a) are reasonable and that it complies with those limits at all times.

[Note: article 25(3) first sentence of AIFMD]

This section applies to:

1. (1)

   a full-scope UK AIFM of:

   1. (a)

      a UK AIF; and1

   2. (b)

      [deleted]1

   3. (c)

      a non-UK AIF.1

2. (2)

   [deleted]1

An AIFM must exercise due skill, care and diligence in the selection and appointment of a prime brokerage firm.

[Note: article 14(3) second paragraph of the AIFMD]

Where the AIFM, on behalf of an AIF, uses the services of a prime brokerage firm, the terms must be in a written contract. In particular, any possibility of transfer and reuse of AIF assets must be provided for in that contract and must comply with the AIF'sinstrument constituting the fund. The contract must provide for the depositary to be informed of the contract.

[Note: article 14(3) first paragraph of the AIFMD]

This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF; and2

2. (2)

   and2

3. (3)

   a non-UK AIF2.

An AIFM is responsible for the proper valuation of AIF assets, the calculation of the net asset value and the publication of that net asset value.

[Note: article 19(10) first sentence first paragraph of AIFMD]

An AIFM must ensure that any valuation of an AIF's assets is performed impartially and with all due skill, care and diligence.

[Note: article 19(8) of AIFMD]

An AIFM must ensure that, for each AIF it manages, appropriate and consistent procedures are established so that under the rules laid down in the applicable national law of the country where the AIF is established and the instrument constituting the fund:

1. (1)

   a proper and independent valuation of the assets of the AIF can be performed; and

2. (2)

   the net asset value per unit or share of the AIF is calculated and disclosed to investors.

[Note: article 19(1), (2) and (3) first paragraph of AIFMD]

1. (1)

   An AIFM must ensure that the valuation procedure in FUND 3.9.4 R provides for the assets of any AIF under the AIFM's management to be valued and the net asset value per unit or share to be calculated at least once a year.

2. (2)

   Where an AIF is open-ended, such valuations and calculations must also be carried out at a frequency that is appropriate both to the assets held by the AIF and its issuance and redemption frequency.

3. (3)

   Where an AIF is closed-ended, such valuations and calculations must also be carried out in case of an increase or decrease of the capital by the relevant AIF.

[Note: article 19(3) second, third and fourth paragraphs of AIFMD]

An AIFM must ensure that investors in the AIFs under its management are informed of the valuations and calculations in the manner set out in the relevant instrument constituting the fund.

[Note: article 19(3) fifth paragraph of AIFMD]

1. (1)

   An AIFM may perform the valuation itself, provided that:

   1. (a)

      the valuation task is functionally independent from the portfolio management; and

   2. (b)

      the remuneration policy and other measures ensure that conflicts of interest are mitigated and that undue influence upon the employees involved is prevented.

2. (2)

   An AIFM that does not perform the valuation function itself must ensure that the function is performed by an external valuer.

3. (3)

   An external valuer appointed under (2) must be a person independent from:

   1. (a)

      the AIF in respect of which the valuation function is performed;

   2. (b)

      the AIFM; and

   3. (c)

      any other persons with close links to the AIF or the AIFM.

[Note: article 19(4) first paragraph of AIFMD]

The depositary appointed for an AIF may not be appointed as an external valuer of that AIF unless:

1. (1)

   it has functionally and hierarchically separated the performance of its depositary functions from its tasks as an external valuer; and

2. (2)

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

[Note: article 19(4) second paragraph of AIFMD]

Where an external valuer performs the valuation function, the AIFM must be able to demonstrate that:

1. (1)

   the external valuer is subject to mandatory professional registration recognised by law or legal or regulatory provisions or rules of professional conduct;

2. (2)

   the external valuer can provide sufficient professional guarantees to be able to perform the relevant valuation function effectively under this section; and

3. (3)

   the appointment of the external valuer complies with the requirements of FUND 3.10.2 R (General delegation arrangements) and the AIFMD level 2 regulation.

[Note: article 19(5) of AIFMD]

1. (1)

   An AIFM must notify the appointment of an external valuer to the FCA.1

2. (2)

   An AIFM must notify the FCA under (1) using the material change form in SUP 15 Annex 6C R.1

[Note: article 19(7) first part of first paragraph of AIFMD]

This section applies to a full-scope UK AIFM of:

1. (1)

   a UK AIF; and2

2. (2)

   [deleted]2

3. (3)

   a non-UK AIF2

in relation to the delegation of those AIFM management functions for which it is responsible, other than supporting tasks such as administrative or technical functions.

[Note: recital 31 of AIFMD]

An AIFM must ensure the following conditions are met when a delegate carries out any function on its behalf:

1. (1)

   the AIFM has notified the FCA of the delegation before the delegation arrangements become effective; and

2. (2)
   1. (a)

      the AIFM is able to justify its entire delegation structure with objective reasons;

   2. (b)

      the delegate has sufficient resources to perform the respective activity and the persons who effectively conduct the business of the delegate are of sufficiently good repute and experience;

   3. (c)

      (subject to FUND 3.10.7 G) the delegation of AIFM investment management functions is conferred only on a delegate that is authorised or registered for the purpose of asset management and subject to supervision;

   4. (d)

      in addition to (c), where the delegation of AIFM investment management functions is conferred on a non-UK2 delegate, cooperation between the FCA and the supervisory authority of the delegate is ensured;

   5. (e)

      the delegation does not prevent the FCA from supervising the AIFM effectively and, in particular, does not prevent the AIFM from acting, or the AIF from being managed, in the best interests of its investors; and

   6. (f)

      the AIFM is able to demonstrate that:

      1. (i)

         the delegate is qualified and capable of undertaking the functions in question;

      2. (ii)

         it was selected with all due care; and

      3. (iii)

         the AIFM can monitor the delegated activity effectively at any time, give further instructions to the delegate at any time and withdraw the delegation with immediate effect when this is in the interest of investors.

[Note: article 20(1) of AIFMD]

1An AIFM must notify the FCA of delegation arrangements under FUND 3.10.2R (1) using the form in FUND 3 Annex 2 R.

An AIFM must ensure the following conditions are met when any of its delegates carries out a sub-delegation:

1. (1)

   the AIFM has consented to the sub-delegation before the sub-delegation arrangements become effective;

2. (2)

   the AIFM has notified the FCA of the sub-delegation before the sub-delegation arrangements become effective; and

3. (3)

   the conditions in FUND 3.10.2R (2) (General delegation requirements) are satisfied in relation to the sub-delegation, with references to 'delegate' and 'delegation' replaced by references to 'sub-delegate' and 'sub-delegation'.

[Note: article 20(4) of AIFMD]

1An AIFM must notify the FCA of sub-delegation arrangements under FUND 3.10.4R (2) using the form in FUND 3 Annex 2 R.

An AIFM must comply with the rules in this section which are applicable to a sub-delegation in relation to any further sub-delegation of its functions by a sub-delegate.

[Note: article 20(6) of AIFMD]

An AIFM must not delegate or consent to the sub-delegation of AIFM investment management functions to:

1. (1)

   the depositary or a delegate of the depositary; or

2. (2)

   any other entity whose interests may conflict with those of the AIFM or the investors of the AIF, unless:

   1. (a)

      that entity has functionally and hierarchically separated the performance of its AIFM investment management function from its other potentially conflicting tasks; and

   2. (b)

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

[Note: article 20(2) and (5) of AIFMD]

An AIFM must not delegate its functions to the extent that, in essence, it can no longer be considered to be the AIFM of the AIF and to the extent that it becomes a letter-box entity.

[Note: article 20(3) of AIFMD]

An AIFM must review on an ongoing basis the services provided by each:

1. (1)

   delegate appointed under FUND 3.10.2 R; and

2. (2)

   sub-delegate appointed under FUND 3.10.4 R.

   [Note: article 20(1) and 20(4) of AIFMD]

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 UKAIF it manages, ensure the appointment of a depositary which is a firmestablished in the UK that has the Part 4A permission of acting as trustee or depositary of an AIF9and 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)

         aCRDcredit 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-UKbranch;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]

1This annex consists of one or more forms. Forms can be completed online now by visiting https://www.handbook.fca.org.uk/form

The forms are also to be found through the following address:

FUND 3 Annex 2 R - Notice of AIFM delegation