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===Delegation of {{aifmdprov|depositary}}’s functions=== | ===Delegation of {{aifmdprov|depositary}}’s functions=== | ||
You will see from {{aifmdprov|21(4)}} the {{aifmdprov|depositary}}’s role ''[[in toto]]'' is not really suitable for a [[prime broker]]. However, the {{aifmdprov|depositary}} may delegate some of its functions, and a prime broker may act as: | You will see from {{aifmdprov|21(4)}} the {{aifmdprov|depositary}}’s role ''[[in toto]]'' is not really suitable for a [[prime broker]]. However, the {{aifmdprov|depositary}} may [[delegate]] some of its functions, and a prime broker may act as: | ||
*{{aifmdprov|custodian}}, but will have certain conditions to that appointment ( | *A '''{{aifmdprov|custodian}}''', but will have certain conditions to that appointment (set out in Art {{aifmdprov|21(11)}}, including the famous “{{aifmdprov|objective reason}}”), and you may expect the {{aifmdprov|depositary}} will seek to delegate the safe-keeping function on those exact conditions, and (as far as it can) transfer outright its liability for those responsibilities to the [[prime broker]], on exactly the terms required by [[AIFMD]] and [[AIFMR]]. | ||
*A “{{aifmdprov|depositary lite}}” to certain non-EU domiciled {{aifmdprov|AIF}}s who aren’t obliged to have a full-blown {{aifmdprov|depositary}}. The depo-lite regime, and the delegated safe-keeping regime, are different but in many respects quite similar things and it is easy to conflate them | *A “{{aifmdprov|depositary lite}}” to certain non-EU domiciled {{aifmdprov|AIF}}s who aren’t obliged to have a full-blown {{aifmdprov|depositary}}. The [[depo-lite]] regime, and the delegated safe-keeping regime, are different but in many respects quite similar things and it is easy to conflate them. | ||
===“[[Delegation]]” versus “[[sub-contract]]ing”=== | |||
These terms are easily conflated. Indeed, [[AIFMD]] conflates them. But, in [[this commentator]]’s view, they are different in important ways. Read more about this [[Delegation|here]]. | |||
But in any case our — well, ''contrarian'' — view is that a custodian who appoints a [[sub custodian]] in its sub custody network is ''not'' “delegating” its [[AIFMD]] custody obligations “at the first level of the custody chain”, as Art {{aifmdprov|21(11)}}contemplates, and hence [[sub-custodian]]s do not have to: | |||
*Segregate the AIF’s assets from the [[depositary]]’s assets in their books (as would be required of a delegate custodian under Art 21(11)(d)(iii)), | |||
*Hold assets in their books in the name of the AIF (or the AIFM acting on behalf of the AIF) (as would be required of a delegate custodian under Art 21(11)(d)(v), incorporating as it does Art 21(8)(a)(ii)). | |||
===Conditions to delegation by a {{aifmdprov|depositary}}=== | ===Conditions to delegation by a {{aifmdprov|depositary}}=== | ||
The {{aifmdprov|depositary}} can only delegate in certain circumstances: | The {{aifmdprov|depositary}} can only [[delegate]] in certain circumstances: | ||
*It must have an “{{aifmdprov|objective reason}}” for the delegation. | *It must have an “{{aifmdprov|objective reason}}” for the delegation. | ||
*it must exercise due skill, care and diligence in the selection, appointment and ongoing monitoring of the {{aifmdprov| | *it must exercise due skill, care and diligence in the selection, appointment and ongoing monitoring of the {{aifmdprov|delegate}}; | ||
*The {{aifmdprov| | *The {{aifmdprov|delegate}}: | ||
**must have structures and expertise proportionate to the nature, scale and complexity of the assets of the AIF | **must have structures and expertise proportionate to the nature, scale and complexity of the assets of the AIF | ||
**must be subject, in acting as a custodian, to effective prudential regulation and supervision in its local jurisdiction and periodic external audits; | **must be subject, in acting as a [[custodian]], to effective prudential regulation and supervision in its local jurisdiction and periodic external audits; | ||
**must segregate {{aifmdprov|AIF}} assets from its own and the {{aifmdprov|depositary}}’s assets | **must segregate {{aifmdprov|AIF}} assets from its own and the {{aifmdprov|depositary}}’s assets | ||
**may not reuse the AIF’s assets without the AIF’s express consent. | **may not reuse the AIF’s assets without the AIF’s express consent. | ||
We read this as referring only to a delegation of the “head” custody function, not to a custodian’s holding of assets in its own sub-custody network: it can’t do; sub-custodians operate on an omnibus basis and don’t segregate assets belonging to the main custodian’s individual clients’ interests in their books (so can’t segregate, for example, the depositary’s assets from the AIF’s assets: they don’t have enough information to do this. | |||
===Conditions to discharge of liability when delegating by a {{aifmdprov|depositary}}=== | ===Conditions to discharge of liability when delegating by a {{aifmdprov|depositary}}=== | ||