Depositary - UCITS V Provision: Difference between revisions

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The depositary appointed by a {{UCITS}} fund is the regulated entity who keeps an eye on things and makes sure  the fund is being run properly. Where it has one, a {{tag|prime broker}} will generally not qualify as a depositary though, like under {{tag|AIFMD}}, the appointed depositary may delegate some of its functions (especially as regards [[custody]]) to a {{tag|prime broker}}.
{{ucits5anat|22(3)}}
 
===Comparison of [[UCITS}} and {{tag|AIFMD]] [[depositary]] regimes===
See UCITS Article {{ucitsprov|22(3) notes the depositary's general duties, including to:
The main differences between an [[AIFMD depositary]] and a [[UCITS depositary]] are: <br>
{{ucitsivsnap|22(3)}}
*'''Exclusion of liability''': An [[AIFMD depositary]] can, but a [[UCITS depositary]] cannot, contractually exclude its liability when it [[delegate]]s the safekeeping function to a third party<ref>See [[UCITS liability for delegation]].</ref>; and <br>
*'''Disclosure''': [[UCITS V]] prospectuses must describe any delegation of safekeeping arrangements, identifying the delegate, and spelling out any [[conflict of interest]] that may arise.
*'''No [[rehypothecation]]''': Per Art.  {{ucits5prov|22(7)}}, the depositary can’t [[reuse]] fund assets to offset its costs of lending on margin to the [[UCITS]]<ref>UCITS shouldn’t generally ''be'' buying on margin, of course.</ref> (though it can put them into an [[Agent lending|agency lending]] programme).
===Delegation of safekeeping===
All the good oil is in Art. {{ucits5prov|22a}}.
===General duties of a [[UCITS depositary]]===
Article {{ucits5prov|22(3)}} notes the {{ucits5prov|depositary}}’s general duties.


Quoth the UCITS Directive {{eudirective|2014|91|EU}}:
Quoth the UCITS Directive {{eudirective|2014|91|EU}}:


{{box|''(12) A UCITS should appoint a single {{ucitsprov|depositary}} having general oversight over the assets of the {{ucitsprov|UCITS}}. Requiring that there be a single depositary should ensure that the depositary has an overview of all the assets of the UCITS and both fund managers and investors have a single point of reference in the event that problems occur in relation to the safekeeping of assets or the performance of oversight functions. The safekeeping of assets includes holding assets in custody or, where assets are of such a nature that they cannot be held in custody, verification of the ownership of those assets as well as record-keeping for those assets.'' <br>
:''(12) A UCITS should appoint a single {{ucits5prov|depositary}} having general oversight over the assets of the {{ucits5prov|UCITS}}. Requiring that there be a single depositary should ensure that the depositary has an overview of all the assets of the UCITS and both fund managers and investors have a single point of reference in the event that problems occur in relation to the safekeeping of assets or the performance of oversight functions. The safekeeping of assets includes holding assets in custody or, where assets are of such a nature that they cannot be held in custody, verification of the ownership of those assets as well as record-keeping for those assets.'' <br>
   
   
''(13) In performing its tasks, a depositary should act honestly, fairly, professionally, independently and in the interest of the UCITS and of the investors of the UCITS.
:''(13) In performing its tasks, a depositary should act honestly, fairly, professionally, independently and in the interest of the UCITS and of the investors of the UCITS.
''  
''  


''[...]''
:''[...]''
 
''(20) It is necessary to lay down the conditions for the {{ucitsprov|delegation}} of the depositary’s safekeeping duties to a third party. Delegation and sub-delegation should be {{ucitsprov|objectively}} justified and subject to strict requirements in relation to the suitability of the third party entrusted with the delegated function, and in relation to the due skill, care and diligence that the depositary should employ to select, appoint and review that third party. For the purpose of achieving uniform market conditions and an equally high level of investor protection, such conditions should be aligned with those applicable under Directive {{eudirective|2011|61|EU}}. Provisions should be adopted to ensure that third parties to which safekeeping functions have been delegated have the necessary means to perform their duties and that they segregate the assets of the UCITS.''
 
}}
===See also===
*{{aifmdprov|Depositary}} in the context of {{tag|AIFMD}}.
*The important parts relating to delegation are set out in Article {{ucitsprov|22a}}.
 
===Comparison of UCITS and AIFMD Depositary Regimes===
The difference in liability for depositaries between {{tag|AIFMD}} and {{tag|UCITS}} is that <br>
(i) liability can't be contractually excluded under {{tag|UCITS V}}, and <br>
(ii) {{tag|UCITS V}} prospectuses must contain a description of any safekeeping arrangements delegated, identification of the delegate, and any [[conflict of interest]] that may arise.


:''(20) It is necessary to lay down the conditions for the {{ucits5prov|delegation}} of the depositary’s safekeeping duties to a third party. Delegation and sub-delegation should be {{ucits5prov|objectively}} justified and subject to strict requirements in relation to the suitability of the third party entrusted with the delegated function, and in relation to the due skill, care and diligence that the depositary should employ to select, appoint and review that third party. For the purpose of achieving uniform market conditions and an equally high level of investor protection, such conditions should be aligned with those applicable under Directive {{eudirective|2011|61|EU}}. Provisions should be adopted to ensure that third parties to which safekeeping functions have been delegated have the necessary means to perform their duties and that they segregate the assets of the UCITS.''
===Dull comparison between [[UCITS depositary]] and [[AIFMD depositary]]===
{{depositarycomparison}}
{{depositarycomparison}}


{{ucitsanatomy}}
{{sa}}
*[[AIFMD Depositary]].
*The important parts relating to delegation are set out in Article {{ucits5prov|22a}}.
{{ref}}

Latest revision as of 13:29, 14 August 2024

UCITS V Anatomy™


In a Nutshell™ Clause 22(3):

Template:Nutshell UCITS V 22(3) view template

UCITS V full text of Clause 22(3):

22(3). The depositary shall:

(a) ensure that the sale, issue, repurchase, redemption and cancellation of units of the UCITS are carried out in accordance with the applicable national law and the fund rules or instruments of incorporation;
(b) ensure that the value of the units of the UCITS is calculated in accordance with the applicable national law and the fund rules or the instruments of incorporation;
(c) carry out the instructions of the management company or an investment company, unless they conflict with the applicable national law, or with the fund rules or the instruments of incorporation;
(d) ensure that in transactions involving the assets of the UCITS any consideration is remitted to the UCITS within the usual time limits;
(e) ensure that the income of the UCITS is applied in accordance with the applicable national law and the fund rules or the instruments of incorporation.

view template

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Comparison of [[UCITS}} and {{tag|AIFMD]] depositary regimes

The main differences between an AIFMD depositary and a UCITS depositary are:

Delegation of safekeeping

All the good oil is in Art. 22a.

General duties of a UCITS depositary

Article 22(3) notes the depositary’s general duties.

Quoth the UCITS Directive 2014/91/EU (EUR Lex):

(12) A UCITS should appoint a single depositary having general oversight over the assets of the UCITS. Requiring that there be a single depositary should ensure that the depositary has an overview of all the assets of the UCITS and both fund managers and investors have a single point of reference in the event that problems occur in relation to the safekeeping of assets or the performance of oversight functions. The safekeeping of assets includes holding assets in custody or, where assets are of such a nature that they cannot be held in custody, verification of the ownership of those assets as well as record-keeping for those assets.
(13) In performing its tasks, a depositary should act honestly, fairly, professionally, independently and in the interest of the UCITS and of the investors of the UCITS.

[...]
(20) It is necessary to lay down the conditions for the delegation of the depositary’s safekeeping duties to a third party. Delegation and sub-delegation should be objectively justified and subject to strict requirements in relation to the suitability of the third party entrusted with the delegated function, and in relation to the due skill, care and diligence that the depositary should employ to select, appoint and review that third party. For the purpose of achieving uniform market conditions and an equally high level of investor protection, such conditions should be aligned with those applicable under Directive 2011/61/EU (EUR Lex). Provisions should be adopted to ensure that third parties to which safekeeping functions have been delegated have the necessary means to perform their duties and that they segregate the assets of the UCITS.

Dull comparison between UCITS depositary and AIFMD depositary

Depositary eligibility criteria:

Liability:

  • UCITS V: Significantly more detailed requirements than UCITS IV
  • AIFMD: Similar to UCITS V, except it is possible to contractually transfer liability to a delegate in certain circumstances

Written contract with depositary required:

Oversight functions:

  • UCITS V: Broadly similar to UCITS IV: Additional requirement for oversight function to be carried out in accordance with applicable national law and the fund rules or the instruments of incorporation. This now applies to investment companies and management companies.
  • AIFMD: Similar requirement to UCITS V.

Cash monitoring functions:

  • UCITS V: New to UCITS V Depositary must monitor cash flows and ensure cash booked to the correct cash account
  • AIFMD: Similar requirement to UCITS V

Safekeeping functions:

  • UCITS V: (Article 22(5)) Significantly more detailed requirements than UCITS IV: Assets to be entrusted to the depositary for safekeeping. Different requirements for financial instruments capable of being held in custody and "other assets".
  • AIFMD: Similar requirement to UCITS V: UCITS V has additional requirement to provide regular inventories of UCITS assets held

Use of UCITS assets:

  • UCITS V:New to UCITS V: Re-use of UCITS assets by the depositary or its delegate prohibited. Re-use of UCITS assets for the benefit of the UCITS is permitted subject to conditions
  • AIFMD: Less stringent requirements than UCITS V: Re-use is permitted with prior consent

Insolvency of a depositary:

  • UCITS V: New to UCITS V: Member states to ensure that UCITS assets held in custody are not available to general creditors on the insolvency of the depositary or its delegate if they are located in the EU
  • AIFMD: No similar requirement in AIFMD

Delegation:

  • UCITS V: New to UCITS V (Article 22a): Delegation of oversight and cash monitoring prohibited. Delegation of safekeeping functions permitted under certain conditions
  • AIFMD: Similar requirement to UCITS V: UCITS V has additional requirement that depositary takes ‘all reasonable steps’ to ensure that UCITS assets are not available to general creditors of the delegate upon insolvency

Sub-delegation:

Central Securities Depositaries:

  • UCITS V: New to UCITS V: The provision of settlement services by a CSD is not delegation of custody. Entrusting custody to a CSD or third country CSD is delegation
  • AIFMD: Similar requirement to UCITS V in respect of settlement services

Location of the depositary:

  • UCITS V: Same as UCITS IV: A depositary must have its registered office or be established in the home state of the UCITS
  • AIFMD: Similar requirement to UCITS V for EU AIFs

Dual functions and avoiding conflicts of interest:

  • UCITS V: More detailed requirements than UCITS IV: No management company or investment company shall also act as depositary; duty to act honestly and in interest of the UCITS and avoid conflicts of interest
  • AIFMD: Similar requirement to UCITS V

Replacement of the depositary:

Provision of information to competent authorities:

See also

References

  1. ↑ See UCITS liability for delegation.
  2. ↑ UCITS shouldn’t generally be buying on margin, of course.
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