Template:Nutshell AIFMD 21(11)

21(11). The depositary may delegate its custody functions described in paragraph 21(8) (but not its other functions), on the following conditions:

(a) it shouldn’t be trying to avoiding its obligations under AIFMD;

(b) it must have an objective reason for doing so;

(c) it must have carried out due diligence on the third party to whom delegates, and must continuously monitor that third party’s performance;

(d) it must ensure the third party meets the following conditions:

(i) it sophisticated enough to properly look after the AIF’s assets;

(ii) where it holds financial instruments in custody, is effectively regulated, capitalised, supervised and audited;

(iii) it segregates the AIF’s assets from its own assets and from the depositary’s assets so that they can be clearly identified as belonging to clients of the depositary;

(iv) it does not use the assets without the AIF’s prior consent and prior notification to the depositary; and

(v) it complies with paragraphs 21(8) and 21(10).

Where assets have to be held in a jurisdiction where no local entities are effectively regulated, capitalised, supervised and audited, the depositary may appoint a local entity which isn’t, but only as long as there are no local entities that satisfy the delegation requirements, and:

(a) the depositary informs AIF investors must that such a delegation is required, and why, before they invest; and

(b) the AIF instructs the depositary to delegate the custody of such financial instruments to such a local entity.

The third party may sub-delegate these functions, subject to the same requirements mutatis mutandis. Use of a securities settlement system does not count as delegation of custody functions.