Template:Aifmddepositarydelegation

Delegation of depositary’s functions

You will see the depositary role in toto is not really suitable for a prime broker. The depositary may delegate some of its functions however: A prime broker may act as:

• custodian, but will have certain conditions to that appointment (see Article 21(11)), and you may expect the Depositary will seek to delegate the safe-keeping function on those exact conditions, and transfer outright its liability for those responsibilities, on exactly the terms required by AIFMD and AIFMR.
• A “depositary lite” to certain non-EU domiciled AIFs who aren’t obliged to have a full-blown 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 specialist will find you out if you do.

Conditions to delegation by a depositary

The depositary can only delegate in certain circumstances:

• It must have an “objective reason” for the delegation.
• it must exercise due skill, care and diligence in the selection, appointment and ongoing monitoring of the sub-custodian;
• The sub-custodian to whom it delegates:
  • 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 segregate AIF assets from its own and the depositary's assets
  • may not reuse the AIF’s assets without the AIF's express consent.

If you are a prime broker they will try to stick you with a 40 page agreement derogating all responsiblity, and outrageously over-reaching, to do it. Resist it as long as you can bear the tedium.