Depositary - UCITS V Provision

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You should definitely also check out Depositary in the context of AIFMD.

The difference in liability for depositaries between AIFMD and UCITS is that
(i) liability can't be contractually excluded under UCITS V, and
(ii) UCITS V prospectuses must contain a description of any safekeeping arrangements delegated, identification of the delegate, and any conflict of interest that may arise.

Comparison of UCITS and AIFMD Depositary Regimes

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:

UCITS Anatomy

This is an article about undertakings for collective investment in transferable securities directive (UCITS).

Resources: UCITS IV (2009/65/EC (EUR Lex)) | UCITS V (2014/91/EU (EUR Lex)) | ESMA Guidance on UCITS | Depositary comparison under AIFMD and UCITS
Navigation - UCITS IV: 50(1)(g) Financial derivative instruments
Navigation - UCITS V: 22(2) Written contract with depositary | 22(3) (subscriptions, redemptions, valuation by depositary) | 22(4) (cash monitoring | 22(5) (safekeeping by depositary) | 22(7) (no reuse of assets by depositary) | 22a (delegation of depositary functions)

Anatomy™: AIFMD | CASS | COBS | Conference calls | Confis | CRR | CSA | EMIR | Equity Derivatives | FOA PCA | FUND | GMRA | GMSLA | ISDA | OSLA | PB | Swapclear | UCITS

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