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AIFMD Anatomy™

Directive 2011/61/EU (EUR Lex) | Implementing regulation 231/2013 (EUR Lex)
directive - 21 (depositary) | 21(4) (conflict management) | 21(8) (custody function) | 21(11) (custody delegation) | 21(12) (liability for loss of assets) | 21(13) (discharge of liability on delegation) | 21(14) (discharge of liability for Non-EU subcustodians) | 36 (depo-lite) | 36(1)
implementing regulation DR20 (Due diligence when appointing counterparties and prime brokers) | DR76 (objective reason) | DR89 (Safekeeping duties with regard to assets held in custody) | DR91 (reporting obligations for prime brokers) | DR98 (due diligence) | DR99 (segregation obligation) | DR100 (Loss of custody asset) |

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AIFMD is a lover’s pet name for the EU’s Alternative Investment Fund Management Directive[1]

It came into force on 22 July 2013 and regulates:

Hedge funds and private equity funds and those managing them were not previously subject to the as much regulation as mutual funds (including UCITS) or pension funds, and some people[2] felt this lack of oversight contributed to the severity of the global financial crisis. So, enter AIFMD to redress that gap.

Brexit means fear, loathing and confusion

So then the UK had to go and leave the European Union didn’t it.

If you wanted a better example of the bugger’s muddle that Brexit created, look no further than this. AIFMD was already, beyond a shadow of doubt, a bugger’s muddle; now it has become some kind of pan-dimensional bugger’s muddle.

So the UK left the EU, but adopted its directives into UK law, while existing EU regulations, being automatically incorporated into municipal UK law when they were regulated, were the law anyway, so didn’t need to be specifically adopted. AIFMD, like many financial services regulations, is composed of a directive, but is supported by regulatory technical standards imposed by regulation. I’m sure there was a good reason for this, but I don’t have the energy to find out what it was. In any case you now have the UK Alternative Investment Fund Managers Regulations 2013 (which implemented AIFMD into domestic UK law in 2013 and was already a local UK regulation, which is underpinned by the EU Alternative Investment Fund Managers Regulation, delegated regulatory technical standards and so on, because these became law in 2013 of their own motion, and remain law even though the UK wants no part any more of the EU, at least until the UK parliament decides differently (or they are again amended by the EU). But even then we can expect the UK parliament to track the EU regulation. Maybe. Who knows?

But his is just the start. Because both the UK AIFMR and AIFMD apply to third-country fund vehicles and managers who are selling their securities into the EEA (in the case of AIFMD) or EEA and the UK in the case of UK AIFMR.

For example, AIFMD’s depositary lite regime is designed for innie fund managers — those resident inside the EU — marketing outie funds — funds incorporated outside the EU — to innie investors, resident in the EU.

UK, of course, used to be an innie, is now an outie, but with the aspiration, as nearly as possible, for all the damage Brexit has done, that it remains an innie afterwards, with harmonised alternative fund management regulation, despite being an outie.

But there’s a little gap: a UK domiciled fund is an innie for UK AIFMR, but an outie for EU AIFMD. But conversely, a fund domiciled in the EU is an innie for the EU, but also an innie for the UK, because a “third countryAIF” means one resident outside the EEA.

Now a “third country AIF” under UK regulations means one outside the UK and the EEA. But a “Non-EU AIF’ under AIFMD means just one outside just the EEA. So a UK-domiciled AIF would not be a “third country AIF”, but it would be a “Non-EU AIF”.

I am going to stop now because this is making me wild.


AIFMD Depositary requirements are driven by a combination of the domicile of the AIFM and AIF and marketing practices:

  • EU AIFM of EU AIF: Subject to Full Depositary requirements (Article 21)
  • EU AIFM of non-EU AIF: Subject to lighter depositary regime (Article 36) – mandatory in order to market the non EU-AIF marketed to EU investors through private placement.
  • Non-EU AIFM of EU or non-EU AIF: not subject (at least initially) to any depositary requirements irrespective of whether AIF being marketed to EU investors, except potentially if marketing into certain countries (e.g. Germany, Denmark, France "gold plating"), and any other country specific requirements (e.g. Ireland QIAIF requirements)


  1. EU Directive 2011/61/EU (EUR Lex)and Commission Delegated Regulation (EU) No 231/2013 (EUR Lex) of 19 December 2012 (the AIFMD Delegated Regulation)
  2. Do-gooders, obviously.