Delegation of depositary’s functions - AIFMD Provision: Difference between revisions

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-{{aifmdanat|21(11)|}}
+{{aifmdanat|21(11)|}}On what on earth this is all about.
-===Overview===
-On what on earth this is all about.
-[[AIFMD]], requires an [[AIF]] to appoint a [[depositary - AIFMD Provision|depositary]] to perform certain administrative functions: managing cashflows, supervising subscriptions and redemptions, and [[custody]] of the AIF’s assets labelled “safekeeping” in the argot of European Regulation. The depositary cannot have any financial transactions or other conflicts of interest with the fund and must be organised in the fund’s home jurisdiction. Therefore a prime broker cannot be an AIF depositary: it is (usually) not incorporated in the right jurisdiction, and in any case is definitely involved in financial transactions with the AIF. That’s what it is there fore.
+[[AIFMD]], requires an [[AIF]] to appoint a [[depositary - AIFMD Provision|depositary]] to perform certain administrative functions: managing cashflows, supervising subscriptions and redemptions, and [[custody]] of the AIF’s assets labelled “safekeeping” in the argot of European Regulation. The depositary cannot have any financial transactions or other conflicts of interest with the fund and must be organised in the fund’s home jurisdiction. Therefore a prime broker cannot be an [[AIF]] [[depositary]]: it is (usually) not incorporated in the right jurisdiction, and in any case is definitely involved in financial transactions with the [[AIF]]. That’s what it is there for.
-Now a big part of a prime broker’s business is [[margin lending]], which involves custody and reuse of the AIF’s assets. What to do? Well, AIFMD allows a depositary to delegate its custody safekeeping function (but only that function) to a third party where there are [[objective reason]]s for it doing so.
+Now a big part of a [[prime broker]]’s business is [[margin lending]], which depends on the prime broker having not only custody but rights of reuse over the AIF’s assets. What to do? Well, [[AIFMD]] allows a depositary to ''[[delegate]]'' its custody/safekeeping function (but ''only'' that function) to a third party ''where there are [[objective reason]]s for it doing so''. There is more commentary [[Objective reason - AIFMD Provision|elsewhere]], but take it as read that “because the PB need to hold assets for [[margin lending]], [[reuse]], [[security]] and so on” ''does'' count as an objective reason.
+Right. So AIFMD says a depositary may (with such an [[Objective reason - AIFMD Provision|objective reason]]) delegate that responsibility to a third party and may even ''discharge'' its liability for asset safekeeping by transferring liability to a third party, but this is even more limited: see Article [[21(13) - AIFMD Provision|21(13)]]: the depositary can only discharge its liability where (i) it was entitled to delegate responsibility per 21(11), (ii) there is a written contract expressly transferring liability to the delegate, so the AIF can expressly claim against it, and (iii) the AIF expressly discharges the depositary’s liability under a written contract and there is an [[objective reason]] for doing so.
-It has (i) a limited ability to delegate that responsibility to a third party and (ii) an even more limited ability to discharge its liability for that responsibility to a third party.
 The risk to the depositary is: