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Depositary's obligations re safekeeping of assets - AIFMD Provision: Difference between revisions

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{{aifmdanat|21(8)|}}
A fully authorised {{aifmdprov|AIFM}} must appoint a single {{aifmdprov|depositary}} for each {{aifmdprov|AIF}} it manages. See Article {{aifmdprov|21}}.  
A fully authorised {{aifmdprov|AIFM}} must appoint a single {{aifmdprov|depositary}} for each {{aifmdprov|AIF}} it manages. See Article {{aifmdprov|21}}.  
===Functions===
===[[Depositary]]’s Functions===
The depositary may not be affiliated with the {{aifmdprov|AIFM}} and must be domiciled in the same jurisdiction. Its main roles are
The [[depositary]] may not be affiliated with the {{aifmdprov|AIFM}} and must be domiciled in the same jurisdiction. Its main roles are:
*monitoring cashflows;  
*monitoring cashflows;  
*providing safe-keeping of custodiable assets (i.e., being a {{aifmdprov|custodian}});  
*providing safe-keeping of custodiable assets (i.e., being a {{aifmdprov|custodian}});  
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*ensuring the AIF’s receives consideration for the sale of its assets within the usual time limits; and  
*ensuring the AIF’s receives consideration for the sale of its assets within the usual time limits; and  
*maintaining accurate records of the above.
*maintaining accurate records of the above.
===Delegation===
You will see the depositary role is not really suitable for a prime broker. the depositary may delegate some of these functions however:
A prime broker may act as:
*{{aifmdprov|custodian}}, but will have certain conditions to that appointment;
*"{{aifmdprov|Depositary lite}}" to certain non-EU domiciled {{aifmdprov|AIF}}s
Depositary can only delegate in certain circumstances:
*It must have an "objective reason".
*it must exercise due skill, care and diligence in the selection, appointment and ongoing monitoring of the {{aifmdprov|sub-custodian}};
*{{aifmdprov|sub-custodian}} must:
**have structures and expertise proportionate to the nature, scale and complexity of the assets of the AIF
**be subject, in acting as a custodian, to effective prudential regulation and supervision in its local jurisdiction and periodic external audits;
**segregate {{aifmdprov|AIF}} assets from its own and the {{aifmdprov|depositary}}'s assets
**reuse the AIF’s assets without the AIF's express consent.
===Liability===
The {{aifmdprov|depositary}} has almost - eek - [[strict liability]] for the performance of its functions: if it loses an {{aifmdprov|AIF}}'s [[custody assets]], it must return identical financial instruments or the corresponding amount even if the instruments were lost by a [[sub-custodian]]. The {{aifmdprov|depositary}} will not be liable for losses casued by [[force majeure]] which were unavoidable despite all reasonable efforts to the contrary. However there are strict rules which make it less extensive than it seems. Note especially insolvency of a sub-custodian is not covered.


===[[Prime broker]]s as depositaries===
===[[Depositary]]’s liability===
A prime broker to an {{aifmdprov|AIF}} may be appointed as its depositary as long as:
The {{aifmdprov|depositary}} has almost - eek - [[strict liability]] for the performance of its functions: if it loses an {{aifmdprov|AIF}}'s [[custody assets]], it must return identical financial instruments or the corresponding amount even if the instruments were lost by a [[sub-custodian]]. The {{aifmdprov|depositary}} will not be liable for losses caused by [[force majeure]] which were unavoidable despite all [[reasonable]] efforts to the contrary.
*it has functionally and hierarchically separated its depositary functions from its tasks as prime broker,  
 
*potential conflicts of interest are properly identified, managed and disclosed to the investors of the AIF.
However, there are strict rules which make this liability less extensive than it seems. Note especially insolvency of a [[sub-custodian]] is not covered.
{{aifmdprov|Depositaries}} can delegate custody tasks to one or more prime brokers provided that they meet certain conditions.
 
===Depositaries delegating to [[prime broker]]s===
A [[prime broker]] to an {{aifmdprov|AIF}} ''could'' be its depositary, but for a bunch of reasons would most likely not be (for one thing, the depositary has to be domiciled in the same jurisdiction and the {{aifmdprov|AIF}}, and [[PB]]s tend to be domiciled in London, New York, Hong Kong etc, and not [[espievie]] jurisdictions; for another, there is an inherent conflict of interest between a depositary function and the [[margin lending]] relationship which is at the heart of what a PB does and how it makes money).  
 
That said, {{aifmdprov|depositaries}} can ''delegate'' custody tasks to prime brokers provided that they meet certain conditions:
 
{{aifmddepositarydelegation}}
 
====Discharge of {{aifmdprov|depositary}}'s strict liability====
====Discharge of {{aifmdprov|depositary}}'s strict liability====
Upon delegation the {{aifmdprov|depositary}} remains strictly liable for loss caused by the sub-custodian. The depositary may discharge its liability if it can prove that:
Upon delegation the {{aifmdprov|depositary}} remains strictly liable for loss caused by the sub-custodian. The depositary may discharge its liability if it can prove that:
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The following will be deemed to be objective reasons:
The following will be deemed to be objective reasons:


 
{{sa}}
 
*The {{aifmdprov|depo-lite}} regime which is applicable only to {{aifmdprov|Non-EU AIF}}s marketed on a private placement basis to professional investors (especially Article {{aifmdprov|36}}.
 
{{ref}}
 
{{aifmdsnap|21(8)}}
{{nuts|AIFMD|21(8)}}
See also the {{aifmdprov|depo-lite}} regime which is applicable only to {{aifmdprov|Non-EU AIF}}s marketed on a private placement basis to professional investors (especially Article {{aifmdprov|36}}.
 
Also, for giggles, compare {{fcaprov|FUND 3.11.21R}} of the [[Investment Funds sourcebook]] which is the UK implementation of the {{tag|AIFMD}} directive:
{{fundsnap|3.11.21R}}
 
 
{{aifmdanatomy}}
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