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

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{{aifmdanat|21(8)|}}
{{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.
===[[Depositary]]’s 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 caused by [[force majeure]] which were unavoidable despite all [[reasonable]] efforts to the contrary.
However, there are strict rules which make this liability less extensive than it seems. Note especially insolvency of a [[sub-custodian]] is not covered.
===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}}
{{aifmddepositarydelegation}}
===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===
A prime broker to an {{aifmdprov|AIF}} may be appointed as its depositary as long as:
*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.
{{aifmdprov|Depositaries}} can delegate custody tasks to one or more prime brokers provided that they meet certain conditions.
====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:


{{Seealso}}
{{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}}.
*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:
{{ref}}
{{fundsnap|3.11.21R}}
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