Depositary - AIFMD Provision

This is the provision that requires AIFMs to appoint a single depositary for each AIF that they manage.

That, in a Nutshell™, provides:

21: Depositary

21(1): Single depositary per AIF: AIFM must ensure each AIF has a single Depositary.
21(2): Written contract: Appointed by written contract meeting certain minimum criteria of AIFMD.
21(3): Eligibility criteria: a depositary must be

(a) An authorised EU credit institution;

(b) an EU investment firm meeting certain capital adequacy criteria;

(c) an entity subject to prudential regulation that is deemed ok under 2009/65/EC (EUR Lex)

For Non-EU AIFs the depositary can be an equivalent credit institution or investment firm outside the EU (I think). There are also exceptions for illiquid AIFs that don't invest in custody assets.
21(4): Conflict management: To avoid conflicts between AIFM, AIF and investors:

(a) AIFM can't be a depositary

(b) a Prime Broker to an AIF can't be a depositary unless appropriate Chinese walls and conflict management processes are in place; however it may delegate of custody tasks as per 21(11) (and 21(8);

21(5): Jurisdiction: Depositary must be established in either:

(a) home Member State of the AIF;

(b) for non-EU AIFs, in the country of the AIF, the home Member State of the AIFM, or i the "Member State of reference of the AIFM (don't you just LOVE THIS GAME???!)

21(6): Additional criteria for non-EU AIFs: If established in a non-EU state per 21(5)(b), there are certain other conditions that must be met;
21(7) Depositary obligations re cash: The depositary is required to ensure that:

AIF's cashflows are properly monitored

subscription payments are properly received and booked in the depositary's accounts

21(8): Depositary's obligations re safekeeping of assets: AIF's assets are entrusted to the depositary for safekeeping as follows:

(a) for custody assets:

(i) depositary should hold in custody all assets that can be registered in its books or physically delivered to it;

(ii) depositary should ensure the assets are held within segregated accounts in its books opened in the name of the AIF or AIFM so they can be clearly identified as belong to the AIF at all times

(b) for non-custody assets there are some rules too

21(9) Issuance and cancellation of fund units etc.: depositary must look after issue and cancellation of shares and units, calculation of NAVs and so on.
21(10) Standard of Conduct: Depositary must act honestly, fairly, professionally, independently and in the interest of the AIF and its investors and avoid conflicts of interest. The depositary cannot reuse assets of the AIF without the AIF's prior consent;
21(11) Limited right of delegation of custody obligations only: Depositary cannot delegate to third parties, except for safekeeping obligations under paragraph 21(8), wherein it is ok as long as:

(a) not intended to avoid requirements of AIFMD;

(b) there is an "objective reason" for the delegation.

(c) depositary has exercised all due skill, care and diligence in selecting the delegate;

(d) the delegate (sub-custodian):

(i) has adequate expertise and structures

(ii) for custody, is subject to effective prudential regulation;

(iii) segregates client assets from its own assets and the depositary's assets so they can be clearly identified as belonging to clients;

(iv) No uise without prior consent of the AIF and prior notification to the depositary;

(v) Delegate complies with 21(8) and 21(10).

certain guff about sub-delegation where required by laws of third party
21(12) Liability for loss of assets: the depositary is liable for the loss of assets by the depositary or a third party to whom custody has been delegated. In the case of such a loss the depositary shall return an identical financial instrument or the corresponding amount to the AIF without undue delay. It will not be liable if the loss arose as a result of an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary.
21(13) Liability not affected by delegation except in certain circumstances: The depositary’s liability is be affected by any delegation under paragraph 21(11). However the depositary may discharge itself of liability if it can prove that:

(a) all requirements for the delegation of its custody tasks set out in the second subparagraph of paragraph 21(11) are met;

(b) a written contract between the depositary and the delegate sub-custodian expressly transfers the liability of the depositary to that delegate sub-custodian so that the AIF can claim directly against it; and

(c) AIF expressly discharges the depositary’s liability under a written contract and establishes an "objective reason" for a discharge.

21(14) Discharge of liability for delegates in non-EU jurisdictions in limited circumstances: Discharge of liability in the case of third parties in Third Countries: when certain conditions met.
21(15) AIF Investors: Liability to AIF investors may be invoked directly or indirectly through the AIFM
21(16) Information: The depositary must make all information it receives in course of performing its duties available to its competent authorities, on request.
21(17) Certain other measures: The Commission shall adopt, by means of delegated acts in accordance with Article 56 and subject to the conditions of Articles 57 and 58, certain measures.

AIFMD

This is an article about Alternative Investment Funds Management Directive (2011/61/EU (EUR Lex)) and the AIFMD Implementing Regulation 231/2013 (EUR Lex).

Depositary - AIFMD Provision

21: Depositary

AIFMD

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