Depositary lite - AIFMD Provision
AIFMD Anatomy™
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Cut-down depositary function: Non-EU AIFs marketed by an EU AIFM to EU investors through private placement have to comply with everything else in AIFMD but the depositary requirement is restricted to just cash monitoring, custody and handling subscriptions and redemptions.
Liability: Unlike in a full-blown depositary, under article 21 there is no strict liability for loss of assets for a non-EU AIF, and no requirement to appoint a single depositary - therefore this regime is referred to as “Depositary-Lite” or “Depo-Lite”.
Prime Broker as depositary lite
An AIFM can appoint the prime broker as its custodian for a non-EU AIF, but the PB will not want to assume all liability, so will accept this the role subject to 28(1)(a) as it applies to a person carrying out the safe-keeping function under (36(1)(a)).
Tedious, isn’t it.
Does a margin-holder who receives collateral under a pledge count as a delegated custodian?
It is one thing for a prime broker, who definitely is safe-keeping for its client, to accept responsbilities as a depositary’s delegate (or a depo-lite), but what about a futures clearer or a swap counterparty who receives margin under a pledge? It is hard to see why they would avoid the general drafting under AIFMD, but there are plenty of reasons it doesn’t make any sense. for one thing, a title transfer collateral arrangement, which is economically the same thing, wouldn’t be caught. Practically that may be the answer: just don’t take collateral under a pledge — or don't take non-cash collateral at all — but in the Regulatory IM regime that might be difficult, right? WE SHALL SEE.