The Regulation clarifies the requirements applicable to these points9 and in particular as regards the content of the contract for the appointment of depositaries10; the criteria for assessing the regulation of depositaries in third countries11; Functions and obligations of the depositary12, responsibility of the depositary13 and performance contracts of that depositary14. See here for conflicts of interest in general. Additional conditions for third-country depositaries Where an AIFM designates a depositary in a third country, the appointment of that depositary shall at all times be subject to the following conditions: Inform the competent authority In accordance with Article 21(16), the depositary shall make available to its competent authorities, upon request, all information it has received in the performance of its tasks and received for the competent authorities of the FIA or competent authorities may be required. AIFM. Where the competent authorities of the AIF or the AIFM differ from those of the depositary, the competent authorities of the depositary shall immediately communicate the information received to the competent authorities of the AIF and the AIFM. This could impose additional reporting costs on custodian banks, which will likely be passed on to AIF investors. Recital 11 recognises that an AIF may be structured in such a way that the AIFM cannot manage the operations of the AIF. In the context of the appointment of a depositary, it is established that, where the AIF has not designated a depositary, the competent authorities may require the AIFM to take corrective action and, failing that, require the AIFM to resign from its appointment as administrator of the AIF. The detailed requirements for depositaries referred to in Article 21(17) clearly indicate that a significant part of the Regulation concerning the appointment of depositaries and their delegates has been left to level 2 measures. These include additional arrangements concerning: the information to be included in the agreements; delegates` assessment criteria (including prudential requirements and due diligence); and, as we have seen here, what are considered events beyond the control of a custodian. A list of principal brokers or collateral agents must be part of the information on the depositary`s functions, which must be kept up to date and made available to the CSSF on a regular, ad hoc or annual basis.
Detailed criteria for assessing whether the level of supervision and supervision of a depositary in a third country is appropriate for the purposes of the AIFMD are set out in Regulation29. These conditions also include requirements relating to the depositary`s basic capital, legal obligations and applicable operating conditions. It remains to be seen which countries will be considered acceptable for such purposes in the future, despite the fact that the European Securities and Markets Authority (ESMA) announced that it was in negotiations with IOSCO member countries and approved in January 2013 the conclusion of a Memorandum of Understanding with Brazilian regulator Comissão de Valores Mobiliários30. The AIFM shall be separately required to provide the depositary with all relevant information and to ensure that the relevant third parties provide the depositary with all relevant information necessary for the depositary to comply with its ownership verification obligations. Where the depositary has delegated the safekeeping of the assets of an AIF to a sub-depositary and the depositary has withdrawn from its commitment and transferred it to the sub-depositary, the sub-depositary may discharge its strict liability provided that it can fulfil the conditions set out in points (a) and (b). Delegated depositaries face limitations in their ability to delegate their functions. Article 21(11) provides that a depositary may delegate its tasks only if: the AIFM itself cannot act as depositary. Prime brokers acting as counterparties to an AIF may act as custodians of an AIF, subject to functional and hierarchical separation of their primary custodian and brokerage role and appropriate management of conflicts of interest. In addition, the depositary of EU AIFs must be located in the same territory as the AIF. The depositary shall also ensure that the AIFM applies appropriate procedures to verify that the assets acquired by the AIF it manages are properly registered in the name of the AIF or in the name of the AIF acting on behalf of the AIF and to ensure consistency between the positions in the AIF`s registers and the assets; where the depositary is satisfied that the AIF (or the AIFM acting on behalf of the AIFM) holds ownership. The AIFM shall ensure that all relevant instructions and information relating to the assets of the AIF are transmitted to the depositary in order to enable the depositary to carry out its own verification or voting procedure. During the term of this Agreement, (a) the Administrator shall not perform any depositary function within the meaning of the Rules and (b) the Depositary shall not exercise any management function within the meaning of the Rules.
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