CP12/32: Implementation of the Alternative ... - BVCA admin

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
Contents of the Regulation
Annex X
9.6 The Level 2 Regulation will add substantial detail to most of the depositary requirements.
It is expected to cover matters such as:
• what should be included in the depositary agreement;
• how the depositary should perform its duties of cash monitoring, safekeeping of assets
and oversight;
• matters relating to custody of financial assets, including segregation of assets, reporting
and the status of assets given as collateral; and
• the depositary’s liability, including when assets should be considered to be lost and
which external events are outside the depositary’s liability.
Obligations of the AIFM and the depositary
9.7 The AIFM of a UK AIF or an EEA AIF has certain Directive obligations regarding the
depositary, irrespective of whether or not the AIF’s constitutional instrument makes the
AIFM responsible for selecting and appointing the depositary. The AIFM must ensure that:
a single depositary meeting the eligibility criteria set out in the Directive is appointed for
each such AIF; the appointment is supported by a written contract; and the assets of that
AIF are entrusted to the depositary for safekeeping (FUND 3.11.3R, 3.11.9R, 3.11.15R
and 3.11.16R). The AIFM must ensure that the depositary is eligible to act for that
particular AIF, which in the case of a UK AIF means ensuring the depositary has the
relevant FSA authorisation.
9.8 The AIFM and the depositary each have a duty to perform their respective roles in the interests
of the AIF and its investors by acting honestly, fairly and independently (FUND 3.11.4R). We
say more in paragraph 9.35 to 9.40 about the concept of acting independently. The AIFM also
has a duty to avoid conflicts of interest between itself, the depositary and the AIF, especially
where a firm is acting as both depositary and prime broker to the AIF (FUND 3.11.6R).
9.9 The depositary also has specific obligations to ensure proper management of potential
conflicts of interest (FUND 3.11.8R). The duties of cash monitoring, safekeeping assets and
oversight are set out in FUND 3.11.17R, 3.11.18R, 3.11.20R and 3.11.22R, although the
Level 2 Regulation will provide most of the detail about these duties. FUND 3.11.23R to
3.11.28G set out the limitations on the depositary’s ability to delegate its functions.
Who can be a depositary?
9.10 The Commission’s decision to implement most of the Level 2 measures through a
directly-applicable Regulation has meant that we now have no national discretion in
70 Financial Services Authority November 2012