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

November 2012
CP12/32
Implementation of the Alternative Investment Fund Managers Directive
functions, especially as an AIF depositary has a function of oversight of the AIFM. It is
important for an authorised person who is overseeing the activities of another authorised
person to itself be subject to a robust regulatory regime.
9.31 In looking for an appropriate level at which to set the capital requirement, we have noted a
MiFID firm that complies with BIPRU 1.1.19R (a ‘BIPRU 125K firm’) has permission to
hold client money and to carry on safeguarding and administering of assets 118 , and is
subject to a capital requirement of €125,000. MiFID firms subject to a lower capital
requirement cannot hold client money or securities. We believe that a BIPRU 125K firm
offers an appropriate benchmark for an AIF depositary, in terms of the risks to which it is
subject through having responsibility for client assets (an AIF depositary will need at the
least to be able to hold cash on behalf of the fund and its investors).
9.32 Consequently, we propose that a firm acting as a PE AIF depositary should, as a minimum,
hold own funds of at least €125,000. This would apply where the depositary’s safekeeping
duty is limited to verifying the ownership of the AIF’s assets. If the firm intends to
undertake higher-risk activities, such as providing custody of financial assets (to the extent
that a PE AIF depositary would be allowed to do so) it may be appropriate for us to set a
higher figure. We might do this by setting a higher own funds requirement, or by applying
an expenditure-based requirement.
9.33 We believe that this approach to setting the capital requirement would be likely to make
the provision of the service commercially competitive in terms of firms’ ability to enter the
market. At the same time, it is high enough to provide a sufficient capital buffer for
investor protection purposes in the event of the firm being unable to meet its obligations.
9.34 Although a PE AIF depositary would hold the same Part IV permission as other AIF
depositaries, our draft rules FUND 3.11.10R and 3.11.11R will specify that where its
activities are restricted to the specified types of AIF, it will be subject to these specialised
capital requirements in IPRU(INV).
Q12: Do you agree with the proposed approach to setting capital
requirements for firms acting as PE AIF depositaries? If not,
please give reasons.
Q13: Should such depositaries be subject to different
requirements, depending on whether or not they may
hold financial instruments in custody? If so, what type of
requirement would be most appropriate for these higher-risk
firms: more own funds, an expenditure-based requirement, or
some other method of calculation (please specify)?
118 Current EU proposals to modify MiFID would make safeguarding of assets a core activity rather than an ancillary activity as now,
which could result in higher capital requirements for firms performing it.
Financial Services Authority 75