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

CP12/32
Implementation of the Alternative Investment Fund Managers Directive
Independence of depositaries
Annex X
9.35 Article 21(4) states that an AIFM must not act as depositary and 21(10) that the AIFM and
the depositary must act independently in their respective roles, in the interests of the AIF
and its investors.
9.36 We asked in DP12/1 whether the depositary of an AIF should be permitted to be part of the
same group as its AIFM. 119 A majority of respondents agreed this should be allowed and
some gave instances of requirements that would enable the entities to act independently,
such as having information barriers in place and ensuring the economic interests of each
entity’s personnel are sufficiently separated. Some, however, thought it was an incorrect
interpretation of the Directive and a few were concerned about conflicts of interest where
the depositary is holding title for assets of the AIF.
9.37 For depositaries of UK-authorised funds, we currently apply a stricter standard not derived
from any EU legislation, which requires the depositary to be independent from the group of
which the fund manager is part. The DP responses did not indicate any significant desire to
modify this standard of independence for NURS and QIS depositaries, and we confirm that
we do not intend to do so.
9.38 We agree, however, that applying a strict standard of independence to all AIF depositaries is
likely to be disproportionate in relation to many professional funds. We believe the ‘acting
independently’ test can still be satisfied when the AIFM and depositary of the same AIF are
separate but connected entities in the same group, provided there is proper management
and disclosure of potential conflicts of interest. Allowing more flexibility for the depositary
of unauthorised funds should promote competition and consequently reduce cost.
9.39 Therefore, we propose that an AIF other than an authorised fund, or its AIFM on its
behalf, should be able to appoint an affiliate of the AIFM as depositary if it meets the
Directive requirements and there is proper management of any conflicts of interest (FUND
3.11.5G). To reduce the risk of such conflicts arising, FUND 3.11.6R(1) specifies that an
AIFM cannot perform any function of a depositary as its delegate.
9.40 One area in which management of conflicts might be difficult relates to custody
arrangements. It might not be in the best interests of investors to allow title to the AIF’s
assets to be held by a depositary in the same group as the AIFM, instead of the AIF itself or
an independent third party; although there might of course be cost considerations that
make an intra-group option desirable. We welcome the views of respondents to this paper
on whether we should mandate requirements or give guidance in this area.
Q14: Do you agree with our approach permitting AIF depositaries
to be in the same group as the AIFM so long as Directive
requirements are met?
119 Question 45 in DP12/1 was asked in the specific context of non-EEA AIFs being marketed in the UK, but many respondents treated
it in a more general way and we acknowledge that these considerations apply to a broad range of UK AIFs.
76 Financial Services Authority November 2012