Outlook of AIFMD for depositaries

Good news for already authorised depositaries!

Back in 2013, the FCA published a draft of the Variation of Permission (VoP) application for depositaries of alternative investment funds (AIFs). Thanks to the transitional arrangements, firms that are currently authorised and who are able to act as depositaries under the AIFMD can act as the trustee or depositary of an AIF without needing new regulatory permission straight away.

Less good news and more paperwork for new depositaries…

Firms which are currently not authorised and intend to act as a trustee or depositary of an AIF must first apply for authorisation by completing both the application for wholesale investment firm application and the VoP application.

The FCA the accepts draft applications but it is likely that processing of a complete application will take six months, even if a draft application has been submitted prior.

How do the depositary rules impact AIFMs?

UK managers looking to vary their permission to become a full scope alternative investment fund manager (AIFM) must give details to the FCA on the depositary, or depositaries if several, of the AIFs they manage. More importantly, the FCA is looking to see details of the due diligence that the AIFM has carried out on the depositary.

As part of the AIFM’s VoP process, the FCA will contact the depositaries named in the application. The depositaries are required to respond to the FCA and certify that they will provide a service to the AIF(s) that meets the requirements of the AIFMD.

The AIFMD depositary rules introduce one of the most controversial changes of the directive. The depositary will be liable to the AIF or its investors for certain losses and is required to return financial instruments lost in its custody without undue delay. In practice, it is still unclear whether depositaries will be able to insure against their new liabilities at commercially viable rates but what is certain is that the increased costs for depositaries will be passed onto the AIFs and thus their investors.

How can Laven help

At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are compliant and aware of all the risks outlined in this update. Whether this is through assisting with new policies and procedures that need to be put in place or providing online training for staff to make them fully aware of the regulatory burden.

Laven has also built LavenTech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.

If you would like to find out more: 

Phone: +44 (0)20 7838 0010
Email: [email protected]
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