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March 4, 2014
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3. Questions
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March 4, 2014
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4. AIFMD Surgery Webinars: Depositaries
Bill Prew, Chief Executive Officer, INDOS Financial
billprew@indosgroup.com
Emma Stevens, Executive Director Prime
Brokerage, Securities Division,
Goldman Sachs International
Emma.Stevens@gs.com
Cordium
Chair: Jonathan Wilson, Project Director
Panelist: Bobby Johal, Managing Consultant, Technical
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March 4, 2014
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6. Result from VoP & Business Plan webinar poll
Have you seen a drafted depository agreement?
30%
Yes
No
70%
64/130 attendees answered
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March 4, 2014
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7. Requirements for variation of permission
applications
•
Process will differ in different EU jurisdictions, but for majority of firms seeking to
apply to the FCA by 22 January 2014:
• Identify depositary(s) on VoP application (section 9)
• Firms should be (1)
• “sufficiently advanced” contractually and
• “confident” the arrangements will comply with AIFMD
• Confirmation of contractual relationships
• at least one month before the date on which the AIFM intends to begin
managing AIF
• Likely 21 June 2014 at the latest
• FCA will seek confirmation that depositary firms are willing to act.
(1) http://www.fca.org.uk/firms/markets/international-markets/aifmd/uk-aifms/q-a-full-scope-aifms.
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8. Requirements for VoP applications … continued
•
Managers planning to rely on reverse solicitation should state reasons in the
VoP Regulatory Business Plan
•
Opting-in to depositary-lite later is an option but will require FCA notification
(and an update or addendum to the offering memorandum)
•
Beware of capacity constraints in the depositary market and timeframes for onboarding of depositaries
•
Perform due diligence on selected providers:
• Reference the due diligence in the VoP Regulatory Business Plan
• Be prepared to share this information with the FCA on request
• INDOS has shared a Manager Depositary Selection Checklist to facilitate
and record due diligence
www.indosgroup.com/wp-content/uploads/2013/12/AIFMD-Depositary-Due-Diligence-AssessmentChecklist-Nov-2013.pdf
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9. Recap AIFMD Depositary Requirements
AIFMD Depositary requirements are driven by a combination of the domicile
of the AIFM and AIF and marketing practices:
• EU AIFM of EU AIF – Subject to Full Depositary requirements (Article 21)
• EU AIFM of non-EU AIF – Subject to lighter depositary regime (Article 36)
– only if the non EU-AIF marketed to EU investors through private
placement
• Non-EU AIFM of EU or non-EU AIF – not subject (at least initially) to any
depositary requirements irrespective of whether AIF being marketed to
EU investors, except if marketing into certain countries (e.g. Germany,
Denmark, France ‘gold plating’), and any other country specific
requirements (e.g. Ireland QIAIF requirements).
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10. Full Depositary
• EU AIFM of EU AIF – Subject to Full Depositary requirements (Article 21
AIFMD)
• EU AIFM must ensure a single depositary appointed for each EU AIF it
manages
• EU AIFs requiring a full depositary generally have a custodian/ trustee
in place today
• The role of the depositary is similar to the existing role of the custodian
except that the depositary is now required to perform a broader range
of duties and is required to take on the strict liability for loss of
financial instruments
• The depositary must generally be an EU credit institution and, in most
cases, the depositary must be located in the same jurisdiction as the
EU AIF.
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11. Depositary-lite
• Non-EU AIF marketed by EU AIFM to EU investors through private
placement are subject to certain depositary requirements (Article 36
AIFMD)
• AIFM must ensure one or more entities appointed to carry out the
depositary duties of:
• Cash flow monitoring (Article 21.7);
• Safe keeping of assets, both financial instruments and ‘other assets’
(Article 21.8); and
• Oversight (oversight of fund valuations; subs & reds; settlement;
distributions; compliance with law and regulations, investment
restrictions and leverage) (Article 21.9)
• Unlike Article 21 (EU AIFM / EU AIF) no strict liability for loss of assets, and
no requirement to appoint a single depositary - therefore referred to as
‘Depositary-Lite’.
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12. Depositary-lite…. continued
•
•
•
•
Existing prime broker(s) and custodian(s) and existing administrator already
substantially perform AIFMD requirements of safe keeping and cash flow
monitoring, respectively. The Oversight duties are an entirely new
requirement for non-EU funds
Where a UK firm provides any of the services it must hold an Article 36
Custodian/ Part 4a FSMA 2000 FCA authorisation. Non-UK firms can be
appointed, but the FCA will want to be comfortable appropriate firms are
proposed in the AIFM’s Variation of Permission Application and that the AIFM
is undertaking appropriate due diligence over them
The regulatory position for Irish administrators (that do not currently have a
regulated affiliate depositary), particularly with respect to performance of
the oversight duties, remains unclear
Whilst currently no requirements for the depositary to be domiciled in UK, if
the AIFMD passport is extended to non-EU AIF managed by UK AIFM
(potentially 2015 onwards), FCA rule book (FUND 12) states depositary must
be domiciled in UK or in the domicile of the AIF.
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13. Depositary-lite models
Different depositary-lite models have emerged as the table below
highlights:
Depositary Duties from
AIFMD Articles
Model 1
Single
Depositary
Model 2
Hybrid
Model 3
Multi -firm
Depo Firm
Administrator
Prime Broker(s) &
Custodian(s)
Prime Broker(s) &
Custodian(s)
Article 21(8)(b) –
Safekeeping/ Record Keeping
of other assets
Depo Firm
Administrator
Article 21(9) – Oversight
Depo Firm
Depo Firm
Article 21(7) – Cash flow
Monitoring
Article 21(8)(a) – Safekeeping
of financial instruments
Single Depositary
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14. Is Depositary-lite required?
• Article 36 (depositary-lite) only applies if a non-EU AIF is being
marketed to EU investors
• Marketing is broadly defined in the AIFMD as a direct or indirect
offering or placement of an AIF at the initiative, or on behalf of, the
alternative investment fund manager, to investors domiciled, or with a
registered office, in the EU
• Reverse solicitation does not constitute marketing but very little
regulatory guidance (FCA being a notable exception) across the EU as to
what constitutes marketing vs. reverse solicitation
• Feedback from various sources appears to be that around two thirds of
EU AIFM / non-EU AIF appear to be leaning towards depositary-lite
• Ultimately will the decision for many managers come down to risk
appetite?
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15. Operational impact (general)
•
Operational and legal impact different for full depositary or depositary-lite
•
Whilst prime brokers, depositaries, administrators and other providers will need to
work together in different ways to implement the required model, should not be a
material operational impact on managers (no trade files etc) but new contracts
and new providers (even if an affiliated depositary of existing administrator)
•
AIFMs themselves are required to ensure compliance with the depositary
requirements of the directive and will need to assess providers and be comfortable
appropriate firms being used
•
Role of provider(s) will require disclosure in the AIF offering memorandum
•
Depositary contracts will typically be between AIFM, AIF and depositary. Should
be a straight forward negligence standard (no liability caps) and balanced terms.
Under depo-lite where PBs / custodians performing safe keeping duties may be a
small amendment to existing agreements.
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16. Operational impact (prime broker view)
•
Much of the day to day process for prime brokers will remain unchanged as the
operational flows are inline with those followed for the custody (or sub-custody)
offering today but changes are required to certain operational processes
•
Some of these changes require additional transparency on client data to be
provided to the full depositary or entities performing depositary lite functions
•
Full depositaries are also requiring additional data on prime brokers sub custody
networks and the due diligence process employed by them on these entities as well
as additional transparency on their internal infrastructure and how they conduct
their own due diligence
•
The prime brokerage and depositary industries are in many cases still debating how
the full depositary will work in practice and differing models are emerging in
relation to legal structure of the Depositary/Sub Custodian model
•
UK prime brokers (and any other UK firms performing depo-lite duties) are also
required to obtain authorisation, or a variation of permission, from the FCA to
become an Article 36 Custodian .
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17. Contacts
Bill Prew, Chief Executive Officer, INDOS Financial
billprew@indosgroup.com
Emma Stevens, Executive Director Prime Brokerage, Securities
Division, Goldman Sachs International
Emma.Stevens@gs.com
Cordium
Jonathan Wilson, Project Director
jonathan.wilson@cordium.com
Bobby Johal, Managing Consultant, Technical
bobby.johal@cordium.com
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18. Disclaimer
Cordium Consulting Group Ltd accepts no liability to any person (to the fullest extent
permitted by law) for any advice, opinions, conclusions or any other information in this
presentation, other than that which can reasonably be expected to the intended recipient.
Any review, re-transmission, dissemination or other use of, or taking of any action in reliance
upon this information by persons or entities other than the intended recipient is prohibited
under all circumstances and may be unlawful. This presentation is not intended to nor
should it be taken to create any legal relations or contractual relationships. Cordium
Consulting Group Ltd is unable to exercise control over the content of information contained
in transmissions made via the internet. For these reasons it is inappropriate to rely on
information contained in transmissions made via the internet without obtaining written
confirmation of it.
Cordium Consulting Group Ltd is a private limited company registered in England and
Wales with registered number 5963788.
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3/4/2014
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19. Questions
You can submit your questions
using the Questions area in the
GoToWebinar console
For more information or sales enquiries please
contact sarah.donnelly@cordium.com
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March 4, 2014
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Hinweis der Redaktion Jon Jon Jon Jon and Bobby to review Bobby Polling QuestionWhat do you think is the time required for your firm to be operationally compliant with your preferred depositary?Less than two months Two to four monthsFour to six monthsOver six months BobbyFirms planning to rely on reverse solicitation should articulate their reasons in their regulatory business plan. Opting-in to depositary-lite at a later date is an option – will require a notification to the FCAPractically speaking, there will be capacity constraints in the depositary market and firms should not leave identification and appointment of providers too late. There will be a large number of funds to be on-boarded by 22 July 2014 and some depositaries will start to on-board well in advance of JulyAIFM will need to perform due diligence on selected providers and be prepared to share this information with the FCA on request. Indos has shared a Manager Depositary Selection Checklist with Cordium to share with their clients. Bill and EmmaPolling QuestionDo you need a Depositary?Yes – FullYes – LiteNo – Seeking to rely on reverse solicitation/ other Bill and Emma Bill and Emma Bill and Emma Bill and EmmaPolling QuestionsHave you decided on Depositary Lite?YesNo What model are you considering?Model 1 – Single DepositaryModel 2 – HybridModel 3 – Multi-firm Bill and Emma Bill and Emma Bill and Emma Bill, Emma, Jon Jon Panel Jon
