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Updated Q&As from ESMA for both AIFMD and UCITS.

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On the 4 June 2019, ESMA published updated Q&As for both AIFMD and UCITS.

In summary, the updates to the Q&As are related to the following:

  • distinction between depositary functions and mere supporting tasks that are not subject to the delegation requirements set out in the AIFMD and UCITS Directive;
  • delegation of safekeeping functions;
  • performance of depositary functions where there are branches in other Member States;
  • supervision of depositary functions in case of branches in other Member States; and
  • delegation of depositary functions to another legal entity within the same group.

The AIFMD Q&As included the following amendments:

  • Recital 42 of the AIFMD states that “delegation of supporting tasks that are linked to its depositary tasks, such as administrative or technical functions performed by the depositary as a part of its depositary tasks, is not subject to the specific limitations and requirements set out in the AIFMD”. In relation to supporting tasks that are linked to depositary tasks such as administrative or technical functions, it was confirmed that supporting tasks could be entrusted to third parties, where all of the following conditions are met:
    • the execution of the tasks does not involve any discretionary judgement or interpretation by the third party in relation to the depositary functions;
    • the execution of the tasks does not require specific expertise in regard to the depositary function; and
    • the tasks are standardised and pre-defined.
  • It was further confirmed that where depositaries entrust tasks to third parties and give them the ability to transfer assets belonging to AIFs without requiring the intervention of the depositary, these arrangements are subject to the delegation requirements set out in Article 21(11) AIFMD
  • The internal allocation of functions between the head office and the branches of a depositary shall not lead to situations that may represent a circumvention of the establishment requirement under Article 21(5) of the AIFMD. Therefore, the operational infrastructure and internal governance system of such branches must be adequate to carry out depositary functions autonomously from its head office and ensure compliance with national rules implementing the AIFMD.
  • The AIFMD, the CRD and the MiFID II do not grant any passport for depositary activities in relation to AIFs. Hence, branches located in the home Member State of the AIFs other than the home Member State of the depositary’s head office may also be subject to local authorisation in order to perform depositaries activities in relation to AIFs.
  • Legal entities within the same group of a depositary should be considered ‘third parties’ for the purpose of the depositary delegation rules under Article 21(11) of the AIFMD.

Correspondingly, the UCITS Q&As included the following amendments:

  • The UCITS Directive sets out strict restrictions under which depositaries are allowed to delegate the safekeeping of assets of UCITS, whereas the delegation of depositary functions pursuant to Article 22(3) and (4) of the UCITS Directive (i.e. monitoring of the cash flow and oversight functions) is not permitted. So, do the AIFMD principles of delegation of supporting tasks also apply to UCITS depositaries? It was again confirmed that supporting tasks that are linked to depositary tasks such as administrative or technical functions performed as part of the depositary tasks listed under Article 22(3) and (4) of the UCITS Directive could be entrusted to third parties where all of the following conditions are met:
    • the execution of the tasks does not involve any discretionary judgement or interpretation by the third party in relation to the depositary functions;
    • the execution of the tasks does not require specific expertise in regard to the depositary function; and
    • the tasks are standardised and pre-defined.
  • Where depositaries entrust tasks to third parties and give them the ability to transfer assets belonging to UCITS without requiring the intervention of the depositary, these arrangements are subject to the delegation requirements set out in Article 22a(2) of the UCITS Directive.
  • The operational infrastructure and internal governance system of branches (where the depositary of a UCITS is a branch and the head office is established in a Member State other than the home Member State of the UCITS) must be adequate to carry out depositary functions autonomously from its head office and ensure compliance with national rules implementing the UCITS Directive.
  • The UCITS Directive, the CRD and the MiFID II do not grant any passport for depositary activities in relation to UCITS. Hence, branches located in the home Member State of the UCITS other than the home Member State of the depositary’s head office may also be subject to local authorisation in order to perform depositaries activities in relation to UCITS.
  • Legal entities within the same group of a depositary should be considered ‘third parties’ for the purpose of the depositary delegation rules under Article 22a of the UCITS Directive.
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