New IFIA Guidance Paper on AIFMD Depositary Duties
The Depositary Committee of the IFIA recently undertook a review of the existing IFIA Guidance Paper 3 called Trustee Duties. It published a supplementary Guidance Paper 3A (AIFMD Depositary Duties) on 21 October 2013 to reflect the new obligations on depositaries post- AIFMD. This client briefing provides a short summary of the details contained in the new Guidance Paper.
By way of background, Guidance Paper 3A outlines that an alternative investment fund manager or, in the case of an internally-managed alternative investment fund ("AIF") its board of directors, (each an "AIFM"), has the primary responsibility for ensuring that an AIF is managed in accordance with its constitutional documents and AIFMD. Under AIFMD, an AIFM must ensure that a single depositary is appointed in respect of each AIF it manages. The depositary is independent of the AIFM and has an oversight responsibility in that it must assess whether the AIF complies with its constitutional documentation and applicable regulations.
The initial focus of Guidance Paper 3A is on the cash monitoring function. These rules are set out in Regulations 22(7)(a) and (b) of the AIFMD Regulations1 and Articles 85 to 87 of the Level 2Regulation2.
The Guidance Paper sets down proposed approaches that may be used by a depositary to fulfil its new obligations in respect of cash flow monitoring requirements introduced by the AIFMD. In particular, it describes a depositary's responsibility for cash and cash flow monitoring and its duties regarding subscriptions. The specific requirements of AIFMD are set out in Guidance Paper 3A followed by a commentary on how compliance by a depositary may be achieved. A depositary should conduct periodic reviews of an AIF's cash accounts to ensure that they are opened with eligible entities and it must implement appropriate reconciliation procedures and review the processes and procedures of the transfer agent in relation to these accounts.
The latter part of the Guidance Paper focuses on the five AIFMD oversight duties set down in in Regulations 22(9) of the AIFMD Regulations and Articles 93 to 97 of the Level 2 Regulation. These duties mirror five of the seven existing duties applicable to custodians under the Central Bank's non-UCITS Notices. The Guidance Paper now includes more detail on each duty from the Level 2 Regulation and expands on the previous list of matters which a...