EUROPEAN UNION: ESMA Publishes Updated AIFMD Q&A

Tuesday December 15 2015

The European Securities and Markets Authority (ESMA) has published an updated questions and answers on the application of the Alternative Investment Fund Managers Directive (AIFMD). The Q&A includes the following new questions and answers on the depositary liability regime:

Question 9

Does the depositary’s liability regime apply to those assets for which a depositary has safe-keeping duties on a look-through basis according to Articles 89(3), first sub-paragraph, and 90(5), first sub-paragraph of the AIFMD Level 2 Regulation?

Answer 9

Yes. The look-through requirements under Articles 89(3), first subparagraph, and 90(5), first sub-paragraph of the AIFMD Level 2 Regulation mean that the depositary has safe-keeping duties in relation to the relevant assets. The safe-keeping duties are described under Article 21(8) of the AIFMD and the depositary’s liability regime set out under Article 21(12) of the AIFMD (and the relevant implementing provisions under the AIFMD Level 2 Regulation) apply to safekeeping activities. This means that for financial instruments held in custody to which the look-through requirements under Article 89(3), first sub-paragraph of the AIFMD Level 2 Regulation apply, the depositary is subject to the strict liability regime under Article 21(12), second sub-paragraph of the AIFMD. For other assets to which the look-through requirements under Article 90(5), first sub-paragraph of the AIFMD Level 2 Regulation apply, the depositary is subject to the liability regime under Article 21(12), third sub-paragraph of the AIFMD.

According to Articles 89(3), second sub-paragraph, and 90(5), second sub-paragraph of the AIFMD Level 2 Regulation, the look-through provision does not apply to funds of funds or master-feeder structures provided they have a depositary which safe-keeps the fund’s assets appropriately. Therefore, it is only for this type of investment that the liability regime should not apply to the depositary of the AIF as a consequence of the fact that the depositary is not subject to any safe-keeping duties in relation to those investments.

Click on the link above for further details.