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Irish Central Bank Consultation on “Depositary Lite”

The Central Bank of Ireland (the “Central Bank”) published a consultation paper entitled “Carrying out depositary duties in accordance with Article 36 of the AIFMD” (the “Consultation Paper”). The purpose of the Consultation Paper is to invite stakeholders in the funds industry to provide their views on the requirements that should apply where a fund administrator proposes to provide administration services and to perform the depositary duties set out in Articles 21(7) and 21(9) of Alternative Investment Fund Managers Directive (the “AIFMD”) for the same non-EU based Alternative Investor Fund (“AIF”).

Article 36 of the AIFMD allows Member States to permit EU based Alternative Investment Fund Managers (“AIFM”), to market units of non-EU AIFs they manage to professional investors in their territory. However, such activity is subject to some restriction in that the AIFM must ensure that one or more entities is engaged to carry out the duties outlined in Article 21(7) (monitoring of the cash flows of the AIF), 21(8) (safe-keeping of an AIF’s assets) and 21(9) (oversight of the AIFM’s operations) of the AIFMD.

The Central Bank has been asked if it is possible for fund administrators to carry out each of these duties. The Central Bank’s AIFMD Q&A document makes it clear that any entity wishing to provide safe-keeping of assets services must have an authorisation to provide “custodial operations involving the safe-keeping and administration of investment instruments” under the Investment Intermediaries Act 1995. The key point to consider is how the potential conflicts of interest that will arise in instances where an administrator provides both administration services and the discharge of depositary duties to the same AIF can be managed.

To address this, the Central Bank proposes the insertion of the following requirements in Chapter 5 (Fund Administrator Requirements) of its AIF Rulebook:

“Where a Fund Administrator provides both administration services and any of the services listed in Regulation 22(7) and/or 22(9) of the AIFM Regulations (“depositary services”) to the same non-EU AIF, it shall:

1. functionally and hierarchically separate the depositary services and the administration services by carrying out the depositary services through a separate subsidiary;
2. require the individual responsible for managing the subsidiary to report directly to an individual at PCF level within the parent fund administrator; and
3. advise the Central Bank of the reporting structure which it has put in place.”

Responses to the Consultation Paper are to be submitted to the Central Bank no later than 30 May 2014.

IN THIS CONTEXT:

Central Bank Publishes First Reporting Dates for AlFMs
March 2014, the Central Bank of Ireland published the first reporting dates for the submission of regulatory returns for Alternative Investment Fund Managers. Read More

Central Bank Issues Updated Guidance for AIFs and their Service Providers
March 2014, the Central Bank of Ireland issued updated guidance relating to third party approval and the fund authorisation process for Alternative Investment Funds and their service providers. Read More

This announcement is compliments of EACC Member Mason Hayes & Curran