On 4 June 2019, the European Securities and Markets Authority (“ESMA”) published updated questions and answers documents (“Q&A”) on the application of the Alternative Investment Fund Managers Directive (“AIFMD”) and the Undertakings for Collective Investment in Transferable Securities Directive (“UCITS Directive”).
The updated Q&A includes five new questions relating to the depository function under AIFMD and the UCITS Directive.
The first question clarifies that supporting tasks, which are linked to depository tasks such as administrative or technical functions performed as part of the depository tasks listed under Article 21(7) and (9) of the AIFMD and Article 22(3) and (4) of the UCITS Directive could be entrusted to third parties where all of the following conditions are met: (i) the execution of the tasks does not involve any discretionary judgement or interpretation of the third party in relation to the depository functions; (ii) the execution of the tasks does not require specific expertise in regard to the depository function; and (iii) the tasks are standardised and pre-defined.
The second question specifies that depositories may entrust tasks to third parties and give them the ability to transfer assets belonging to AIFs and UCITS without requiring the intervention of the depository. However, ESMA provides that these arrangements are subject to the delegation requirements set out in Article 21(11) AIFMD and Article 22a (2) UCITS Directive.
The third question pointed out that the internal allocation of functions between the head office and the branches of a depository should not lead to situations that may represent a circumvention of the establishment requirement under Article 21(5) AIFMD and Article 23 (1) UCITS Directive. Operational infrastructure and internal governance systems of such branches must be adequate to carry out depository functions autonomously from its head office and ensure compliance with national rules implementing the AIFMD and the UCITS Directive.
The fourth question explained that the competent authority of a Member State, where a branch is established, shall be responsible for supervising the activities of the branch with regard to depository functions in relation to AIFs and UCITS. This includes the supervision of the allocation of depository functions from the branch to its head office or vice versa to avoid any possible circumvention of the establishment requirement under Article 21(5) AIFMD and Article 23(1) UCITS Directive.
The final question clarifies that legal entities within the same group of a depository should be considered “third parties” for the purpose of the depository delegation rules under Article 21(11) AIFMD and Article 22a UCITS Directive.