ESMA updates its AIFMD Q&As on delegation and supervision of depositary functions

​On 04 June 2019, the European Securities and Markets Authority (ESMA) published a further update to its Q&As, Application of the AIFMD covering a series of questions relating to the delegation and supervision of depositary functions under the Alternative Investment Fund Managers Directive (AIFMD).

The five new questions and answers contained in ESMA’s updated Q&As all fall within Section VI, “Depositaries” and mirror those included in ESMA’s update to its Q&As on Application of the UCITS Directive, published on the same day (see our elexica article here).

The new Q&As deal with the following issues:

New Q.10: Delegation of “supporting tasks” to third parties

The AIFMD imposes strict limitations on the ability of depositaries to delegate the safekeeping of an AIF’s assets, while delegation of the monitoring of the cash flow and oversight functions is not permitted.

By Recital 42 of the AIFMD, a depositary may, however, delegate “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”.

ESMA has now confirmed that, in the context of the AIFMD, delegation to third parties of “supporting tasks that are linked to depositary tasks such as administrative or technical functions performed as part of the depositary tasks listed under Article 21(7) and (9) of the AIFMD” is permitted, provided 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.

New Q.11: Entrusting depositary tasks to third parties

ESMA confirms that depositaries can entrust third parties with the performance of tasks that would give them the ability to transfer assets belonging to AIFs without the intervention of the depositary. In such a case, the arrangements are subject to the delegation requirements set out in Article 21(11) of the AIFMD.

New Q.12: Performance of depositary functions by a branch in a different Member State

Where the AIF depositary is a branch whose head office is in a Member State different from the AIF’s home Member State and the branch wants to allocate its depositary functions to its head office, this must not lead to the establishment requirement under Article 21(5) of the AIFMD being circumvented.

As a result, the branch’s operational infrastructure and internal governance system must be adequate to carry out depositary functions autonomously from its head office and ensure compliance with national rules which implement the AIFMD.

New Q.13: Supervision of depositary functions performed by a branch with its head office in a different Member State

Where depositary functions are performed by a branch established in the AIF’s home Member State (but where this is a different Member State from that of the depositary’s head office), ESMA states that the competent authority of the Member State where the branch is established should be responsible for supervising the branch’s activities with regard to AIF depositary functions.

This includes supervision of how depositary functions are allocated between the branch and its head office (or vice versa) to avoid circumvention of the establishment requirement under Article 21(5) of the AIFMD.

New Q.14: Delegation by a depositary to another legal entity in the same group

ESMA’s new Q&A confirms that, where a depositary delegates some of its functions to another legal entity in the same group, this will be considered a delegation to a third party for the purposes of the depositary delegation rules under Article 21(11) of the AIFMD.

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