AIFMD II – European Commission proposed directive, November 2021 – Depositaries

The depositary role is vital for trust and confidence in the fund industry. The current AIFMD depositary regime is deemed to be effective concerning investor protection. However, the current regime may entail a lack of competition for depositary business in some member states – hence the creation of the possibility for the depositary to be established in a different member state from the AIF. These are the Commission’s proposed updates and additions.

The definition of central securities depositary is added by a reference to Regulation (EU) No 909/2014 (Central Securities Depositories Regulation).

The regulatory authorities of the home member state of an AIF or, in cases where AIFs are not regulated, regulatory authorities of the home member state of an AIFM, may allow a credit institution registered in the EU, authorised under Directive 2013/36/EU (Capital Requirements Directive), and established in another member state to be appointed as a depositary. This option is without prejudice to the full application of article 21 of the AIFMD incorporating the main provisions applicable to depositaries, except their place of establishment. This wording was already included in the transitional provisions of the existing AIFMD but with July 22, 2017, as an end date. In the Commission proposal, the end date of the transitional provision is deleted, meaning the appointment of such a depositary was already a possibility until 22 July 2017 under the current AIFMD . However, this wording would be the main provision in AIFMD II, without any end date.

A depositary established in a third country may be appointed as depositary of an AIF if:

  • The third country is not at high risk of money laundering as defined by article 9 of the fourth AML Directive. As mentioned above, some jurisdictions have been recently added to this list by the European Commission, including the Cayman Islands, Jordan, and Morocco.
  • The third country is not mentioned in appendix I to the Council conclusions of 2020 on the revised EU list of non-cooperative jurisdictions for tax purposes. As mentioned above, the Cayman Islands appears in appendix I, preventing the use of services provided by a depositary in the Cayman Islands. However, the Cayman Islands does not appear in the latest conclusions of the Council dated October 4, 2022. Therefore, attention should be paid to the final wording of AIFMD II regarding the Council conclusions of 2020 on the revised EU list of non-cooperative jurisdictions.

The requirement for the depositary to exercise due skill, care, and diligence in the selection, appointment, and monitoring of a delegate does not apply to a central securities depositary acting as an issuer CSD.

The provision of services by a CSD acting as an issuer CSD is not a delegation of the custody function.

Within 60 months after the entry into force of AIFMD II, the European Commission shall initiate a review which that includes an assessment of the appropriateness of complementing the AIFMD II with a depositary passport.

You can access a copy of the directive proposed by the European Commission here.

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