Home / CY AIFM Law of 2013 / PART ΙΙΙ – OPERATING CONDITIONS FOR AIFMs / CHAPTER 4 - AIF Depositary /  Section 23 - Appointment of AIF depositary. 

Appointment of AIF depositary.

23.-(1) For each AIF it manages, the AIFM shall ensure that a single depositary is appointed in accordance with this section.

(2) The appointment of a depositary shall be evidenced by written contract between the depositary and the AIFM. The contract shall, inter alia, regulate the flow of information deemed necessary to allow the depositary to perform its functions for the AIF for which it has been appointed as depositary, as set out in this Law and in other relevant laws, regulations or administrative provisions.

(3) The depositary shall be -

(a) a credit institution having its registered office in the Union and is authorised in accordance with the Banking Law or in accordance with the legislation of another member state which harmonises the Directive 2006/48/EC; or

(b) an investment firm -

• having its registered office in the Union; and

• which, in any case shall have own funds not less than the amount of initial capital referred to in Article 9 of the Directive 2006/49/EC; and

• is subject to capital adequacy requirements in accordance with paragraph 1 of Article 20 of the Directive 2006/49/EC, including capital requirements for operational risks; and

• authorised in accordance with the Investment Services and Activities and Regulated Markets Law, as amended or according to the national legislation of another Member State which harmonises the Directive 2004/39/EC; and

• which also provides the ancillary service of safe-keeping and administration of financial instruments for the account of clients in accordance with paragraph 1 of Part II of the Third Annex of the Investment Services and Activities and Regulated Markets Law as amended;

(c) another category of institution that is subject to prudential regulation and on-going supervision and which, of 21 July 2011, falls within the categories of institution determined by Members States to be eligible to be a depositary under subsection (2) of section 10 of the Undertakings on Collective Investments Law.

(4) Notwithstanding subsection (3), but subject to paragraph (b) of subsection (7), for non-EU AIFs only, the depositary may also be a credit institution or any other entity of the same nature as the entities referred to in paragraphs (a) and (b) of subsection (3) provided that the conditions of paragraph (a) of subsection (8) are met.

(5) Notwithstanding subsection (3) of this section, an AIF which has no redemption rights exercisable during the period of five years from the date of the initial investments and which, in accordance with their core investment policy -

(a) generally does not invest in assets that must be held in custody in accordance with paragraph (a) of subsection (3) of section 24, or

(b) generally invests in issuers or non-listed companies, in order to potentially acquire control of such companies in accordance with section 33,

may appoint as depositary an entity which carries out depositary functions as part of its professional or business activities in respect of which such entity is subject to mandatory professional registration recognised by law or to legal or regulatory provisions or rules of professional conduct and which can provide sufficient financial and professional guarantees to enable it to perform effectively the relevant depositary functions and meet the commitments inherent in those functions.

(6) In order to avoid conflicts of interest between the depositary, the AIFM, the AIF and/or its investors -

(a) an AIFM shall not act as depositary ; and

(b) a prime broker acting as a counterparty to an AIF, shall not act as depositary for that AIF, unless it has functionally and hierarchically separated the performance of its depositary functions from its tasks as prime broker and the potential conflicts of interest are properly identified, manage, monitored and disclosed to the investors of the AIF. Delegation by the depositary to such prime broker of its custody tasks in accordance with section 26 is allowed if the relevant conditions are met. (i)

(7) The depositary shall be established in one of the following locations:

(a) for EU AIFs, in the home Member State of the AIF;

(b) for non-EU AIFs -

• in the third country where the AIF is established; or

• in the home Member State of the AIFM managing the AIF; or

• in the Member State of reference of the AIFM managing the AIF.

(8) Without prejudice to the requirements set out in subsections (3) to (5), of this section, the appointment of a depositary established in a third country is subject to the following conditions:

(a) in the third country where the depositary is established, the depositaries are subject to prudential regulation and supervision, including minimum capital requirements, which have the same effect as Union law and are effectively enforced;

(b) the third country where the depositary is established is not listed as a Non-Cooperative by the FATF;

(c) the depositary shall, by contract be liable to the AIF or to the investors of the AIF in accordance with subsections (1) to (4) of section 27 and shall expressly agree to comply with section 26;

(d)(i) the competent authorities of the Member States in which the units or shares of the non-EU AIF are intended to be marketed, and, in so far as different, the Commission, as the competent authority of the Republic, as the home Member State of the AIFM, have signed cooperation and exchange of information arrangements with the competent authorities of the depositary; or

(ii) the Commission, as the competent authority of the Republic, where units of the non-EU AIF are intended to be marketed and the competent authorities of the home Member State of the AIFM, in so far as different, have signed cooperation and exchange of information arrangements with the competent authorities of the depositary;

(e)(i) the Member States in which the units of the non-EU AIF are intended to be marketed, and, in so far are different, the Commission, as the competent authority of the Republic, which is the home Member State of the AIFM, have signed an agreement with the third country where the depositary is established which fully complies with the standards laid down in Article 26 of the OECD Model Tax convention on Income and on Capital and ensures an effective exchange of information in tax matters including any multilateral tax agreements; or

(ii) the Commission, as the competent authority of the Republic where units of the non-EU AIF are intended to be marketed, and the competent authorities of the home Member State of the AIFM, in so far are different, have signed an agreement with the third country where the depositary is established which fully complies with the standards laid down in Article 26 of the OECD Model Tax convention on Income and on Capital and ensures an effective exchange of information in tax matters including any multilateral tax agreements.

(9) The Commission, being the competent authority of the Republic, may act in accordance with the second paragraph of paragraph 6 of Article 21 of the Directive 2011/61/EU.

(10) Notwithstanding the provisions of subsection (8), the Commission may, by directive, determine that the prudential regulation and supervision of a third country have the same effect as Union Law and are effectively enforced.

(i) 8(I) of 2015