Home / CY AIFM Law of 2013 / PART ΙΙΙ – OPERATING CONDITIONS FOR AIFMs / CHAPTER 4 - AIF Depositary /  Section 26 - Delegation of duties by the AIF depositary to third party.

Delegation of duties by the AIF depositary to third party.

26.-(1) The depositary may delegate to third parties only the functions referred to in subsection (3) of section 24, subject to the following conditions:

(a) the functions are not delegated with the intention of avoiding the requirements of this Law;

(b) the depositary can demonstrate that there is an objective reason for the delegation;

(c) the depositary has exercised all due skill, care and diligence in the selection and the appointment of any third party to whom it wants to delegate parts of its tasks, and keeps exercising all due skill, care and diligence in the periodic review and ongoing monitoring of any third party to whom it has delegated parts of its tasks and of the arrangements of the third party in respect of the matters delegated to it; and

(d) the depositary ensures that the third party meets the following conditions at all times during the performance of the tasks delegated to it:

• the third party has the structures and the expertise that are adequate and proportionate to the nature and complexity of the assets of the AIF or the AIFM acting on behalf of the AIF which have been entrusted to it;

• for custody tasks referred to in paragraph (a) of subsection (3) of section 24, the third party is subject to effective prudential regulation, including minimum capital requirements, and supervision in the jurisdiction concerned and third party is subject to an external periodic audit to ensure that the financial instruments are in its possession;

• the third party segregates the assets of the depositary’s clients from its own assets and from the assets of the depositary in such a way that they can at any time be clearly identified as belonging to clients of a particular depositary;

• the third party does not make use of the assets without the prior consent of the AIF or the AIFM acting on behalf of the AIF and prior notification to the depositary; and

• the third party complies with the general obligations and prohibitions set out in subsection (3) of section 24 and section 25.

(2) Notwithstanding point (ii) of paragraph (d) of section (1), where the law of a third country requires that certain financial instruments be held in custody by a local entity and no local entities satisfy the delegation requirements laid down in that point, the depositary may delegate its functions to such a local entity only to the extent required by the law of the third country and only for as long as there are no local entities that satisfy the delegation requirements, subject to the following requirements;

(a) the investors of the relevant AIF must be duly informed that such delegation is required due to legal constraints in the law of the third country and of the circumstances justifying the delegation, prior to their investment; and

(b) the AIF, or the AIFM on behalf of the AIF, must instruct the depositary to delegate the custody of such financial instruments to such local entity.

(3) The third party may, in turn, sub-delegate some or all of those functions to another party, provided that the sub-delegation is subject to the same requirements as the initial delegation. In such a case, subsection (4) of section 27 shall apply mutatis mutandis to the relevant parties.

(4) For the purposes of subsections (1) to (3) of this section, the provision of services as specified by the Settlement Finality in Payment Systems and Securities Settlement Systems Laws of 2003 to 2011, as designated for the purposes of that Law or the provision of similar services by third-country securities settlement systems shall not be considered a delegation of its custody functions. (i)

(i) 8(Ι) of 2003, 118(Ι) of 2006, 99(Ι) of 2011, 145(Ι) of 2012.