Home / CY AIFM Law of 2013 / PART ΙΙΙ – OPERATING CONDITIONS FOR AIFMs / CHAPTER 4 - AIF Depositary /  Section 27 - Depositary liability.

Depositary liability.

27.-(1) The depositary shall be liable to the AIF or to the investors of the AIF, for the loss by the depositary or a third party to whom the custody of financial instruments held in custody in accordance with paragraph (a) of subsection (3) of section 24 has been delegated.

(2) In the case of such a loss of a financial instrument held in custody, the depositary shall return a financial instrument of identical type or the corresponding amount to the AIF or the AIFM acting on behalf of the AIF without undue delay. The depositary shall not be liable if it can prove that the loss has arisen as a result of an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary.

(3) The depositary shall also be liable to the AIF, or to the investors of the AIF, for all other losses suffered by them as a result of the depositary’s negligent or intentional failure to properly fulfil its obligations pursuant to this Law.

(4) The depositary’s liability shall not be affected by any delegation referred to in section 26. In case of a loss of financial instruments held in custody by a third party pursuant to section 26, the depositary may discharge itself of liability if it can prove that -

(a) all requirements for the delegation of its custody tasks set out in section subsection (1) of section 26 are met; and

(b) a written contract between the depositary and the third party expressly transfers the liability of the depositary to that third party and makes it possible for the AIF or the AIFM acting on behalf of the AIF or to the depositary acting on behalf of the above mentioned AIF or AIFM, to make a claim against the third party in respect of the loss of financial instruments; and (i)

(c) a written contract between the depositary and the AIF or the AIFM acting on behalf of the AIF, expressly allows a discharge of the depositary’s liability and establishes the objective reason to contract such a discharge.

(5) Where the law of a third country requires that certain financial instruments are held in custody by a local entity and there are no local entities that satisfy the delegation requirements laid down in point (ii) of paragraph (d) of subsection (1) of section 26, the depositary can discharge itself of liability provided that the following conditions are met:

(a) the rules or instruments of incorporation of the AIF concerned expressly allow for such a discharge under the conditions set out in this subsection;

(b) the investors of the relevant AIF have been duly informed of that discharge and of the circumstances justifying the discharge prior to their investment;

(c) the AIF, or the AIFM on behalf of the AIF instructed the depositary to delegate the custody of such financial instruments to a local entity;

(d) there is a written contract between the depositary and the AIF or the AIFM acting on behalf of the AIF, which expressly allows such a discharge;

(e) there is a written contract between the depositary and the third party that expressly transfers the liability of the depositary to that local entity and makes it possible for the AIF or the AIFM acting

(i) 8(I) of 2015