The depositary agreement

The depositary agreement (Article 21(2) of the Directive, Article 82 of the Level 2 Regulations)

Unless otherwise required by national law, an AIFM will not need to enter into a specific written agreement for each AIF. It will be possible for the AIFM and the depositary to enter into a framework agreement that applies to a number of AIFs managed by the AIFM.

The Level 2 Regulations specify the matters which must be addressed in the written agreement between the depositary and the AIFM and/or AIF. These matters are extensive, and include the following:

  • a description of the depositary’s services and the procedures for each type of asset of the AIF that is entrusted to the depositary;
  • a description of the way in which safekeeping and oversight is to be performed in accordance with the types of asset and the geographical regions in which the AIF plans to invest;
  • a statement that the depositary’s liability will not be affected by any delegation of its custody functions unless it has discharged itself of its liability in accordance with the Directive requirements;
  • the period of validity and the conditions for amendment and termination of the contract;
  • the confidentiality obligations applicable to the parties;
  • the means and procedures for transmission of information between the depositary and the AIFM or AIF;
  • information on whether the depositary or a sub-custodian may re-use AIF assets and on the conditions of such re-use;
  • the procedures for amending the AIF rules, instruments of incorporation and offering documents;
  • a provision specifying which information must be exchanged between the AIF, the AIFM, any third party acting on behalf of the AIF or AIFM, and the depositary in relation to the sale, subscription, redemption, issue, cancellation and repurchase of units or shares of the AIF and in relation to the performance of the depositary’s oversight and control function;
  • a commitment by each party to provide, on a regular basis, details of any third party appointed and, upon request, information on the criteria used to select the third party and the steps envisaged to monitor the activities of the third party;
  • information on the responsibilities of the parties relating to the prevention of money laundering and terrorist financing;
  • information on all cash accounts opened in the name of the AIF or in the name of the AIFM acting on behalf of the AIF, and the procedures to inform the depositary when any new account is opened;
  • details on the depositary’s escalation procedures;
  • a commitment by the depositary to notify the AIFM when it becomes aware that the segregation of assets is not sufficient to protect a sub-custodian from insolvency;
  • the procedures to ensure that the depositary can enquire into the conduct of the AIFM and/or the AIF and assess the quality of information transmitted (including by accessing the books of the AIFM and/or AIF in on-site visits);
  • the procedures to ensure that the AIFM and/or AIF can review the depositary’s performance of its contractual obligations.