Depositary obligations relating to cash-flow monitoring

Depositary obligations relating to cash-flow monitoring (Article 21(7) of the Directive, Articles 85 and 86 of the Level 2 Regulations)

As part of its obligations relating to cash-flow monitoring, the depositary must ensure that payments made by or on behalf of investors and those received for the benefit of investors are booked in segregated accounts opened in the name of the AIF (or AIFM or depositary acting on behalf of the AIF) at a central bank, an EU authorised bank or a non-EU authorised bank. It falls on the AIFM to ensure that the depositary is provided with all relevant information it needs to comply with this obligation. To ensure that the depositary has access to information regarding the AIF’s cash accounts and an overview of all the AIF’s cash flows, the depositary must:

  • be informed, upon its appointment, of all existing cash accounts opened in the name of the AIF, or in the name of the AIFM acting on behalf of the AIF;
  • be informed at the opening of any new cash account by the AIF or by the AIFM acting on behalf of the AIF;
  • be provided with all information related to the cash accounts opened at a third party entity, directly by those third parties.

The depositary’s cash-flow monitoring obligations also require it to:

  • implement effective procedures to reconcile all cash-flow movements and perform such reconciliations on a daily basis or, in the case of infrequent cash movements, when such cash-flow movements occur;
  • implement appropriate procedures to identify at the close of each business day significant cash flows, and in particular those which could be inconsistent with the AIF’s operations;
  • review periodically the adequacy of those procedures, including through a full review of the reconciliation process at least once a year, and ensure that the cash accounts opened in the name of the AIF, or in the name of the AIFM or depositary acting on behalf of the AIF, are included in the reconciliation process;
  • monitor the outcomes of the reconciliations and actions taken as a result of any discrepancies identified by the reconciliation procedures, and notify the AIFM if an irregularity has not been rectified without undue delay, as well as the competent authorities if the situation cannot be clarified and/or corrected;
  • check the consistency of its own records of cash positions with those of the AIFM (which the AIFM must provide to the depositary for this purpose).