Depositary obligations relating to ownership verification
In respect of assets which do not constitute financial instruments that can be held in custody, the depositary must verify the ownership of the AIF (or the AIFM acting on behalf of the AIF) of such assets and maintain a record of those assets for which it is satisfied of such ownership. This ownership assessment must be based on information or documents provided by the AIF or the AIFM and, where available, on external evidence. The depositary must also ensure that it keeps its records relating to this assessment up to date.
The AIFM is under a separate obligation to provide the depositary, and to ensure relevant third parties provide the depositary, with all relevant information the depositary needs to comply with its ownership verification obligations.
The arrangements relating to ownership verification and related record-keeping must be such that:
- the depositary can access without undue delay all relevant information it needs in order to perform its ownership verification and record-keeping duties;
- the depositary possesses sufficient and reliable information for it to be satisfied of the AIF’s ownership, or of the ownership of the AIFM acting on behalf of the AIF, in respect of the assets;
- the depositary maintains a record of those assets for which it is satisfied that the AIF (or the AIFM acting on behalf of the AIF) holds the ownership. For this purpose, the depositary must register the relevant assets in its records in the name of the AIF, and must be able to provide, at any time, a comprehensive and up-to-date inventory of the AIF’s assets. Accordingly, the depositary must ensure that it (or a sub-custodian) is informed of any assignment, transfer, exchange or delivery of registered assets, and that relevant third parties provide the depositary with documentary evidence every time a transaction in assets occurs, and at least once a year.
The depositary must also ensure the AIFM implements appropriate procedures to verify that the assets acquired by the AIF it manages are appropriately registered in the name of the AIF or in the name of the AIFM acting on behalf of the AIF, and to check the consistency between the positions in the AIFM’s records and the assets for which the depositary is satisfied of the ownership of the AIF (or the AIFM acting on behalf of the AIF). The AIFM must ensure that all instructions and relevant information relating to the AIF’s assets are sent to the depositary, so that the depositary is able to perform its own verification or reconciliation procedure.
The depositary must implement an escalation procedure for situations where an anomaly is detected, including notification of the AIFM and of the competent authorities if the situation cannot be clarified and/or corrected.
The depositary’s duties above apply on a look-through basis to underlying assets held by financial and/or legal structures controlled directly or indirectly by the AIF (or the AIFM acting on behalf of the AIF), although they do not apply to fund-of-funds structures or master-feeder structures where the underlying funds have a depositary which provides ownership verification and record-keeping functions for these funds’ assets.