In certain EU jurisdictions like Germany and Denmark, the AIFMD requirement to appoint a depositary under the NPPR rules is 'gold-plated,' meaning it is stricter than in other countries. If a fund is registered for marketing in either of these countries and admits a German or Danish investor, the sponsor must ensure that a depositary has been appointed to provide depositary services in compliance with the AIFMD.
What are depositary services?
A depositary is appointed to protect the interests of investors. Depositary services can be broken down into four elements:
- Cash monitoring – AIFMD Art. 21.7
The depositary is required to monitor cash movements within the fund, including money coming in from investors, payments made to investments, and subsequent returns to investors. - Custody of financial instruments – AIFMD Art. 21.8(a)
Freely transferrable liquid assets, typically listed securities, must be held in a custody account by a custodian. - Safekeeping of other assets – AIFMD Art. 21.8(b)
Non-liquid assets, which generally include anything other than listed securities, must be held on a register by the depositary. The depositary is responsible for maintaining a record of these assets and verifying the fund's ownership. Examples of such assets may include private equity investments, credit instruments, real assets, and derivatives. - General oversight – AIFMD Art. 21.9
The AIFMD also outlines additional oversight responsibilities for the depositary, such as monitoring subscriptions and redemptions, as well as performing NAV calculations.
Other requirements
If a depositary is required pursuant to the NPPR marketing regimes in Germany and Denmark, the AIFM is required to appoint one or more depositaries/custodians to undertake the obligations set out in articles 21.7 to 21.9 of the AIFMD.
Those depositaries or custodians must hold a professional permit to conduct depositary and safekeeping services. They will be required to confirm to the German and Danish regulators that they are fulfilling these obligations.
The jurisdiction of the depositary to be appointed is not stipulated under the German or Danish NPPR regimes, allowing sponsors some flexibility in appointing depositaries from other jurisdictions to fulfill the AIFMD requirements.
How can we help?
Our team is currently collaborating with Paul Hastings to assist with marketing inquiries into the EU and the UK. Zach Milloy, a partner at Paul Hastings, is available to assist with the registration requirements.
We can provide assistance with (a) depositary services and (b) the ongoing regulatory reporting requirements, known as Annex IV reporting.
