Monthly Archives: November 2013

FCA AIFMD Q&A: Depositary Requirements in AIFMD applications

The FCA has published a Q&A on its website clarifying its expectations for variation of permission applications from full-scope AIFMs. In particular the FCA clarifies its position with respect to an AIFM’s depositary arrangements, as follows:

“It is not necessary to provide the contractual agreements themselves, rather details of those arrangements. Firms should be sufficiently advanced in the contracting process to be able to provide the details of a single depositary and to be confident that the arrangements agreed with the depositary will comply with AIFMD. When we receive an application, we may ask to see agreements in place with depositaries.”

The Q&A “strongly advises managers to supply all requested material with the initial submission to ensure that the application process runs as efficiently as possible and avoids potential delays.”

The FCA goes on to state that an AIFM must provide confirmation of contractual relationships with depositaries at least one month before the date on which the AIFM intends to begin managing an AIF. For many EU AIFM, this will therefore be by 21 June 2014 at the latest, since many AIFM are expected to request deferral of their AIFM authorisation until 21 July 2014.

In practice, this Q&A guidance means AIFM should be focussed between now and January 22, 2014 (the FCA’s recommended date for submission of an AIFM’s variation of permission) on selecting their depositary providers. With over 750 offshore hedge funds alone expected to require a depositary-lite solution in order to continue to be marketed post 22 July 2014, there will be capacity constraints in the depositary market and delaying decisions could mean managers run up against these constraints and, as a consequence, be unable to meet the 21 June 2014 deadline.

At INDOS Financial we are already taking on new clients and allocating our expected capacity. Given the volume of funds requiring a solution, we expect to commence on-boarding activities during the period from May to July 2014 in order to on-board clients in a controlled manner and provide managers comfort that they are in compliance with the AIFMD by 22 July 2014.

To assist managers, we have produced a detailed due diligence questionnaire on our operations as well as a manager depositary selection checklist to facilitate a manager’s due diligence (a summary of which may be requested by the FCA as part of its review of applications).

For EU AIFM managing non-EU AIF, multiple providers are allowed to undertake the three core depositary duties of safe keeping of financial instruments (and record keeping of non-custody assets), cash flow monitoring and oversight. Section 9 of the Variation of Permission applications enables managers to set out the different entities that will perform these duties.

The full FCA Q&A can be found by clicking here.

INDOS Financial attracts first AIFMD depositary-lite clients

INDOS Financial, the only independent AIFMD depositary that has applied to the FCA for authorization, has announced provisional contracts with its first clients.  On the basis of its formal FCA authorization now anticipated to take effect in early December, INDOS has already submitted proposals to over 40 alternative investment managers representing some 70 funds with in excess of $15bn of assets. A number of these proposals are starting to bear fruit.

“Managers are now focussed on AIFMD.” says Bill Prew, INDOS Financial CEO. “The FCA’s 22nd January deadline for applications, now only two months’ away, is concentrating their minds on the steps they need to take to be authorized under the AIFMD – particularly action required in order to continue to market their offshore funds to EU investors. Managers and investors alike see the benefits of a flexible, independent depositary-lite solution.”

While the majority of managers of non-EU funds intend to take full advantage of the transitional period to 22nd July 2014, by far the majority of UK managers are expected to submit their applications for authorization to the FCA by 22nd January.  Other regulators such as in Luxembourg and Ireland have followed the FCA’s lead and imposed Q1 deadlines for submission of applications.

Most managers are expected to seek to comply with the depositary-lite requirements of the Directive (which apply where managers want to market non-EU funds to EU investors through private placement) but depositaries are, in many cases, not operationally ready to take on business and proposed operating models and contractual terms remain vague.

“Despite the impending deadlines, some aspects of the implementation of the AIFMD remain unclear,” continues Prew.  “In particular, many managers are concerned about how the Directive’s marketing rules will play out in practice and whether reverse solicitation is a viable business strategy. As a result, managers are looking for credible depositary-lite solutions but many are frustrated with a lack of preparedness on the part of firms to provide such a solution”.

INDOS has also received enquiries from a number of US managers seeking to market their funds into Germany and Denmark. These countries, amongst others, have imposed a depositary-lite requirement in addition to Article 42 of the AIFMD.



INDOS Financial talks to Albourne TV

INDOS Financial’s Bill Prew was interviewed on Albourne TV about the various depositary regimes which apply under the Alternative Investment Fund Managers Directive. Unfortunately the video is only available to Albourne ( clients. Bill covered the different depositary regimes, aspects of private placement and reverse solicitation, the different depositary models emerging and the cost implications for managers. We would be pleased to discuss individually with any manager, hedge fund investor or fund director.