The IFIA recently published a guidance paper on the safekeeping duties under AIFMD regarding ownership verification and recordkeeping of assets that are not classed as financial instruments that can be held in custody (Other Assets).
AIFMD requires that depositaries are obliged to:
- Verify the ownership of all Other Assets
- Maintain an accurate record of those Other Assets which have been verified as belonging to an AIF (alternative investment fund)
Ownership verification
The ownership verification exercise completed by the Depositary must be based on information or documents provided by the AIF or the AIFM and, where applicable, on external evidence.
The AIFM must provide all relevant information to the Depositary at the beginning of the term of arrangement and on an on-going basis. In addition, the AIFM must ensure third parties provide the Depositary with all relevant information.
A key concern for Depositaries and AIF/AIFMs is to consider what information is sufficient and reliable for the particular class of asset. Appendix III of the guidance paper includes a non-exhaustive list of asset classes and how ownership may be evidenced.
The guidance paper also sets out some practical steps on how to verify ownership and the frequency of such checks. For example for third party deposits, a periodic bank statement provided by the third party bank would assist in the verification of ownership and frequent check.
Record keeping
The Depositary must maintain a record of the Other Assets for which it is satisfied that the AIF/AIFM acting for the AIF holds the ownership.
The record must register the assets and notional value of those assets held in ownership. The Depositary must be in a position to provide a comprehensive and up-to-date inventory of the assets, including notional values, at any time. How this will be achieved depends on internal systems with Depositaries, or administrators engaged for the purposes.
Contributed by Michelle McGrath
