Over the past few decades, the Irish depositary market has experienced substantial growth and development, with an increasing number of providers offering services to a wide variety of regulated...
6. Public Consultation Questions - Discretion 3
Discretion 3 - Article 1(10) of Directive (EU) 2024/927
Article 1(10) of Directive (EU) 2024/927 amends Article 21(5) of Directive 2011/61/EU by inserting the following paragraph:
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(10) Article 21 is amended as follows: (a) the following paragraph is inserted: ‘5a. By way of derogation from paragraph 5, point (a), the home Member State of an EU AIF may permit its competent authorities to allow an institution referred to in paragraph 3, first subparagraph, point (a), and established in another Member State to be appointed as a depositary provided that the following conditions are fulfilled: (a) the competent authorities have received a reasoned request from the AIFM to allow the appointment of a depositary established in another Member State and that request demonstrates the lack of depositary services in the home Member State of the AIF that are able to meet effectively the needs of the AIF having regard to its investment strategy; and (b) the aggregate amount in the national depositary market of the home Member State of the AIF of assets entrusted for safe-keeping, as referred to in paragraph 8 of this Article, on behalf of EU AIFs authorised or registered under the applicable national law in accordance with Article 4(1), point (k)(i), and managed by an EU AIFM does not exceed EUR 50 billion or the equivalent in any other currency. Assets entrusted for safe-keeping by depositaries acting under Article 36(1), point (a), and the own assets of depositaries shall not be taken into account for the purpose of determining whether the condition laid down in the first subparagraph, point (b), of this paragraph is met. Notwithstanding the conditions laid down in the first and second subparagraphs being met, the competent authorities shall allow the appointment of a depositary established in another Member State only after carrying out a case-by-case assessment of the lack of relevant depositary services in the home Member State of the AIF having regard to the investment strategy of the AIF. Where the competent authorities allow the appointment of a depositary established in another Member State, they shall inform ESMA thereof. This paragraph shall be without prejudice to the application of the other paragraphs of this Article, with the exception of paragraph 5, point (a).’ |
A depositary is an independent third party that is responsible for the safekeeping of assets of the AIF. The responsibility for appointing the depositary rests with the AIF or another entity acting on behalf of the AIF. However, the AIFMD requires that the AIFM must ensure that a single depositary is appointed for each AIF it manages. Furthermore, the AIFMD requires that the depositary should be located in the same Member State as the appointing EU AIF.
Article 1(10) of Directive (EU) 2024/927 provides for a discretion under which a Member State may permit its competent authorities to allow the appointment of a depositary established in another Member State, subject to the following conditions:
- the competent authorities must receive a reasoned request from an AIFM demonstrating the lack of depositary services in the home Member State of the AIF that are able to meet effectively the needs of the AIF; and
- the aggregate amount in the national depositary market of the home Member State of the AIF of assets entrusted for safe-keeping on behalf of EU AIFs, and managed by an EU AIFM, does not exceed € 50 billion.
In addition to fulfilling these conditions, the competent authority is required to carry out a case-by-case assessment of the lack of relevant depositary services in the home Member State of the AIF before allowing the appointment of a depositary established in another Member State.
As set out in Recital (40), this discretion is intended to address situations where the lack of depositary service providers in smaller, more concentrated markets may inhibit the growth of the investment funds sector in that Member State. However, as there are a number of specialised depositary service providers located in Ireland, servicing Irish authorised funds as well as certain non-EU AIFs, Irish-domiciled AIFs have not faced such challenges.
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Question 3. a) Given the conditions attached to this derogation, can you foresee any circumstances in which this power could be exercised? b) What are the benefits, costs, risks, etc., of exercising this discretion? |
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