AIFMD (UCITS V) Sub-Custodian & Infrastructure Monitoring

The Alternative Investment Fund Managers Directive (AIFMD) was a regulation adopted by the European Commission in December 2012 and effective from July 2013. The Directive is being transposed into the local laws of each member state, and creates a regulatory and supervisory framework by which alternative investment funds (AIFs) or the fund managers and their appointed depositary (global custodian or other acceptable organisation) must operate. This has created increased pressures on depositary banks since it makes the depositary bank fully liable for the restitution of any losses that occur unless it can be reasonably considered beyond its control.

Key articles of the regulation set out the duties and functions that are expected of the depositary bank and these will require the bank to be increasingly aware of global events and the potential impacts on AIF assets within their custody. Increased vigilance around the safekeeping of such assets, the account structures, segregation, and naming conventions employed for accounts, reconciliation frequencies will all need to be carefully and regularly monitored. Due diligence visits or on-site operational reviews will need to be performed with increased structure and regularity. The option for remote due diligence through telephone and video conferencing or using visits by sub-custodian relationship managers to a depositary bank’s offices could be potentially deemed as insufficient and undoubtedly increases the level of risk on the depositary.

As a consequence such depositary banks are looking for alternative ways of supporting their existing network teams and operational compliance to the AIFMD through the use of third party organisations such as Thomas Murray Data Services which has been providing support to network management groups for over 12 years.

Thomas Murray Data Services delivers the following services as part of its Sub-Custodian Monitoring service:

  • Proprietary Sub-Custodian Risk Assessments - Covering four key risks Financial Risk, Asset Safety Risk, Asset Servicing Risk and Operational Risk are maintained on c230 sub-custodians worldwide
  • Sub-Custodian Capability Assessment Reports - Complimentary to the Sub-Custodian Risk Assessments are reports covering the operational capabilities of the c230 banks covering Settlements, Safekeeping, Income, Corporate Actions, Tax, Cash Management and Securities Lending where applicable
  • On Site Operational Reviews - Covering over c90 markets globally TMDS staff visit around 35-45 markets annually on a rolling 2 year conduct an on-site operational reviews through a structured process providing the ability to validate risk and operational service elements
  • Customised Call Reports - Customised call reports on a Depositary’s appointed local agent bank
  • Call reports for visits to the local capital market infrastructure groups - As part of our on-site visits programme we look to meet with the stock exchange, market regulators, CSD and central bank wherever possible. The output from these visits will be a call report, per entity, detailing current development issues along with key facts
  • Surveillance - Providing regular updates of the sub-custodians financial reporting and other material changes affecting its custody services
  • Issuance of an annual structured risk based questionnaire - An annual questionnaire is issued on each depositary bank’s behalf to each of its appointed sub-custodians capturing the representations they make. This risk based questionnaire is issued electronically using specialist tools developed by TMDS and includes c150 key questions designed to support the risk assessments and the on-site operational reviews. Clients can add additional questions, as required, to the questionnaire (e.g. to support internal or external regulatory requirements)
  • Access to the questionnaire responses - Through access to TMDS’ technology platforms a depositary can access the responses to the generic and client questions for each appointed sub-custodian.

Note: TMDS can cover the underlying sub-custodian network where groups use a global custodian(s), ICSD(s) and/or other securities settlement intermediary. This is managed by issuing the questionnaire to the appointed entity.

Download the AIFMD and UCITS V brochure.


If you would like to purchase this service, or find out more about it, please contact Derek Duggan at dduggan@ds.thomasmurray.com or telephone him on +44 (0) 20 8600 2300.