CBI sets out intention to create real assets depositary regime for AIFs

A notice of intention (5-page / 213KB PDF) to create the new 'real assets' or 'specialised depositary' regime has been published by the CBI, setting out its proposed regulatory framework for these types of entities. It is seeking feedback on its proposals until 15 January 2019.

"This announcement by the Central Bank is a welcome development, and will help facilitate the growth of private equity and real asset funds in Ireland," said investment funds expert Gayle Bowen of Pinsent Masons, the law firm behind Out-Law.com.

Under the EU's Alternative Investment Fund Managers Directive (AIFMD), AIFMs must appoint a depositary for each AIF that they manage. Depositaries, which include credit institutions, investment funds and other institutions, are responsible for cash management, safekeeping of assets and general oversight of the AIF.

Regulation 22(3) of Ireland's AIFM Regulations sets out the categories of entities which may be appointed as AIF depositaries in Ireland, which include credit institutions, investment firms and certain entities authorised under the 1995 Investment Intermediaries Act (IIA). The regulations also give the CBI the power to allow other types of depositary for certain closed-ended AIFs which generally do not invest in assets that must be held in custody. The CBI's AIF rulebook does not currently provide for this category of depositary.

The CBI is now proposing to make provision in its AIF rulebook for a new category of 'real asset' depositary, to be appointed to AIFs which primarily invest in assets which are not capable of bring registered or held in an account directly or indirectly in the name of the depositary. These assets could include title deeds, and other types of physical assets which are not exchange-traded and are therefore not 'financial instruments' which are capable of being held in custody.

The notice of intention also sets out the regulatory requirements which the CBI intends to impose on real asset depositaries. These include the non-waivable requirements for depositaries set out in the AIFM Regulations with regards to safekeeping and oversight.

"It will be of particular importance that the entity applying for authorisation can clearly demonstrate to the Central Bank it has effective policies and procedures to ensure the depositary oversight role is carried out," the CBI said. "In this regard, it should clearly explain to the Central Bank how it has the necessary systems access to effectively oversee the AIFM and any of its delegates, particularly those which are appointed to carry out fund administration or portfolio management."

Entities will also be required to seek authorisation under the IIA, and to comply with the majority of the conditions set out in chapter 5 of the AIF rulebook. These include requirements to demonstrate appropriate expertise and experience to carry out the depositary tasks, and sufficient resources and adequate governance arrangements; minimum capital requirements; and a requirement that at least two directors of the depositary are Irish residents.

The CBI is inviting applications from firms wishing to act as a real asset depositary. It will consider any applications in line with the provisions set out in the notice of intention.