Depositaries under the AIFMD. Latest industry developments

Transcription

1 Depositaries under the AIFMD Latest industry developments

2 Contents Introduction 3 1. Application of the look-through principles 4 a. Look-through principle and notion of control 5 b. Look-through principle for parallel investment structures 6 c. Look-through of financial instruments 7 d. Ownership verification and look-through on local markets 8 e. Current challenges 8 2. Cash flow monitoring 9 a. Cash flow monitoring at the level of SPVs 10 b. Cash flow reconciliation models Oversight duties 12 a. Set-up of oversight activities 13 b. Oversight of group internal entities 15 c. Oversight at investment acquisition Shared services Hot topics and current challenges 19 Conclusion 21

3 Introduction The function of the depositary is undoubtedly one that has been impacted most by the Alternative Investment Fund Managers Directive (AIFMD). Indeed, the regulation and associated industry guidance and standards have introduced a number of requirements forcing depositaries to considerably revamp their operating models and implement new processes in an effort to become compliant and remain competitive. Four years after the implementation of the AIFMD, depositaries are still facing significant challenges, notably with regards to the best-practice interpretation of certain ambiguities in the regulation. Such topics have given grounds to hosting this year s depositary roundtable in order to continue our discussion and foster knowledge sharing in the market. Areas of discussion were, among others: Given this context, EY Luxembourg invited 15 representatives of depositaries in March 2017 to discuss their current organizational and operational set-up with a focus on recent and targeted developments, as well as to benchmark their interpretations of AIFMD requirements. Among the participants were local banks, global banks and special depositaries (PFS). This paper summarizes the outcome of the roundtable discussion and aims at providing insights into current market practices for depositaries in Luxembourg when it comes to their duties under the AIFMD. i. Application of the look-through principle ii. Cash flow monitoring, especially at different levels of investment structures iii. Oversight duties iv. Reliance on shared services Depositaries under the AIFMD 3

4 1 Application of the lookthrough principles 4 Depositaries under the AIFMD

5 a. Look-through principle and notion of control Since the introduction of the AIFMD, the safekeeping duties of the depositaries are extended to cover target investments of an Alternative Investment Fund (AIF) held through legal or financial structures (e.g., a special-purpose vehicle (SPV) or a series of SPVs). The so-called look-through principle is applicable for other assets which include illiquid asset classes such as private equity (PE) and real estate (RE) as well as for traditional custodial assets. While the concept of the look-through principle has been widely discussed in the industry, there is little definite guidance on the market. The applicability of the look-through provisions, in particular the notion of control, remains highly subjective. Most depositaries have now defined internal rules and procedures for identification of target investments. In the context of deciding on the application of the look-through principle, the majority of roundtable participants perform their own depositary analysis. Few players partially rely on the information provided by the AIFM but nevertheless challenge the work performed and the definition of control applied by the manager. Regardless of the chosen set-up, the participants have highlighted unanimously the importance of assessing the concept of control not only through established quantitative accounting principles (i.e., ownership control) but also through a qualitative analysis where such factors as voting control, the rights to exercise dominant influence and the right to appoint/ terminate appointment of the members of the supervisory body of the SPVs are considered. This approach is consistent with the AIFMD FAQ issued by the Luxembourg supervisory body, the CSSF (Commission de Surveillance du Secteur Financier), where it is highlighted that the definition of controlled entity is a matter of professional judgement and will depend on the specific structure in question. Furthermore, the participants agreed that a thorough analysis of the look-through provisions for a specific AIF must be done at the onboarding stage to evaluate the extent of work required going forward to fulfill depositary obligations. This assessment may have direct impacts on the fees applied throughout the client relationship. Are you relying on the information provided by the AIFM to decide on the application of the look-through principle? 18% Yes, fully rely on information provided Yes, partially rely on information provided and challenge work performed No, performing your own depositary analysis 55% 27% Depositaries under the AIFMD 5

6 b. Look-through principle for parallel investment structures Parallel investment vehicles are fund constructs where a European Union AIF invests alongside a non-eu fund structure (that is managed outside the EU and is not in scope of the AIFMD) in order to accommodate EU investors. Typically, the EU AIF s share of the overall underlying portfolio is between 10% and 15%. The application of the look-through principle for an EU depositary seems unclear at a first glance, as one can argue that the EU AIFM managing a parallel EU AIF does not exercise control over the underlying target investments. However, looking at the wider scope, the same investment manager typically controls the overall structure (the main non-eu fund and the parallel EU AIF). The sole purpose for structuring the parallel EU AIF is typically to accommodate the European investors. The parallel AIF generally invests alongside the main fund in fixed proportions based on the capital commitments. From this perspective, the control is exercised at the level of the investment manager (or sometimes investment advisor) and not at the level of the EU AIF and the EU AIFM. Should the depositaries of the EU AIFs apply the look-through principle? The majority of surveyed depositary banks (73%) do apply the look-through principle in such instances even if the actual percentage holding would not qualify as control at the level of the EU AIF/EU AIFM. In this scenario, the depositary would rely on the concept of indirect control or management control to justify their application of the look-through principle. The extent to which an entity within the non-eu structure (for instance an entity to whom Portfolio Management has been delegated or an Investment Advisor) can influence investment decisions of the EU AIF is also considered as part of the depositary analysis. The parallel fund structures highlight once more that the application of the look-through principle is not a straightforward process. In many instances substantial assessment must be made that includes a thorough understanding of the investment structure and the investment objectives of the AIF. Such assessment requires a right level of technical knowledge. Application of pure quantitative criteria for identification of the control may expose the depositary to risk of underestimating their safekeeping obligations. In instances where a parallel EU AIF invests alongside a non-eu fund structure (that is managed outside the EU and is not in scope of the AIFMD), how do you apply a look-through principle and the notion of control? 27% 73% Look through to the underlying investments considering overall control exercised bu the EU AIF and non-ey structure No look-through principle applies since the EU AIF individually does not control the underlying asset 6 Depositaries under the AIFMD

7 c. Look-through of financial instruments Another common question on the market is the application of the look-through principle for custodial assets. Similarly, to other assets, the depositary s safekeeping obligations for custodial assets (i.e., transferrable financial instruments capable of being held in custody) apply on a look-through basis. Furthermore, for those types of assets, the depositary is subject to strict liability under the AIFMD. The question is increasingly raised in instances where an AIF that would typically only invest in illiquid asset classes (e.g. PE/RE) also happen to hold for a number of reasons (e.g., in the case of more and more hybrid fund structures which are not pure PE or RE) a financial instrument, such as a stock or a bond, at the level of an SPV. In this context, the depositary of the AIF must define its safekeeping obligation and the critical question is whether such financial instruments shall be held in custody. Depositaries that are part of a banking group with a well-established sub-custody network tend to require such financial instruments to be placed in an account of one of their existing sub-custodians. This allows to leverage off the existing safekeeping procedures and eliminate the need to perform additional due diligence (DD) on a new sub-custodian. In order to establish a certain level of control and verification procedures over the financial instrument held by a third party, the depositary would typically look to engage in a tri-party contractual agreement between the AIF/AIFM, the depositary and third party (sub-)custodian defining the reporting schedule and information arrangements. Some depositaries even argue that, on a risk-based approach, they would not onboard such fund structures because they would not have sufficient means to control the financial assets held at a third party entity and, hence, will not be able to guarantee the fulfillment of their depositary obligations under the AIFMD. The majority of participants confirmed that they would indeed classify such financial instrument at the level of an SPV as being held in custody with the strict liability regime attached. The depositary would have to hold the financial instrument in custody itself in the account opened in the depositary s books or, alternatively, delegate the safe-keeping to a sub-custodian. Depositaries under the AIFMD 7

8 d. Ownership verification and lookthrough on local markets When performing periodic ownership verification on local markets to ensure the safekeeping of non-liquid assets in different locations, more than half of the participants (55%) perform such review in-house. Oftentimes the depositaries rely on a combination of desktop analysis (i.e., AIF structure, AIFM documentation, review of publicly available information such as official land registers, etc.) and support from service hubs within the group and local advisors. External support is mostly required where there is an important language barrier. What is your model when performing periodic ownership supervision/look-through on local markets to ensure safekeeping of non-liquid assets in different locations? e. Current challenges Once the depositary has clearly established internal guidelines and processes for the application of the look-through principle, it faces both the challenge of justifying the requirement to non-eu fund managers not familiar with the AIFMD requirements and remaining competitive in the advent of increased fee pressures and a higher workload associated with the application of the look-through principle. Discussions with clients as well as internal initiatives aiming to streamline application of the look-through principle across different locations can be ambiguous and difficult. Participants have further highlighted the importance of raising awareness of the risk that an improper application of the lookthrough principle could generate in the market to counterbalance commercial pressures. Considering the ultimate liability for safekeeping of assets remains with the depositary, the participants advocate a risk-based approach for on boarding new clients with complex structures and/or look-through considerations. In certain cases, where the application of the look-through provisions is highly debatable, the work associated is not justified by fees or the manager is not willing to provide the depositary with the right level of information for exercising the look-through principle, the client relationship will not be taken forward. 27% 18% 55% When discussing the market awareness with regards to the application of the look-through provisions, the participants have acknowledged that the majority of fund managers operating in Luxembourg have a good understanding of the responsibilities of the depositary in relation to the look-through principle (backed oftentimes by the similar advice provided by their lawyers) and are generally willing to provide all necessary information to their depositaries. Performed in-house (Luxembourg) Outsourced to service hubs within the group Other 8 Depositaries under the AIFMD

9 2 Cash flow monitoring Depositaries under the AIFMD 9

10 a. Cash flow monitoring at the level of SPVs The introduction of cash flow monitoring requirements in the context of the AIFMD and recently UCITS V (Undertakings for Collective Investment in Transferable Securities) has placed a significant burden on the depositary s operations. Indeed, the need to perform daily reconciliation of cash-flows on an ex-post basis (or at least upon occurrence for less frequent cash flows) as well as identification of any significant and/or inconsistent cash flows has greatly increased the volume of daily controls - even more so for UCITS funds, as unanimously confirmed by participants. The increased workload associated with the cash flow monitoring procedures has also highlighted the need for considerable IT investments in search of appropriate tools to deal with cash flow identification and monitoring. Proprietary developed tools as well as solutions from specialized IT providers are both considered. Unlike the application of the look-through principle, the application of cash flow monitoring requirements is more prescriptive within the AIFMD, i.e., depositaries are required to perform cash-flow monitoring solely at the level of the AIF. Nevertheless, the depositary, as part of its safe-keeping obligations, needs to have a full understanding of the holding structure of the AIF and its assets, including cash. Cash accounts held at the level of SPVs also belong to the AIF and those are covered under the safekeeping obligations of the depositary. Using a risk-based approach, it would thus be considered prudent for the depositary to extend the cash flow monitoring controls (to a certain degree) to the entire AIF structure, even if alleviated in terms of frequency and level of controls. With the exception of one participant who has established a daily cash flow monitoring practice for cash accounts at the level of SPVs by means of automatic Swift notifications, most depositaries do not perform a fully-fledged cash flow monitoring as described in article 86 of the delegated regulation on cash accounts held at the level of SPVs. It has been proposed during the roundtable discussion, that the regular review of cash positions at the level of SPVs as well as monitoring investment and financing related cash-flows up/down the structure should be sufficient to monitor and safe-keep such cash holdings. Operationally, monitoring cash accounts down the AIF s structure is not easy to achieve due to the scarcity of information available. Continually, those cash accounts are held at a third party bank and in the name of the SPV which means the depositary of the AIF has typically a limited access to the information. It is then the responsibility of the AIFM to structure the cash accounts in such a way, that at all times the depositary has sufficient information to perform its cash monitoring/ safekeeping controls. As part of the onboarding process and in the event the new cash accounts are opened at SPV level, the depositaries may require access to the bank accounts of the SPV (online or Swift access). The depositary would then look at the accounts periodically, check the balances and perform spot checks on certain (large) cash movements. They would further corroborate these findings with the financial statements of the SPV. The nature of the cash flow monitoring (ex-post) entails that the issue may not be detected on the day of occurrence but may be detected at, for example, a quarter end when the cash monitoring controls at the level of SPV are performed. Regardless of when the issue is detected, an ex-post remediation may be required and depending on the nature of the issue, the frequency of the cash flow monitoring controls at the level of SPV may be increased. 10 Depositaries under the AIFMD

11 b. Cash flow reconciliation models Cash flow reconciliation obligations imposed on the depositaries, while well understood, are nonetheless frequently discussed on the market due to the workload and time effort involved. Since inception of the AIFMD, different operational set-ups have evolved with regards to the cash flow reconciliation process. The question is whether the reliance on the central administrator is possible and to what extent. The majority of participants (over 70%) confirmed that the reconciliation is performed by the depositary itself or by an intra-group depositary service hub in another location. The remaining participants leverage off the reconciliation process performed by the central administrator. In such set-up, the depositary will perform a thorough DD on the cash reconciliation process of the administrator, being it a group affiliate or a third party administrator. Irrespective of the cash flow reconciliation model chosen, the final review of the cash reconciliation breaks is performed by the depositary in Luxembourg. Upon the identification of an unreconciled item, it encumbers upon the depositary to ensure the latter is appropriately notified to the AIFM using pre-defined escalation channels and remedied in due time. Who performs reconciliation within your cash flow monitoring process? 27% 36% Depositary in Luxembourg itself 36% Central Administrator (with final review performed by Depositary in Luxembourg) Depositary service hub in other location (with final review performed by Depositary in Luxembourg) Depositaries under the AIFMD 11

12 3 Oversight duties 12 Depositaries under the AIFMD

13 The AIFMD has introduced the concept of oversight duties as one of the key functions of the depositary. The depositary is supposed to take on an active role in monitoring the activities of the AIFM and its compliance with regulatory requirements. Within this context, the depositary is required to perform both initial and periodic controls on the key processes of the AIFM and its appointed service providers. Even though fund industry associations such as ALFI (Association of the Luxembourg fund Industry) have established guidelines on oversight duties, the market is still lacking a harmonized framework in terms of practical oversight activities. Indeed, the depositaries confirmed that oversight responsibilities is one of the hot topics of the year ahead. What is your approach in performing oversight over the AIFMs and service providers? 10% a. Set-up of oversight activities In accordance with AIFMD requirements, the depositary cannot delegate any of its functions other than safekeeping to third parties. The oversight responsibilities are included in nondelegated activities. The majority of the participants (90%) confirmed the performance of all related oversight processes in-house by the depositary itself. Nonetheless, several participants (10%) are leveraging on service hubs within the group. It is notable that leveraging the service hubs resources should not constitute a delegation arrangement within the meaning of the AIFMD. The responsibility for all oversight processes is retained by the depositary, including the final review and sign off, while the service hub provides operational support to certain parts of the oversight processes. The lack of a harmonized oversight framework can also be observed with regards to depositaries approach in determining the oversight frequency. While half of the depositaries perform the oversight at the same frequency for all AIFMs/service providers, close to 20% determine the frequency using a riskbased approach (with a fixed minimum frequency). Another 20% consider a desk top review to be sufficient in some cases. Factors taken into account when defining the oversight frequency include the depositary s comfort in the level of DD performed by the AIFM on its service providers, the information/ documentation provided and the accuracy of such information, the historical relationship with the client as well as the outcome of the last DD review. 90% Performed in-house (Luxembourg) Performed within the group at the service hubs Depositaries under the AIFMD 13

14 In order to design their due diligence questionnaire and define a list of controls to be tested, depositaries partly rely on controls reports (e.g., ISAE) to facilitate the oversight tasks and controls. However, instances where a controls report covers all aspects in scope of the depositary s due diligence are rare, and thus depositaries tend to supplement the review of the control report by spot-checks and their own control testing. Apart from pure client acceptance and client continuance purposes, the due diligence process remains a way for depositaries to familiarize themselves with the client s processes. Therefore, even if the control report that includes an exhaustive list of all relevant controls were to exist, the depositary would still carry out their own due diligence to a certain degree. The need for regular on-site visits underpinned another topic of the roundtable discussion. While some depositaries had to re-onboard their existing clients as part of their AIFMD initiative and performed initial on-site visits to all existing clients as part of this exercise, others make use of desktop reviews and perform on-site visits solely on a selective basis. Large depositary groups highlighted the possibility to integrate the DD function within their EMEIA practice, leveraging on DDs and on-site visits performed by other offices and performing their periodic review as a combined effort between involved offices. Others still question the need for on-site visits with pre-existing clients all together. Do you perform onsite visits to all service providers and AIFMs that fall under your oversight responsibility? 20% 20% 10% 50% Yes, at the same frequency for all service providers within the same category Yes, at the frequency following risk based approach Desk top review for some service providers is sufficient Other model 14 Depositaries under the AIFMD

15 b. Oversight of group internal entities The AIFMD does not foresee a different approach for the oversight of group affiliated entities (e.g., in-house central administrator), thus counterbalancing the historical tendency of large groups to be less rigorous in their DD on group entities. If your group, apart from depositary services, offers AIFM or central administration services, what are the consequences for your oversight and due diligence responsibilities? In light of the above, depositaries generally apply the same oversight process regardless of whether they are reviewing a group entity or an external service provider. In practice however, the due diligence on a group entity can be far easier and less time consuming given the familiarity with their processes and better access to documentation. Furthermore, in instances where a group entity provides services to numerous depositary clients (e.g., central administration services), the depositary is able to cover the majority of their clients through one DD on their affiliated group, entity while for external service providers the marginal effort is more important. Nevertheless, synergies do not imply that the depositary would lessen the degree of control; at the contrary, they are typically more familiar with the weaknesses of the affiliated group entity and are able to go one step further in their DD. 18% 9% 9% 64% Intra-group oversight is treated the same as the oversight performed on the external parties Following risk based approach, intra-group oversight is less burdensome (e.g. less frequent, different content) Intra-group oversight is partially performed by the internal audit function and hence less demanding Based on independence and good governance considerations, intra-group oversight is more demanding Depositaries under the AIFMD 15

16 c. Oversight at investment acquisition As part of its oversight duties, the depositary is required to ensure that the activities of the AIFM are in line with applicable regulations as well as the investment policy of the AIF. This includes the verification of the eligibility of investments on the basis of the investment policy and investment restrictions laid out in the fund prospectus. However, once again, the regulation leaves service providers with a big question mark as to how to apply the provision in practice. Indeed, the depositaries approach in conducting oversight checks at the investment acquisition of non-liquid assets varies greatly among service providers. What is your approach in conducting oversight checks at the investment acquisition of nonliquid assets? 18% 9% 73% Purely ex-post controls Ex-ante review and ex-post validation Other Given the illiquid nature of the investments, most participants (73%) conduct an ex-ante review of potential investments based on the draft documentation provided by the AIFM. The importance of the timely provision of information and the need to define communication channels with the AIFM in the service level agreements were highlighted as topical issues. About half of the participants have the possibility of employing a veto right over the potential transaction prior to deal closure. This right is particularly relevant where the bank accounts of the fund are also held at the depositary bank and the latter has the possibility to block an outgoing payment. This is further aligned with the requirement to understand and evidence outgoing cash flows impeding on the banks. As such, depositary controls and cash controls on the banking side are becoming increasingly intertwined. However, the veto right is not to be taken lightly as wrongfully blocking a payment could have detrimental consequences on the AIFM depositary relationship. It is highly debatable whether improper exercising the veto right over a transaction may lead to potential legal consequences and financial liability imposed on the depositary. Therefore, some depositaries retain a possibility of enforcing such a right as an option of last resort but in practice have to-date not yet imposed their veto and if information flow works between the AIFM and depositary should not need to use it going forward. Where the accounts are held with an external bank however, the practicality of the veto right becomes less pertinent. In this scenario, the depositary still requires a pre-notification of investment transaction from the client and perform a certain level of ex-ante investment transaction controls. However, it is practically not possible to impose a veto right in such cases meaning that the depositary often have to resort to ex-post controls. 16 Depositaries under the AIFMD

17 4 Shared services Depositaries under the AIFMD 17

18 With regard to the duties of a depositary, the AIFMD clearly distinguishes between tasks which can make use of sub delegation and tasks that need to be completed by the depositary itself. Evidently, only the duty of safekeeping can be fully delegated under the AIFMD to third parties. Nonetheless, the market is currently leaning towards optimization of resources and streamlining the depositary s processes where relevant. This is especially true with large depositary banks operating from different hubs in Europe. Deployment of group resources can provide economy of scale and cost saving benefits. It is nowadays common for large depositaries to set up a center of excellence/shared services hub in one European location where supporting processes for other locations are performed. In this context, the depositaries confirmed the possibility of reliance on shared services in locations outside of Luxembourg for the performance of certain tasks and processes. In fact, only 30% of participants perform the full scope of services solely from Luxembourg. When it comes to the selection of processes to be centralized under a shared services arrangement, those typically include 1) safekeeping (through a centralized sub-custody network management function and periodic ownership verification supporting processes for other assets) and 2) supporting tasks and processes for the functions that cannot be delegated within the meaning of the AIFMD (i.e., cash flow monitoring and oversight duties). Supporting tasks and processes may include among others, pre-filtering of cash flows, identifying cash reconciliation breaks, supporting due diligence over the AIFM and its service providers. It is critical that the supporting task and processes are set-up in such a way that the final step of every key process is performed by the depositary itself, retaining its responsibility and liability for overall performance of the process and hence not being perceived to circumvent the delegation restrictions for those types of processes imposed by the AIFMD. Do you perform some tasks/processes out of shared services in other locations outside Luxembourg? Provided you use shared services arrangements, which support tasks do you outsource? 10% Only processes that can be fully delegated under the AIFMD (safekeeping) 30% 70% Yes No 60% 30% Safekeeping and/or support services for cash flow monitoring and oversight duties (data gathering, filtering, system set-up and maintenance) N/A 18 Depositaries under the AIFMD

19 5 Hot topics and current challenges Depositaries under the AIFMD 19

20 Following the introduction of the AIFMD, the depositaries substantially revamped their systems and processes to comply with the imposed regulatory requirements. Even though depositary frameworks have significantly developed over the past years, several prominent topics of the AIFMD still remain a key challenge for depositaries. These include mainly the application of look-through principle to complex structures, DD standards, cash flow monitoring controls at the level of SPVs and the development of tailored IT tools and systems. In relation to the last element, robotics, automation and the recent developments in the Fintech industry are considered topical as those trends are potentially able to considerably increase the efficiency and productivity of the depositary. This is particularly relevant when it comes to the implementation of UCITS V and the integration of similar processes across AIF and UCITS underpinned by high volumes of transactions as well as long and burdensome processes. Do you have a dedicated IT system in place supporting your non-custodiable assets? With regards to the IT infrastructure of depositaries, 81.8% of the participants are using a dedicated IT tool or looking for an appropriate software supporting their non-custodial assets. However, some participants put forward that non-custodial assets are such a wide range that frequently IT systems in place might not be able to cover all categories of assets. In general, participants argued that a certain number of positive IT developments emerged over the last years and that integration of the legacy and newly adopted systems are key. Finally, a common understanding of depositary duties is still not given across Europe. Several participants even argued that it is sometimes difficult to find a common ground within the group affiliates operating in different EU jurisdictions. Others insisted that a common understanding is reached but that the practical implementation of the AIFMD requirements is not consistent among the group entities. Overall, the participants argued that in terms of servicing PE/RE funds, Luxembourg depositaries are typically more advanced compared to other EU countries due to historic exposure and long experience with these asset classes. 27% 18% 27% 27% Yes - developed in-house Yes - employed third party IT system No Currently looking into solutions 20 Depositaries under the AIFMD

21 Conclusion Depositaries under the AIFMD 21

22 Over the last years, depositaries have made considerable efforts in developing their operating model to comply with the requirements of the AIFMD. Our successive roundtables over the last three years showed that for several AIFMD topics, a strong consensus on best practice has emerged. For instance, when it comes to the application of look-through principle, depositaries unanimously highlighted that the analysis should take into account the entire investment structure as well as direct and indirect control exercised on the target investment instead of merely performing a percentage holding analysis based on accounting principles. It is crucial to maintain ongoing discussions and guidance on these topics to establish a strong market practice in Luxembourg. Looking forward, depositaries are keen to tackle upcoming challenges and opportunities, mainly related to IT and automation. Robotics and automation may substantially increase efficiency for certain processes performed by the depositaries, especially considering high volumes and increased workload related post-implementation of UCITS V. Nevertheless, the practical interpretation of certain regulatory requirements remains disparate. Such topics include: i. The depth of application of the look-through principle across different types of investment structures, in particular parallel fund structures, varies from one depositary to another. It ultimately comes down to the risk appetite of the depositary bank. ii. The application of the cash flow monitoring controls at the level of SPVs is not uniform. Some depositaries go as far as establishing automatic SWIFT notifications to control cash movements up and down the fund structure whereas others purely rely on a periodic review of the SPV s financial statements. iii. A common understanding of oversight over delegated activities is lacking. In fact, depositaries within a group operating from different EU jurisdictions struggle to gain a common ground for performance of oversight activities among their group entities. Disagreement still exists regarding the performance of on-site visits. 22 Depositaries under the AIFMD

23 Depositaries under the AIFMD 23

24 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young S.A. All Rights Reserved. ed none This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/luxembourg Contacts Kai Braun Partner, Luxembourg Alternatives Advisory Leader, EY Luxembourg T: E: kai.braun@lu.ey.com Michael Hornsby Partner, EMEIA Real Estate Funds Leader, EY Luxembourg T: E: michael.hornsby@lu.ey.com