Initial and Ongoing Due 2015 Diligence Questionnaire on Depositary of AIFs This initial and ongoing due diligence questionnaire was prepared by an ALCO working group which comprises compliance officers and representatives of AIFM 1, UCITS management companies, depositary and law firms. This document reflects the working group's understanding of the initial and ongoing due diligence an AIFM shall make on the entity appointed as depositary of AIFs 2 within the meaning of Article 21 of AIFM Directive 3. This document is not meant to be an industry standard or a guide to best practice, but it represents the view of a group of market participants. This document is a non-exhaustive list of the main questions that the AIFM may consider in the context of its due diligence on AIFs depositaries. Each AIFM shall adapt and tailor this list and the way the questions are raised, taking into account (i) its own analysis of legal and regulatory obligations, constraints, policies and procedures, (ii) the strategies of the AIFs under management and (iii) the contractual arrangements the AIFM/AIF has entered into. This document shall not be relied upon as legal advice or any other advice and is provided without any guarantees of any kind. Neither ALCO nor its members who contributed to this document accepts any liability whatsoever for any action taken in reliance upon it. This template may be amended without prior notice to incorporate any improvement considered appropriate by ALCO or its members, or reflect any regulatory or legal development. 1 "AIFM" means "an alternative investment fund manager within the meaning of AIFM Directive". 2 "AIF(s)" means collective investment undertakings, including investment compartments thereof, which: a) raise capital from a number of investors, with a view to invest in accordance with the defined investment policy for the benefit of those investors; and b) do not require authorisation pursuant to Article 5 of Directive 2009/65/EC, as defined in Article 1(39) of the 2013 Law. 3 "AIFM Directive" means "Directive 2011/61/EC on the Alternative Investment Fund Managers". This AIFM Directive was implemented into the Luxembourg law by a law of 12 July 2013 on alternative investment managers (the "2013 Law"). 1
INITIAL AND ONGOING DUE DILIGENCE QUESTIONNAIRE ON DEPOSITARY OF AIFs As at: [date] Executed by: [name] Title: [title] If any of the questions below are not relevant for your Company, organisation and/or services, please indicate "N/A" and explain why it is not applicable. Some of the below questions may not be relevant for initial or ongoing due diligence. Please indicate "Not relevant" when appropriate and why it is not relevant. 1. GENERAL Ref: 1.1. Name of Depositary: 1.2. Address: 1.3. Contact Person: 1.4. Title of Contact Person: 1.5. Email Address: 1.6. Telephone Number: 1.7. Fax Number: 1.8. Website Address: 2
Ref: 1.9. Non-exhaustive list of Key Persons 4 within your organisation in relation to the depositary activities 5 (if any in your organisation): 1.1. Head of depositary functions 1.2. Head of depositary oversight functions 1.3. Compliance 1.4. Internal Audit 1.5. Legal 1.6. Risk Manager 1.7. IT/securities officer 2. REGULATORY AND LEGAL OVERVIEW Ref. Question Response 2.1. Please confirm whether you are regulated/listed locally and/or at group level, naming each of the relevant regulators. 2.2. What type of regulatory licence does your Company have? Please provide your licence/registration number, where applicable. 2.3. Please confirm that you have supplied us with details of any material breach of the regulations notified to your Regulator 6, or any sanctions applied by your Regulator, and related to the depositary functions since the last three year or the last due diligence questionnaire's completion? 2.4. Have you received a visit from your Regulator since completing the last questionnaire? If yes, did the Regulator have any material comments/findings in 4 "Key Persons" means "people having key roles within the depositary activities such as but not limited to people approved/ notified to CSSF and the persons listed in this section 1.9". 5 In this questionnaire, each reference to "depositary [function] [activities]" shall include "custody and depositary [functions] [activities]" of the Company. 6 The regulatory authority responsible for your supervision or any other regulator involved in the supervision of the depositary (the "Regulator"). 3
relation to the depositary functions? If yes, explain what they were related to and the status of the relevant remedial actions. 2.5. Do/Did you have any pending/closed litigation for the last [length] years 7 in relation to the depositary function? 2.6. Please confirm that you have complied with escalation process agreed between you and [name of the AIFM] 8. 2.7. Have there been any changes to the laws and regulations applicable to your depositary function activities provided to the AIFs since the completion of the last questionnaire? If so, please explain and confirm if and how they have been implemented. 2.8. Is your Company bound by the laws and regulation relating to the prevention of money laundering and terrorist financing equivalent to the European Directive 2001/97/EC? 2.9. In case of delegation and sub-custodian appointment, could you please explain the initial and ongoing due diligence made on sub-custodian including how you monitor the AML framework and compliance of the sub-custodian used for the business of the AIFs managed by the AIFM. 3. INTERNAL CONTROL FUNCTIONS 9 Ref. Question Response 3.1. Please describe your internal control system and organisation. Confirm that internal audit, risk management and compliance functions/departments are operationally and hierarchically independent 7 Period to be determined: number of years before the initial due diligence or since the last due diligence questionnaire's completion. 8 This is relevant for ongoing due diligence as the escalation process will be negotiated between the depositary and the AIFM before entering into contractual arrangements. 9 "Internal control functions" means the "internal audit, compliance and risk management functions". 4
from your operational teams. 3.2. Please provide a copy of your Company's most recent external control report e.g. SSAE 16 / ISAE 3402, or equivalent e.g. approved statutory auditor certificate in relation to depositary function. 3.3. Have internal control functions identified any material findings since the last due diligence questionnaire's completion? If yes, explain what were they related to and their status? 3.4. Please confirm the subjects and frequency of the internal audit controls/mission/plan on the depositary activities for the last three years or since the last due diligence questionnaire's completion. 4. CORPORATE OVERVIEW Ref. Question Response 4.1. Briefly describe your Company's legal structure. 4.2. Have there been any changes to the legal structure since the last due diligence questionnaire's completion? If yes, please specify. 4.3. Please include a copy of your current group structure chart giving full legal names, and showing corporate entities and percentage of ownership. Please disclose any change which has occurred since the last due diligence questionnaire's completion (if any). 4.4. Briefly describe the organisational structure of the Company, in particular of the depositary function (including the oversight department), the number of people involved, the name of the head of depositary/oversight/operations departments, seniority/expertise of these people. 5
4.5. Please provide the number of employees allocated to the UCI 10 depositary function (as well as the percentage of the total employees) within your Company. Out of these employees how many are dedicated/allocated (i) to the AIFs depositary function 11 and (ii) to the due diligence of the sub-custodians. 4.6. Please indicate your Company's global staff annual turnover for the employees referred to in section 4.5? 4.7. Have any of the Key Persons identified in section 1.9 changed since the last due diligence questionnaire's completion? 4.8. In addition to depositary services, does your Company provide any other services to AIFs? If so, please specify the nature (i.e. valuation, FX, trading, etc.). 4.9. Please confirm that you have established and implemented conflicts of interest policy in relation to the depositary activities. 4.10. Have you identified any potential conflicts of interest arising from the different services you are offering to AIFs? If yes, how did you mitigate it? 4.11. Please detail the scope of your BCP 12 and DRP 13 in place in relation to your depositary services. 4.12. Does your contingency plan specifically cover each market where a third party is appointed and the identification of an alternative provider, if any? 10 "UCI" means "undertaking for collective investment which, for the purpose of this questionnaire, includes any regulated undertaking for collective investment whether they qualify as AIF or not, or they qualify or not as undertaking for collective investment pursuant to their sector law (i.e. SICAR)." 11 If not relevant, please indicate that no employee is dedicated/allocated specifically to the depositary function. 12 "BCP" means "business continuity plan". 13 "DRP" means "disaster recovery plan". 6
4.13. How long does it take to invoke and to switch BCP/DRP on? 4.14. Please indicate the key steps and milestones in relation to the communication and interaction with the AIFM and its delegates in the context of BCP/DRP. 4.15. Please detail the frequency of the testing and the outcome of BCP/DRP. When was the last time that the BCP/DRP were tested? 4.16. Please describe/confirm how you have implemented measures for maintaining security, confidentiality and integrity of the AIFs' data and, as the case may be, appropriate measures in the situation where manipulation of data is made by unauthorised persons/parties. 5. SEGREGATION DUTIES Ref. Question Response 5.1. Please explain how you ensure/implement the segregation of the AIF's assets (with those of your Company, assets of other clients of the Company and assets of other UCITS/UCI) in your books as well as with your depositary delegate when relevant 14. 6. DESCRIPTION OF DELEGATION ARRANGEMENTS Ref. Question Response 6.1. Do you perform all depositary tasks from Luxembourg or do you outsource some activities to other group companies or to third parties? Please specify (i) the list of tasks in relation to the AIFs' depositary function which are performed by a third party 15 (ii) the domiciliation 14 As per the requirement of Article 21 8(a)(ii) and 11(d)(iii) of AIFM Directive. 15 When identification of the party is made, please indicate whether they belong or not to your group. 7
countries of these entities and (iii) outsourcing arrangements and governance. 6.2. Please describe the organisational and supervisory framework for the selection and ongoing monitoring of the entities to which the custody of the AIFs' assets is entrusted (depositary delegates). 6.3. For the AIFs, please confirm if any delegation of the safekeeping functions to a third party is in place or contemplated. If so, please specify inter alia: 6.3.1. Who those delegates are (legal entity name)? 6.3.2. Is the delegation partial or full? 6.3.3. What types of asset are concerned? 6.3.4. What the rationale of this delegation is? 6.3.5. Please confirm that you have implemented due diligence on the depositary delegates in accordance with Article 98 of Level II 16. Have you identified any material issues? 6.4. Where pursuant to Article 21 11 of AIFM Directive safekeeping functions have been delegated wholly or partially to a third party, please confirm you ensured (or will ensure once effective) that the delegate, acts in accordance with the segregation obligation. In particular, that the delegate: a) keeps such records and accounts as are necessary to enable it at any time and without delay to distinguish assets of the depositary's AIF clients from its own assets, assets of its other clients, assets held by the 16 "Level II" means "the explanatory memorandum of the European Commission Delegated Regulation 2031/2013 of 19 December 2012 supplementing the AIFM Directive with regard to the exemption, general operating conditions, depositary, leverage, transparency and supervision". 8
depositary for its own account and assets held for clients of the depositary which are not AIFs; b) maintains records and accounts in a way that ensures their accuracy, and in particular their correspondence to the assets safe-kept for the depositary's clients; c) conducts regular reconciliations between its internal accounts and records and those of the third party to whom it has delegated safekeeping functions in accordance with the third subparagraph of Article 21 11 of AIFM Directive; d) introduces adequate organisational arrangements to minimise the risk of loss or diminution of financial instruments or of rights in connection with those financial instruments as a result of misuse of the financial instruments, fraud, poor administration, inadequate record-keeping or negligence; e) Where the third party is an entity referred to in points (a), (b) and (c) of Article 18(1) of Directive 2006/73/EC which is subject to effective prudential regulation and supervision that has the same effect as Union law and is effectively enforced, the depositary shall take the necessary steps to ensure that the AIF's cash is held in an account or accounts in accordance with Article 21 7 of AIFM Directive. (f) If sub-delegation is implemented by the delegate, please confirm that similar requirements are applied to the sub-delegate. 6.5. How do you ensure that the identification of assets belonging to AIF held in omnibus accounts? 6.6. Have you detected any situation where the segregation of AIF's assets was no longer sufficient? Have you informed the AIFM of any of your findings accordingly? Please provide an updated list of the countries where segregation of 9
assets cannot/can no longer be ensured as a result of your analysis. Have you faced any situation where any of your correspondents could not / no longer organise segregation of assets to ensure protection from insolvency of a third party to whom safekeeping functions were delegated? If so, please specify the context and actions undertaken by your Company in that context. 7. DUTIES Ref. Question Response 7.1. How do you ensure that the sale, issue, re-purchase, redemption and cancellation of units or share of AIFs are carried out in accordance with the applicable national law and the AIF's offering memorandum/prospectus? 7.2. How do you ensure that the value of the units or shares of AIFs is calculated in accordance with the AIF's management regulations or instruments of incorporation and the procedures laid down in Article 19 of AIFM Directive? 7.3. Which procedures have you defined to ensure that you will comply with the AIFM's instructions? 7.4. Please briefly describe procedures in place to monitor compliance of the AIF's portfolio with investment restrictions and leverage limits specified in the AIFs offering memorandum/prospectus. 7.5. How do you ensure that in transactions involving the AIF's assets any consideration is remitted to the AIF within the usual time limits (i.e. market practice time limits)? Please describe events/criteria triggering/requiring an escalation to the AIFM? 7.6. How do you verify the ownership of the AIF's assets or the AIFM acting 10
on behalf of the AIF of such assets. How will you maintain a record of those assets for which the AIF or the AIFM acting on behalf of the AIF holds the ownership of the AIF's assets? 7.7. Please briefly describe for each of the following types of assets the reconciliation process in place: [to be tailored by the AIFM] cash & fixed term deposits held with the depositary/third parties, securities held with sub-custodians/third party custodians, assets held with prime brokers, cash/securities, securities lending, securities borrowing, reverse repurchase agreements, collateral received, whose ownership does/does not stand with the AIFs. What are the procedures relative to collaterals posted and received with CCP 17 vs OTC; microfinance investments, syndicated loans, target UCIs held directly with registrars, private equity, real estate, fund of private equity/real estate, precious metals, 17 "CCP" means "central counterparty clearing house". 11
other physical assets. 7.8. Please describe how you monitor the AIF's cash flows, including details on the receipt of subscription proceeds for units or shares of an AIF; the identificationof significant cash flows (i.e. subscription/redemption/conv ersion); how do you assess transaction; how do you assess consistency with the AIF operations (Article 21 7 of AIFM Directive). 7.9. Please describe how you handle the exercise of rights attached to the AIF's assets (art. 83 (f) Level II). 7.10. Please describe how you ensure that an AIF's income is applied in accordance with the applicable national law and the AIF management regulations or instruments of incorporation. 7.11. Please describe for the initial due diligence and ongoing monitoring you performed on the appointed prime brokers and the type of contractual arrangements you have defined (if applicable). 12