Commission Delegated Regulation (EU) 2016/438 of 17 December 2015 supplementing Directive 2009/65/EC of the European Parliament and of the Council with regard to obligations of depositaries (Text with EEA relevance)

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Regulation revoked by 2023 c. 29 Sch. 1 Pt. 3

Article 15U.K.Due diligence

1.A depositary shall be deemed to comply with the requirements set out in [F1rule 6.6B.25(3) of the Collective Investment Schemes sourcebook] where it implements and applies an appropriate documented due diligence procedure for the selection and ongoing monitoring of the third party, to whom safekeeping functions are to be or have been delegated in accordance with [F2rules 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook]. That procedure shall be reviewed regularly and, at least, once a year.

2.When selecting and appointing a third party to whom safekeeping functions are to be delegated in accordance with [F3rules 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook], a depositary shall exercise all due skill, care and diligence to ensure that entrusting financial instruments to that third party provides an adequate standard of protection. The depositary shall at least:

(a)assess the regulatory and legal framework, including country risk, custody risk and the enforceability of the contract entered into with that third party. That assessment shall in particular enable the depositary to determine the implications of a potential insolvency of the third party for the assets and rights of the [F4UK UCITS];

(b)ensure that the assessment of the enforceability of the contractual provisions referred to in point (a), where the third party is located in a third country, is based on the legal advice of a natural or legal person independent from the depositary or that third party;

(c)assess whether the third party's practice, procedures and internal controls are adequate to ensure that the assets of the [F4UK UCITS] are subject to a high standard of care and protection;

(d)assess whether the third party's financial strength and reputation are consistent with the tasks delegated. That assessment shall be based on information provided by the potential third party as well as other data and information;

(e)ensure that the third party has the operational and technological capabilities to perform the delegated safekeeping tasks with a high degree of protection and security.

[F52a.A contract by which the depositary appoints a third party to hold assets of that depositary's [F4UK UCITS] clients in custody, shall contain at least the following provisions:

(a)a guarantee of the depositary's right to information, inspection, and access to the relevant records and financial instruments accounts of the third party holding assets in custody to enable the depositary to fulfil its oversight and due diligence obligations and in particular allow the depositary to:

(i)

identify all entities within the custody chain;

(ii)

verify that the quantity of the identified financial instruments recorded in the financial instruments accounts opened in the depositary's books in the name of the [F4UK UCITS] or in the name of the management company acting on behalf of the [F4UK UCITS] matches the quantity of the identified financial instruments held in custody by the third party for that [F4UK UCITS] as recorded in the financial instruments account opened in the third party's books;

(iii)

verify that the quantity of the identified financial instruments, which are registered and held in a financial instruments account opened at the issuer's Central Securities Depository (‘CSD’) or its agent, in the name of the third party on behalf of its clients, matches the quantity of the identified financial instruments recorded in the financial instruments accounts opened in the depositary's books in the name of each of its [F4UK UCITS] clients or in the name of the management company acting on behalf of the [F4UK UCITS];

(b)details of equivalent rights and obligations agreed between the third party and another third party, in the event of a further delegation of custody functions.]

3.A depositary shall exercise all due skill, care and diligence in the periodic review and ongoing monitoring to ensure that the third party continues to comply with the criteria provided for in paragraph 2 and the conditions set out in [F6rules 6.6B.25(4) and 6.6B.26 of the Collective Investment Schemes sourcebook], and shall at least:

(a)monitor the third party's performance and its compliance with the depositary's standards;

(b)ensure that the third party exercises a high standard of care, prudence and diligence in the performance of its safekeeping tasks and in particular that it effectively segregates the financial instruments in line with the requirements of Article 16 of this Regulation;

(c)review the custody risks associated with the decision to entrust the assets to the third party and without undue delay notify the management company, or the investment company of any change in those risks. That assessment shall be based on information provided by the third party and other data and information. During market turmoil or when a risk has been identified, the frequency and the scope of the review shall be increased;

(d)monitor compliance with the prohibition laid down in [F7rule 6.6B.21 of the Collective Investment Schemes sourcebook];

(e)monitor compliance with the [F8obligations laid down in sections 242(2), 261D(4) , 261D(5) and 261D(8) of the Financial Services and Markets Act 2000, regulation 15(8) of the Open Ended Investment Companies Regulations 2001 and rules 6.6B.2 and 6.6B.3 of the Collective Investment Schemes sourcebook] and the requirements laid down in Articles 21 to 24 of this Regulation.

4.Paragraphs 1, 2 and 3 shall apply mutatis mutandis when the third party to whom safekeeping functions are delegated in accordance with [F9rules 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook] has decided to sub-delegate all or part its safekeeping functions to another third party pursuant to [F10rule 6.6B.27 of the Collective Investment Schemes sourcebook].

5.A depositary shall devise contingency plans for each market in which it appoints a third party to whom safekeeping functions are delegated in accordance with [F11rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook]. A contingency plan shall include the identification of an alternative provider, if any.

6.A depositary shall take measures, including termination of the contract, which are in the best interest of the [F4UK UCITS] and its investors where the third party to whom safekeeping has been delegated in accordance with [F11rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook] no longer complies with the requirements of this Regulation.

7.Where the depositary has delegated its safekeeping functions in accordance with [F11rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook] to a third party located in a third country, it shall ensure that the agreement with the third party allows for an early termination, taking into account the need to act in the best interest of [F4UK UCITS] and its investors, in case the applicable insolvency laws and case law no longer recognises the segregation of the [F4UK UCITS]'s assets in the event of insolvency or the third party or the conditions laid down in law and case law are no longer fulfilled.

8.Where the applicable insolvency law and case law no longer recognise the segregation of the [F4UK UCITS]' assets in the event of insolvency of the third party to whom safekeeping functions have been delegated in accordance with [F11rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook] or no longer ensure that the assets of the depositary's [F4UK UCITS] clients do not form part of the third party's estate in case of insolvency and are unavailable for distribution among, or realisation for the benefit of, creditors of the third party to whom safekeeping functions are delegated pursuant to [F11rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook], the depositary shall immediately inform the management company or the investment company.

9.On receipt of the information referred to under paragraph 8, the management company or the investment company shall immediately notify [F12the competent authority] of such information and consider all the appropriate measures in relation to the relevant assets of the [F4UK UCITS], including their disposal taking into account the need to act in the best interest of the [F4UK UCITS] and its investors.

Textual Amendments

F1Words in Art. 15(1) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(a)(i) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F2Words in Art. 15(1) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(a)(ii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F3Words in Art. 15(2) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(b) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F4Word in Regulation substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(2) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F5Inserted by Commission Delegated Regulation (EU) 2018/1619 of 12 July 2018 amending Delegated Regulation (EU) 2016/438 as regards safe-keeping duties of depositaries (Text with EEA relevance).

F6Words in Art. 15(3) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(c)(i) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F7Words in Art. 15(3)(d) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(c)(ii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F8Words in Art. 15(3)(e) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(c)(iii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F9Words in Art. 15(4) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(d)(i) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F10Words in Art. 15(4) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(d)(ii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F11Words in Art. 15(5)-(8) substituted (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(19)(e) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)