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Commission Delegated Regulation (EU) 2016/438Show full title

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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CHAPTER 2U.K.DEPOSITARY FUNCTIONS, DUE DILIGENCE DUTIES, SEGREGATION OBLIGATION AND INSOLVENCY PROTECTIONF1...

Article 3U.K.Oversight duties — general requirements

1.At the time of its appointment, a depositary shall assess the risks associated with the nature, scale and complexity of the investment policy and strategy of the [F2UK UCITS] and with the organisation of the management company or the investment company. On the basis of that assessment, the depositary shall devise oversight procedures which are appropriate to the [F2UK UCITS] and the assets in which it invests and which are then implemented and applied. Those procedures shall be regularly updated.

2.In performing its oversight duties under [F3rule 6.6B.16 of the Collective Investment Schemes sourcebook], a depositary shall perform ex post controls and verifications of processes and procedures that are under the responsibility of the management company or the investment company or an appointed third party. The depositary shall in all circumstances ensure that an appropriate verification and reconciliation procedure exists which is implemented and applied and frequently reviewed. The management company or the investment company shall ensure that all instructions related to the [F2UK UCITS]' assets and operations are sent to the depositary, so that the depositary is able to perform its own verification or reconciliation procedure.

3.A depositary shall establish a clear and comprehensive escalation procedure to deal with situations where potential discrepancies are detected in the course of its oversight duties, the details of which shall be made available to the competent [F4authority]F5... upon request.

4.The management company or the investment company shall provide the depositary, upon commencement of its duties and on an ongoing basis thereafter, with all the relevant information it needs in order to comply with its obligations pursuant to [F6 rule 6.6B.16 of the Collective Investment Schemes sourcebook] including information to be provided to the depositary by third parties.

The management company or the investment company shall particularly ensure that the depositary is able to have access to the books and perform on-site visits on premises of the management company or the investment company and of any service provider appointed by the management company or the investment company, or to review reports and statements of recognised external certifications by qualified independent auditors or other experts in order to ensure the adequacy and relevance of the procedures in place.

Textual Amendments

Article 4U.K.Duties regarding subscription and redemptions

1.A depositary shall be deemed to comply with the requirements set out in [F7rule 6.6B.16(1) of the Collective Investment Schemes sourcebook] where it ensures that the management company or the investment company has established, implements and applies an appropriate and consistent procedure to:

(a)reconcile the subscription orders with the subscription proceeds, and the number of units issued with the subscription proceeds received by the [F2UK UCITS];

(b)reconcile the redemption orders with the redemptions paid, and the number of units cancelled with the redemptions paid by the [F2UK UCITS];

(c)verify on a regular basis that the reconciliation procedure is appropriate.

For the purpose of points (a), (b) and (c), the depositary shall in particular regularly check that there is consistency between the total number of units in the [F2UK UCITS]' accounts and the total number of outstanding units that appear in the [F2UK UCITS]' register.

2.A depositary shall ensure and regularly check that the procedures regarding the sale, issue, repurchase, redemption and cancellation of units of the [F2UK UCITS] comply with the applicable national law and with the [F2UK UCITS] rules or instruments of incorporation and verify that those procedures are effectively implemented.

3.The frequency of the depositary's checks shall be consistent with the flow of subscriptions and redemptions.

Textual Amendments

Article 5U.K.Duties regarding the valuation of units

1.A depositary shall be deemed to comply with the requirements set out in [F8rule 6.6B.16(2) of the Collective Investment Schemes sourcebook] where it puts in place procedures to:

(a)verify on an ongoing basis that appropriate and consistent procedures are established and applied for the valuation of the assets of the [F2UK UCITS] in compliance with [F9section 6.3 of the Collective Investment Schemes sourcebook] and with the [F2UK UCITS] rules or instruments of incorporation;

(b)ensure that the valuation policies and procedures are effectively implemented and periodically reviewed.

2.The depositary, shall conduct the verifications referred to in paragraph 1 at a frequency consistent with the frequency of the [F2UK UCITS]' valuation policy [F10in accordance with section 6.3 of the Collective Investment Schemes sourcebook], and with the [F2UK UCITS] rules or instruments of incorporation.

3.Where a depositary considers that the calculation of the value of the units of the [F2UK UCITS] has not been performed in compliance with applicable law or the [F2UK UCITS] rules or with instruments of incorporation, it shall notify the management company or the investment company and ensure that timely remedial action is taken in the best interest of the investors in the [F2UK UCITS].

Textual Amendments

Article 6U.K.Duties regarding the carrying out of the [F2UK UCITS]' instructions

A depositary shall be deemed to comply with the requirements set out in [F11rule 6.6B.16(3) of the Collective Investment Schemes sourcebook] where it establishes and implements at least:

(a)

appropriate procedures to verify that instructions of the management company or the investment company comply with applicable laws and regulations and with the [F2UK UCITS]' rules and instruments of incorporation;

(b)

an escalation procedure where the [F2UK UCITS] has breached one of the limits or restrictions referred to in second subparagraph.

For the purposes of point (a), the depositary shall in particular monitor the [F2UK UCITS]' compliance with investment restrictions and leverage limits to which the [F2UK UCITS] is subject. The procedures referred to in point (a) shall be proportionate to the nature, scale and complexity of the [F2UK UCITS].

Textual Amendments

Article 7U.K.Duties regarding the timely settlement of transactions

1.A depositary shall be deemed to comply with the requirements set out in [F12rule 6.6B.16(4) of the Collective Investment Schemes sourcebook] where it establishes a procedure to detect any situation where consideration in transactions involving the assets of the [F2UK UCITS] is not remitted to the [F2UK UCITS] within the usual time limits, to notify the management company or the investment company accordingly and, where the situation has not been remedied, to request the restitution of the assets from the counterparty where possible.

2.Where transactions do not take place on a regulated market, the depositary shall carry out its duties pursuant to paragraph 1 taking into account the conditions attached to these transactions.

Textual Amendments

Article 8U.K.Duties related to the [F2UK UCITS]' income calculation and distribution

1.A depositary shall be deemed to comply with the requirements set out in [F13rule 6.6B.16(5) of the Collective Investment Schemes sourcebook] where it:

(a)ensures that the net income calculation is applied in accordance with the [F2UK UCITS] rules, instruments of incorporation and applicable national law every time income is to be distributed;

(b)ensures that appropriate measures are taken where the [F2UK UCITS]' auditors have expressed reserves on the annual financial statements. The management company or the investment company shall provide the depositary with all information on reserves expressed on the financial statements;

(c)checks the completeness and accuracy of dividend payments, every time income is to be distributed.

2.Where a depositary considers that the income calculation has not been applied in compliance with applicable law or with the [F2UK UCITS] rules or instruments of incorporation, it shall notify the management company or the investment company and ensure that timely remedial action has been taken in the best interest of the [F2UK UCITS]' investors.

Textual Amendments

Article 9U.K.Cash monitoring — general requirements

[F141.Where a cash account is maintained or opened at an institution falling within paragraph 1A in the name of the investment company or of the management company acting on behalf of the UCITS, the management company or the investment company shall ensure that the depositary is provided, upon commencement of its duties and on an ongoing basis, with all relevant information necessary for having a clear overview of all UCITS' cash flows so that the depositary is able to comply with its obligations.

1A.The following institutions fall within this paragraph:

(a)a central bank;

(b)a CRR firm which is not an investment firm;

(c)a credit institution which has a registered office, or if it has no registered office its head office, in an EEA state, and which would be a CRR firm if:

(i)its registered office, or if it has no registered office, its head office, were in the United Kingdom; and

(ii)it had permission under Part 4A of the Financial Services and Markets Act 2000 to carry on the regulated activity of accepting deposits; or

(d)a bank authorised in a third country.]

2.Upon the depositary's appointment the investment company or the management company shall inform the depositary of all existing cash accounts opened in the name of the investment company, or the management company acting on behalf of the [F2UK UCITS].

3.The investment company or the management company shall ensure that the depositary is provided with all information related to the opening of any new cash account by the investment company, or the management company acting on behalf of the [F2UK UCITS].

Textual Amendments

Article 10U.K.Monitoring of the [F2UK UCITS]' cash flows

1.A depositary shall be deemed to comply with the requirements set out in [F15rule 6.6B.17 of the Collective Investment Schemes sourcebook] where it ensures effective and proper monitoring of the [F2UK UCITS]' cash flows and, in particular, it at least:

[F16(a)ensures that all cash of the UK UCITS is booked in accounts opened with:

(i)a central bank;

(ii)a CRR firm (but not a CRR firm which is also an investment firm);

(iii)a credit institution authorised in accordance with Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC ; or

(iv)a credit institution authorised in a country outside both the United Kingdom and the EU, where cash accounts are required for the purposes of the UK UCITS' operations, provided that the prudential supervisory and regulatory requirements applied to credit institutions in the country in which the credit institution is authorised are considered by the competent authority as at least equivalent to those applied in the United Kingdom;]

(b)implements effective and proper procedures to reconcile all cash flow movements and performs such reconciliations on a daily basis, or, in case of infrequent cash movements, when such cash flow movements occur;

(c)implements appropriate procedures to identify at the close of each business day significant cash flows and cash flows which could be inconsistent with [F2UK UCITS]' operations;

(d)reviews periodically the adequacy of those procedures, including through a full review of the reconciliation process at least once a year, and ensures that the cash accounts opened in the name of the investment company or in the name of the management company acting on behalf of the [F2UK UCITS] or in the name of the depositary acting on behalf of the [F2UK UCITS] are included in the reconciliation process;

(e)monitors on an ongoing basis the outcomes of the reconciliations and the actions taken as a result of any discrepancies identified by the reconciliation procedures, and notifies the management company or the investment company if a discrepancy has not been corrected without undue delay and also the competent [F17authority] if the situation cannot be corrected;

(f)checks that there is consistency between its own records of cash positions and those of the [F2UK UCITS].

For the purposes of assessing the equivalence of prudential supervisory and regulatory requirements applied to credit institutions of a third country referred to in point (a), [F18the competent authority] shall take into account [F19Commission Implementing Decision 2014/908/EU of 12 December 2014 on the equivalence of the supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures according to Regulation (EU) No 575/2013 of the European Parliament and of the Council, and regulations made by the Treasury under] Article 107(4) of Regulation (EU) No 575/2013 of the European Parliament and of the Council(1).

2.The management company or the investment company shall ensure that all instructions and information related to a cash account opened with a third party are sent to the depositary, to enable the depositary to perform its own reconciliation procedure.

Textual Amendments

Article 11U.K.Duties regarding payments upon the subscriptions

A management company or an investment company shall ensure that the depositary is provided with information about payments made by or on behalf of investors upon the subscription of units of an [F2UK UCITS] at the close of each business day on which the investment company or the management company acting on behalf of the [F2UK UCITS], or a party acting on behalf of [F2UK UCITS], such as a transfer agent, receives such payments or an order from the investor. The management company or the investment company shall ensure that the depositary receives all other relevant information it needs to make sure that the payments are booked in cash accounts opened in the name of the investment company or in the name of the management company acting on behalf of the [F2UK UCITS] or in the name of the depositary in accordance with [F20rule 6.6B.17 of the Collective Investment Schemes sourcebook].

Textual Amendments

Article 12U.K.Financial instruments to be held in custody

1.Financial instruments belonging to the [F2UK UCITS] which are not able to be physically delivered to the depositary shall be included in the scope of the custody duties of the depositary where all of the following requirements are met:

(a)they are financial instruments referred to in [F21rules 5.2.6A(1) to (3), 5.2.8, 5.2.10A(1), 5.2.10E, 5.2.13 and other relevant rules in section 5.2 of the Collective Investment Schemes sourcebook] or transferable securities which embed derivatives F22...;

(b)they are capable of being registered or held in a securities account directly or indirectly in the name of the depositary.

2.Financial instruments which, in accordance with applicable national law, are only directly registered in the name of the [F2UK UCITS] with the issuer itself or its agent, such as a registrar or a transfer agent, shall not be held in custody.

3.Financial instruments belonging to the [F2UK UCITS] which are able to be physically delivered to the depositary shall in all cases be included in the scope of the custody duties of the depositary.

Textual Amendments

Article 13U.K.Safekeeping duties with regard to assets held in custody

1.A depositary shall be deemed to comply with the requirements set out in [F23rule 6.6B.18 of the Collective Investment Schemes sourcebook] with respect to financial instruments to be held in custody where it ensures that:

(a)the financial instruments are properly registered in accordance with [F24rule 6.6B.18(2) of the Collective Investment Schemes sourcebook];

(b)records and segregated accounts are maintained in a way that ensures their accuracy, and in particular record the correspondence with the financial instruments and cash held for [F2UK UCITS];

[F25(c)reconciliations are conducted as frequently as necessary between the depositary's internal accounts and records and those of any third party to whom safekeeping has been delegated in accordance with [F26rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook];]

(d)due care is exercised in relation to the financial instruments held in custody in order to ensure a high standard of investor protection;

(e)all relevant custody risks throughout the custody chain are assessed and monitored and the management company or the investment company is informed of any material risk identified;

(f)adequate organisational arrangements are introduced to minimise the risk of loss or diminution of the financial instruments, or of rights in connection with those financial instruments as a result of fraud, poor administration, inadequate registering or negligence;

(g)the [F2UK UCITS]'s ownership right or the ownership right of the management company acting on behalf of the [F2UK UCITS] over the assets is verified.

[F27In relation to point (c) of the first subparagraph, the frequency of the reconciliations shall be determined on the basis of the following:

(a)the normal trading activity of the [F2UK UCITS];

(b)any trade occurring outside the normal trading activity;

(c)any trade occurring on behalf of any other client whose assets are held by the third party in the same financial instruments account as the assets of the [F2UK UCITS].]

[F252.Where a depositary has delegated its safekeeping functions, with regard to assets held in custody, to a third party in accordance with [F28rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook], it shall remain subject to the requirements of points (a) to (e) of paragraph 1. The depositary shall also ensure that the third party complies with the requirements of points (b) to (g) of paragraph 1.]

Textual Amendments

Article 14U.K.Safekeeping duties regarding ownership verification and record keeping

1.The management company or the investment company shall provide the depositary, upon commencement of its duties and on an ongoing basis thereafter, with all relevant information it needs to comply with its obligations pursuant to [F29rule 6.6B.19 of the Collective Investment Schemes sourcebook], and ensure that the depositary is provided with all relevant information by third parties.

2.A depositary shall be deemed to comply with the requirements set out in [F30rule 6.6B.19 of the Collective Investment Schemes sourcebook] where it at least:

(a)has access without undue delay to all relevant information it needs in order to perform its ownership verification and record-keeping duties, including relevant information to be provided to the depositary by third parties;

(b)possesses sufficient and reliable information for it to be satisfied of the [F2UK UCITS]' ownership right over the assets;

(c)maintains a record of those assets for which it is satisfied that the [F2UK UCITS] holds the ownership by:

(i)

registers in its records, in the name of the [F2UK UCITS], assets, including their respective notional amounts, for which it is satisfied that the [F2UK UCITS] holds the ownership;

(ii)

is able to provide at any time a comprehensive and up-to-date inventory of the [F2UK UCITS]' assets, including their respective notional amounts.

For the purposes of point (c)(ii) of this paragraph, the depositary shall ensure it has procedures in place so that registered assets cannot be assigned, transferred, exchanged or delivered without the depositary or the third party to whom the safekeeping has been delegated in accordance with [F31rules 6.6B.22, 6.6B.25, 6.6B.26 and 6.6B.27 of the Collective Investment Schemes sourcebook] having been informed of such transactions. The depositary shall have access without undue delay to documentary evidence of each transaction and position from the relevant third party. The management company or the investment company shall ensure that the relevant third party provides the depositary without undue delay with certificates or other documentary evidence every time there is a sale or acquisition of assets or a corporate action resulting in the issue of financial instruments and at least once a year.

3.A depositary shall ensure that the management company or the investment company has and implements appropriate procedures to verify that the assets acquired by the [F2UK UCITS] are appropriately registered in the name of the [F2UK UCITS], and shall check the consistency between the positions in the [F2UK UCITS] records and the assets for which the depositary is satisfied that the [F2UK UCITS] holds ownership. The management company or the investment company shall ensure that all instructions and relevant information related to the [F2UK UCITS]' assets are sent to the depositary to enable the depositary to perform its own verification or reconciliation procedure.

4.A depositary shall set up and implement an escalation procedure for situations where a discrepancy is detected including notification of the management company or the investment company and of the competent [F32authority] if the situation cannot be corrected.

Textual Amendments

Article 15U.K.Due diligence

1.A depositary shall be deemed to comply with the requirements set out in [F33rule 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 [F34rules 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 [F35rules 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 [F2UK 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 [F2UK 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.

[F272a.A contract by which the depositary appoints a third party to hold assets of that depositary's [F2UK 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 [F2UK UCITS] or in the name of the management company acting on behalf of the [F2UK UCITS] matches the quantity of the identified financial instruments held in custody by the third party for that [F2UK 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 [F2UK UCITS] clients or in the name of the management company acting on behalf of the [F2UK 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 [F36rules 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 [F37rule 6.6B.21 of the Collective Investment Schemes sourcebook];

(e)monitor compliance with the [F38obligations 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 [F39rules 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 [F40rule 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 [F41rules 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 [F2UK UCITS] and its investors where the third party to whom safekeeping has been delegated in accordance with [F41rules 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 [F41rules 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 [F2UK UCITS] and its investors, in case the applicable insolvency laws and case law no longer recognises the segregation of the [F2UK 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 [F2UK UCITS]' assets in the event of insolvency of the third party to whom safekeeping functions have been delegated in accordance with [F41rules 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 [F2UK 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 [F41rules 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 [F42the competent authority] of such information and consider all the appropriate measures in relation to the relevant assets of the [F2UK UCITS], including their disposal taking into account the need to act in the best interest of the [F2UK UCITS] and its investors.

Textual Amendments

Article 16U.K.Segregation obligation

[F251.Where safekeeping functions have been delegated wholly or partly to a third party, a depositary shall ensure that the third party to whom safekeeping functions are delegated pursuant to [F43rules 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook] acts in accordance with the segregation obligation laid down in [F44rule 6.6B.25(4)(c) of the Collective Investment Schemes sourcebook] by ensuring and verifying that the third party:

(a)correctly records all identified financial instruments in the financial instruments account, which is opened in the third party's books, in order to hold in custody the financial instruments for the depositary's clients, which excludes proprietary financial instruments of the depositary and of the third party and of the third party's other clients, to enable the depositary to match the quantity of the identified financial instruments recorded in the accounts opened in the depositary's books in the name of each of its [F2UK UCITS] clients or in the name of the management company acting on behalf of the [F2UK UCITS];

(b)keeps all necessary records and financial instruments accounts to enable the depositary at any time and without delay to distinguish assets of the depositary's clients from the third party own assets, assets of the third party's other clients and assets held for the depositary for its own account;

F45(c)maintains records and financial securities accounts in a way that ensures their accuracy, and in particular their correspondence to the assets kept safe for the depositary's [F2UK UCITS] clients and on the basis of which the depositary can at any time establish the precise nature, location and ownership status of those assets;

(d)provides the depositary with a statement, on a regular basis and whenever a change in circumstances occurs, detailing the assets of the depositary's [F2UK UCITS] clients;

F46(e)conducts reconciliations, as often as necessary, between its financial instruments accounts and internal records and those of the third party to whom it has delegated custody functions in accordance with [F47rule 6.6B.17(2)(c) of the Collective Investment Schemes sourcebook].

The frequency of the reconciliation shall be determined in accordance with Article 13(1);

(f)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;

(g)holds the [F2UK UCITS]' cash in an account or accounts with a central bank of a third country or a credit institution authorised in a third country, provided that the prudential, supervisory and regulatory requirements applied to credit institutions in that third country are considered by the competent authorities of the [F2UK UCITS] home Member States as at least equivalent to those applied in the Union, in accordance with point (c) of Article 22(4) of Directive 2009/65/EC.]

2.Paragraph 1 shall apply mutatis mutandis when the third party, to whom safekeeping functions are delegated in accordance with [F48rules 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook ], has decided to sub-delegate all or part of its safekeeping functions to another third party pursuant to [F49rule 6.6B.27 of the Collective Investment Schemes sourcebook].

Textual Amendments

F45It is purported that in Art. 16(1)(c) the words “rule 6.6B.27 of the Collective Investment Schemes sourcebook” are substituted for the words “the third subparagraph of Article 22a(3) of Directive 2009/65/EC” (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(20)(a)(ii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F46It is purported that in Art. 16(1)(e) the word “authority” is substituted for the words “authorities of the UCITS home Member States” and the words “United Kingdom” are substituted for the word “Union” (31.12.2020) by The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/325), regs. 1(2), 60(20)(a)(iii)(aa)(bb) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

Article 17U.K.Insolvency protection of [F2UK UCITS] assets when delegating custody functions

1.A depositary shall ensure that a third party located in a third country, to whom custody functions are to be or have been delegated in accordance with [F50rule 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook] takes all necessary steps in order to ensure that in the event of an insolvency of the third party, assets of a [F2UK UCITS] held by the third party in custody are unavailable for distribution among, or realisation for the benefit of, creditors of that third party.

2.A depository shall ensure that the third party takes the following steps:

[F25(a)receives legal advice from an independent natural or legal person confirming that the applicable insolvency law recognises the segregation of the assets of the depositary's clients from the third party's own assets, from the assets of the third party's other clients and from the assets held by the third party for the depositary's own account and that the assets of the depositary's [F2UK 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 have been delegated in accordance with [F51rule 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook];]

(b)ensures that the conditions laid down in the applicable insolvency laws and case law of that third country recognise that the assets of the depositary's [F2UK UCITS] clients are segregated and unavailable for distribution among, or realisation for the benefit of creditors, as referred to in point (a), are met when concluding the delegation agreement with the depositary as well as on an ongoing basis for the entire duration of the delegation;

(c)immediately informs the depositary where any of the conditions referred to in point (b) is no longer met;

F52(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F52(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f)informs the depositary about the changes of applicable insolvency law and of its effective application.

F523.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.The depositary shall ensure that duties laid down in paragraphs 1 and 2 shall apply mutatis mutandis when the third party, to whom safekeeping functions are delegated pursuant to [F53rules 6.6B.22, 6.6B.25 and 6.6B.26 of the Collective Investment Schemes sourcebook], has decided to sub-delegate all or part of its safekeeping functions to another third party pursuant to [F54rule 6.6B.27 of the Collective Investment Schemes sourcebook].

Textual Amendments

Textual Amendments

(1)

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).

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