Under the overarching aim of enhancing investor protection, the Alternative Investment Fund Managers Directive (AIFMD) has introduced a stringent regulatory environment for the alternative fund industry and has established the depositary as one of the main pillars of investor protection. With the Alternative Investment Fund Manager (AIFM) having to ensure that a single depositary is duly appointed for each authorised Alternative Investment Fund (AIF) it manages, the depositary has to comply with a set of requirements and is obliged to execute safekeeping duties not only for traditional custodial assets, but also for other assets which include non-custodiable assets (e.g. private equity, real estate, infrastructure, and over-the-counter derivatives). Those safekeeping obligations also cover investments by an AIF through intermediaries and for which a look-through approach should in principle be taken, i.e. target investments held by an underlying structure controlled directly or indirectly by an AIF. Such look-through principle considerably complexifies the safekeeping of custodiable and non-custodial assets and is a widely discussed and controversial topic in the market.
Based on this initial assessment and in light of market practices in Luxembourg when it comes to the application of the look-through principle in different control situations, the new ABBL/ALFI guidelines aim at providing, in a first part, an overview of the various control situations that depositaries may encounter in their day-to-day business, while focusing, in the second part, on the ensuing consequences when applying the look-through principle anchored in the AIFMD framework. The annexes and appendices provided as part of these guidelines finally present the practical application of the principles discussed in the guidelines along with a model recommendation on how to structure the look-through assessment, as well as a basic list of information that should be provided by the AIF (or the AIFM acting on behalf of the AIF) for the depositary to be able to conduct its assessment.
The look-through principle dealt with in these guidelines refers to the look-through controls that a depositary is or is not required to conduct in the context of its safekeeping duties, including ownership verification and record-keeping. Insofar, it needs to be differentiated from look-through controls that are conducted as part of the depositary’s investment compliance process, which is not dealt with in the current guidelines.
Please go to the ABBL MemberNet Library to find the guidelines.