The AMF calls on investment fund depositaries to strengthen their arrangements for the onboarding and monitoring of asset management companies

To provide a high level of investor protection, the European UCITS V and AIFM Directives on Undertakings for Collective Investment in Transferable Securities (UCITS) and on Alternative Investment Fund Managers (AIFM) and their implementing legislation have defined the duties of investment fund depositaries and the rules with which they must comply. In the course of its day-to-day activities, a fund depositary is responsible for the safekeeping of the assets of the funds entrusted to it by an asset management company, as well as for monitoring the regularity of the fund manager's decisions concerning the fund, such as compliance with investment and asset composition rules, the frequency of fund valuation and the rules for determining net asset value. Lastly, the depositary monitors liquidity flows.

For this series of SPOT inspections, the AMF selected five depositaries of UCITS and AIFs of all sizes and analysed their procedures for onboarding and monitoring client asset management companies.

The inspections focused on:

• the organisation and governance of the depositary’s activity;
• the steps to be taken prior to the acceptance of a new asset management company and the establishment of a contractual agreement governing relations with the asset management company;
• the due diligence carried out as part of the monitoring and control of asset management companies;
• the due diligence carried out with respect to conflicts of interest and independence prior to onboarding and throughout the relationship with asset management companies, with particular attention to the case where the asset management company and the depositary belong to the same group;
• the control system.

Several years after the entry into force of the regulations, the AMF observes that there is still room for improvement in the compliance of the institutions audited, with significant differences in the quality of the systems analysed. For example, it noted varying levels of robustness of the procedural framework of the depositaries examined. It also found that the frequency and quality of due diligence carried out varied from one entity to another, though this may have been negatively affected by the health crisis. It was also noted that there were significant differences in the use of the alert system implemented in response to the anomalies observed. Lastly, the AMF found that most of the institutions it audited failed to control the rules on independence and the prevention of conflicts of interest when there was a corporate link between the asset management company and the depositary.

The AMF is publishing a summary of its observations, highlighting both good and bad practices, to encourage fund depositaries to strengthen their systems.

About the AMF
The AMF is an independent public authority responsible for ensuring that savings invested in financial products are protected and that investors are provided with adequate information. The AMF also supervises the orderly operations of markets. Visit our website https://www.amf-france.org