FCA authorises three prime brokers to undertake safe-keeping under AIFMD

Prime Brokerage
27 Jun, 2014

The UK Financial Conduct Authority (FCA) has authorised the prime brokerage arms of Goldman Sachs, Credit Suisse and Barclays to undertake the Article 21(8)(a) safe-keeping of financial instruments duties as required under the EU’s Alternative Investment Fund Managers Directive (AIFMD) in what is a welcome boost for depository-lite providers.

It is also believed that at least one other prime broker may have received approval although this could not be confirmed and its name did not appear on the FCA's AIFMD registration list on its website. Prime brokers undergoing the Article 36 Custodian Variation of Permission (VOP) process must be authorised before the July 22, 2014 AIFMD deadline if the depository-lite model is to function.

Under Article 36 of the AIFMD, prime brokers can continue to safe-keep assets while a depository-lite provides oversight and cash-flow monitoring for managers of non-EU funds marketing to EU institutions through national private placement regimes. However, a number of prime brokers have not received FCA approval, and this could be a challenge.

“It was widely expected the FCA would approve all of the prime brokers in one go so as to avoid having certain primes having a potential business advantage over another. If a prime broker has not been approved by 22 July, then a manager will have to delay their marketing efforts until approval is granted. Alternatively, a manager could port assets to an authorised prime broker,” said one industry expert.

The regulator is also under pressure to speed up the approval of AIFMD depositories.  At present,  the FCA has only approved INDOS Financial, an independent depository-lite, Northern Trust and Thompson Taraz, a private equity fund administrator. Industry sources have said approximately 25 firms are seeking FCA authorisation as AIFMD depositories with around half of these making use of the transitional provisions which expire on July 22.

Most of these entrants seeking authorisation are understood to be focused on private equity although a small number work with hedge funds including SS&C GlobeOp and HedgeServ. Fund managers must identify their depository or depository-lite provider when they submit their VOP applications and they need to have on-boarded depositaries by July 22 in order to market their funds inside Europe. 

If the FCA has not approved their depository by this date, managers will either have to cease marketing until the depository is authorised or appoint another provider, in what will be a time-consuming and burdensome task.

A number of firms seeking to act as depositories or depository-lites have been admonished for leaving applications with the FCA so late. Managers are not blameless either with many having underestimated the time and effort it takes to be on-boarded by a depository provider. Some depositories have warned managers they are experiencing capacity issues, which could leave some firms without a depository in place come AIFMD’s deadline next month.


Credit SuisseGoldman SachsBarclaysFCAAIFMDINDOS FinancialNorthern TrustThompson TarazSS&C GlobeOpHedgeServVOP