INDOS becomes first fully FCA authorised depository-lite

02 May, 2014

INDOS Financial has obtained approval from the UK Financial Conduct Authority (FCA) to offer cash-flow monitoring and verification of other assets in addition to its existing oversight authorisation making it the first fully authorised UK depository-lite provider.

This authorisation comes as implementation of the EU’s Alternative Investment Fund Managers Directive (AIFMD) is fast approaching. The FCA recently reminded firms they must have a depository in place by the July 22, 2014 deadline.  A study in January 2014 of 50 fund managers by BNY Mellon in conjunction with FTI Consulting found 60% of firms had appointed or were in the process of appointing a depository.

Despite this, a number of fund administrators seeking to become UK-approved depository-lites are still awaiting regulatory approval including SS&C GlobeOp. “A number of firms have sought regulatory approval to become depository-lites and this has not been granted yet by the FCA.  Some managers are beginning to get worried. They recognise it takes a long time to obtain FCA approval and they could be in a difficult situation from a marketing perspective without an approved depository-lite in place come AIFMD’s deadline,” said Bill Prew, founder of INDOS Financial.

The authorisation to perform Article 21(8)(b) verification of other assets duty is a particular bonus for INDOS Financial, as a number of managers have struggled to find providers willing to undertake this work.  “Managers have found it a challenge to identify providers willing and able to undertake this duty,” commented Prew.

This is partly because the Central Bank of Ireland (CBI) confirmed in a consultation paper that firms providing safekeeping of other assets must have a custody authorisation, something standalone fund administrators do not possess as they are not credit institutions. Many firms may therefore have no choice but to appoint a custodian.

The CBI has also said firms providing cash-flow monitoring and oversight need not be regulated. This laissez-faire approach to regulating depository-lites has caused consternation in some quarters. Irish-based fund administrators oversee approximately $1 trillion in non-EU fund assets and if an unregulated depository-lite failed to spot a fraud or blow up, the CBI’s reputation could be irreparably tarnished.

Depository-lites are shielded from the strict liability provisions of AIFMD contained in Article 21. However, the European Securities and Markets Authority (ESMA) is reviewing AIFMD in 2015 and could force all non-EU funds marketing to EU investors to be compliant with the full depository regime. Were this to happen, the depository-lite model would be put under severe pressure.


AIFMDINDOS FinancialCentral Bank of IrelandFCA