SS&C GlobeOp seeks to launch depo-lite

Fund Administration
07 Oct, 2013

SS&C GlobeOp is in the process of seeking regulatory approval from the UK’s Financial Conduct Authority to establish a “depo-lite” in what is likely to lead to more fund administrators following a similar route.

The firm expects to obtain regulatory approval between December 2013 and January 2014. The depo-lite will be set up as a separate subsidiary to SS&C GlobeOp and will be responsible for monitoring the safekeeping of assets, cash flow monitoring and oversight in what is effectively a trustee role.

“The stated objective of setting up a depo-lite is to minimise cost and disruption for our clients hoping to run AIFMs. By setting up a depo-lite, it will enable our clients to avoid the duplication of other service providers having to re-perform the work we can offer,” said Des Pierce director for strategic markets at SS&C GlobeOp.

Under Article 36 of AIFMD, managers of non-EU hedge funds marketing through private placement to EU investors will be subject to less onerous depositary arrangements whereby strict liability for loss of assets does not apply to the depositary. Several other fund administrators are reportedly exploring whether they can unveil a depo-lite model too.

Critics point out that a fund administrator with a depo-lite business attached to it would find itself facing similar conflicts of interest inherent at depositary banks overseeing their own administration units.

 “Our depo-lite will be a separate legal entity which is functionally and hierarchically separate. It will have an independent team and technology infrastructure, and it will operate independently of SS&C GlobeOp’s administration entities,” said Pierce.

Another challenge facing the depo-lite model is that the European Securities and Markets Authority (ESMA) is likely to force all non-EU hedge funds marketing to EU investors through private placement to be fully compliant with the full depositary regime under Article 21 after 2015. This could pose a challenge to the depo-lite model.

“The rules are still in a grey area and nobody quite knows how AIFMD will evolve. It is a very new piece of legislation and will take time to settle. We understand the European Commission will review AIFMD in 2017 and will be altering the legislation on an on-going basis but this is all yet to be determined. However, we believe the depo-lite model will evolve with the rules,” commented Pierce.

The lack of balance sheet strength at fund administrators is also an issue for some institutional investors. While Article 21 exempts depo-lites from strict liability, it does not exempt them from liability through negligence. 

“We have not received questions from investors or clients about our balance sheet. But we are not a small business – we are a $3 billion market cap company. Granted we cannot compare our balance sheet to that of an investment bank but we are by no means small. As an independent firm, we are not subject to the risk of cross contamination that can affect a bank. Furthermore, we will have insurance coverage to mitigate any such risks. However, smaller administrators could struggle to gain traction if they announced they were launching a depo-lite business,” said Pierce.


SS&C GlobeOpESMAINDOSAIFMDdepositary liability