S.L. 370.32 Art. 44Delegation of functions by the depositary to third parties.

(1) A depositary lite which provides custody services to the

AIFs referred to regulation 38(1)(b) may delegate to third parties in whole or in part the functions referred to in regulations 31 to 33

subject to the following conditions:

(a) the tasks are not delegated with the intention of circumventing the provisions of the Act or the regulations and the Rules issued thereunder;

(b) the depositary has exercised all due skill, care and diligence in the selection and the appointment of any third party to whom it wants to delegate its tasks, and keeps exercising all due skill, care and diligence in the periodic review and ongoing monitoring of any third party to whom it has delegated its tasks and of the arrangements of the third party in respect of the matters delegated to it; and

(c) the depositary ensures that the third party meets the following conditions at all times during the performance of the tasks delegated to it:

(i) the third party has structures and the expertise that are adequate and proportionate to the nature and complexity of the assets of the AIF or the AIFM acting on behalf of the AIF which have been entrusted to it;

(ii) as far as the custody tasks referred to in regulation 32(1)(a) are concerned, the third party is subject to effective prudential regulation, including minimum capital requirements and supervision in the jurisdiction concerned and the third party is subject to an external periodic audit to ensure that the financial statements are in its possession: Provided that where the law of a third country requires that certain instruments be held in custody by a local entity and no local entities satisfy the delegation requirements prescribed above, the depositary may delegate its functions to such a local entity only to the extent required by the law of the third country and only for as long as there are no local entities that satisfy the delegation requirements subject to the following requirements:

(a) the investors of the relevant AIF must be duly informed that such delegation is required due to legal constraints in the law of the third country and of the circumstances justifying the delegation, prior to their investment; and

(b) the AIF or the AIFM on behalf of the AIF shall instruct the depositary to delegate the custody of such financial instruments to such local entity: Provided further that the third party may in turn sub-delegate those functions subject to the same requirements;

(iii) the third party segregates the assets of the depositary’s clients from its own assets and from the assets of the depositary in such a way that they can at any time be clearly identified as belonging to the clients of a particular depositary;

(iv) the third party does not make use of the assets without the prior consent of the AIF or the AIFM acting on behalf of the AIF and prior notification to the depositary; and

(v) the third party complies with the general obligations and prohibitions prescribed in regulations 30(2) and (3), 31 to 33.

(2) The provision of services as specified by Directive 98/26/ EC by securities settlement systems as designated for the purposes of that Directive or the provision of similar services by third country securities settlement systems shall not be considered a delegation of the depositary’s functions. Part 5

Requirements applicable to depositaries of collective investment schemes other than UCITS and AIFs