Investment Schemes) Regulations, 2016

(1) The title of these regulations is the Investment

Services Act (Custodians of Collective Investment Schemes)

Regulations, 2016.

(2) The objective of these regulations is in part to transpose

the following

(a)

Articles 22, 22a, 23, 24, 25, 26 and 26a of the

UCITS Directive; and

(b) Articles 19(4) second sub-paragraph, 21 and 61(5)

of the AIFMD.

(3) These regulations shall be applicable to custodians of all

collective investment schemes.

(1)

In these regulations, unless the context otherwise

requires

"the Act" shall mean the Investment Services Act;

"AIFMD" means Directive 2011/61/EU of the European

Parliament and of the Council of 8 June 2011 on Alternative

Investment Fund Managers, as may be amended from time to time;

"alternative investment fund" or "AIF" means a collective

investment scheme, including the subfunds thereof, which raises

capital from a number of investors, with a view to investing it in

accordance with a defined investment policy for the benefit of those

investors, and which does not qualify as a UCITS Scheme in terms of

the UCITS Directive;

"alternative investment fund manager" or "AIFM" means a legal

person whose regular business is the management of one or more

AIFs;

"Category 2 Investment Services Licence" shall have the same

meaning as that provided in the Investment Services Act (Licence and S.L. 370.03

other fees) Regulations;

"collective investment scheme" or "scheme" shall have the same

meaning as that provided in the Act;

"the competent authority" means the Malta Financial Services

Authority established by the Malta Financial Services Authority Act; Cap. 330.

"custodian" means a licence holder in possession of a Category

4a or 4b investment services licence, as the context requires, issued in

terms of the Act;

"Directive 2013/36/EU" means Directive 2013/36/EU of the

European Parliament and of the Council of 26 June 2013 on access to

the activity of credit institutions and the prudential supervision of

credit institutions and investment firms, amending Directive 2002/87/

EC and repealing Directives 2006/48/EC and 2006/49/EC as may be

amended from time to time and includes any implementing measures

that have been or may be issued thereunder;

"Directive 2010/43/EC" means Commission Directive 2010/43/

EC of 1 July 2010 implementing Directive 2009/65/EC of the

European Parliament and of the Council as regards organisational

requirements, conflicts of interest, conduct of business, risk

management and content of the agreement between a depositary and a

management company as may be amended from time to time and

includes any implementing measures that have been or may be issued

thereunder;

"Directive 2006/73/EC" means Commission Directive 2006/73/

EC of 10 August 2006 implementing Directive 2004/39/EC of the

European Parliament and of the Council as regards organisational

requirements and operating conditions for investment firms and

defined terms for the purposes of that Directive as may be amended

from time to time and includes any implementing measures that have

been or may be issued thereunder;

"financial instrument" means a financial instrument as specified

in Section C of Annex I to Directive 2004/39/EC of the European

Parliament and of the Council of 21 April 2004 on markets in

financial instruments;

"Investment Services Rules" means the Rules issued by the

competent authority pursuant to the provisions of the Act;

"Maltese UCITS" means

(a)

an investment company, a partnership en

commandite or a limited partnership with its registered office

and head office situated in Malta and licensed in terms of the

Act; or

(b) where the UCITS is constituted as a common fund, a

UCITS domiciled in Malta in terms of the Investment Services

Act (Contractual Funds) Regulations and licensed in terms of

the Act; or

(c)

where the UCITS is established as a unit trust, a unit

trust whose proper law is the law of Malta;

"management body" shall mean the body with the ultimate

decision-making authority in a management company or fund

manager, investment company or custodian, comprising the

supervisory and the managerial functions, or only the managerial

function if the two functions are separated;

"Regulation (EU) No. 231/2013" shall mean Commission

Delegated Regulation (EU) No. 231/2013 of 19 December 2012

supplementing Directive 2011/61/EU of the European Parliament and

of the Council with regard to exemptions, general operating

conditions, depositaries, leverage, transparency and supervision;

"UCITS" means undertakings for collective investment in

transferable securities in terms of the UCITS Directive as defined

herein;

"UCITS Directive" means Directive 2009/65/EC of the

European Parliament and of the Council of 13 July 2009 on the

coordination of laws, regulations and administrative provisions

relating to undertakings for collective investment in transferable

securities (UCITS) (recast), as amended by Directive 2014/91/EU of

the European Parliament and of the Council of 23 July 2014;

"UCITS management company" means a management company

authorised by a European regulatory authority or the competent

authority and the regular business of which is the management of

UCITS.

(2) Words and expressions which are also used in the Act shall

have the same meaning as in the Act.

Part 2

General requirements applicable to custodians

of collective investment schemes

This Part shall apply to custodians of all collective Applicability of

Part 2.

investment schemes.

(1) The custodian of a collective investment scheme Requirement of

shall be in possession of a valid Category 4a or 4b Investment a licence.

Services Licence issued in terms of the Act.

(2) A Category 4a Investment Services Licence Holder shall

be eligible to act as custodian to all types of collective investment

schemes.

(3) A Category 4b Investment Services Licence Holder shall

be eligible to act as custodian in specific instances as prescribed in

Part 4.

(1) The collective investment scheme or the fund Written

manager on behalf of the scheme shall ensure that a custodian is contract.

appointed.

(2) The appointment of the custodian of a collective

investment scheme pursuant to sub-regulation (1) shall be evidenced

by a written contract also referred to as the custody agreement.

(3) The custody agreement shall, inter alia, regulate the flow

of information deemed to be necessary to allow the custodian to

perform its functions for the scheme for which it has been appointed

as custodian in accordance with these regulations.

(1) The custodian shall have the right to charge fees to Custodian’s

the scheme and to be reimbursed for expenses in accordance with the fees.

terms and conditions of the custody agreement referred to in

regulation 5.

(2) The custodian may, if authorised to do so by the terms and

conditions of the custody agreement, exercise a right of retention over

the assets of the scheme held under its control, to the extent of any

lawfully due but unpaid fees and expenses, until such fees and

expenses are paid.

(1) Without prejudice to any requirements as may be Termination of

prescribed by the competent authority, a custody agreement may be the

agreement.

terminated by the scheme, by the fund manager, by the custodian or

by order of the competent authority

Provided that the fund manager may terminate the custody

agreement in the case where it is a party to the agreement and it has

been granted termination rights.

(2) The custodian shall proceed with the conveyance of the

assets held for the scheme as stipulated in the custody agreement or as

instructed by the scheme.

(1) The termination of the appointment of the custodian

in accordance with the provisions of regulation 7 shall only come into

force following the lapse of a transitional period of three months from

the date of the notification to terminate the custody agreement, within

which the scheme or the fund manager on behalf of the scheme is to

appoint another custodian

Provided that the three-month transitional period shall not

apply in the instances where the custody agreement includes clauses

which provide for its immediate termination.

(2) At any time prior to the expiration of the transitional

period, the custodian and the scheme or the fund manager on behalf

of the scheme may, by agreement, extend the transitional period.

(3) Where the scheme, the fund manager on behalf of the

scheme or the custodian serves notice to terminate the appointment of

the custodian, it shall simultaneously notify the competent authority

of the intended termination of the appointment of the custodian and of

the transitional period specified in sub-regulation (1).

(4) In the case where following the lapse of the transitional

period, the scheme, or the fund manager on behalf of the scheme, fails

to find a replacement for the outgoing custodian, the scheme, or the

fund manager on behalf of the scheme shall immediately notify the

competent authority.

(5) Following an assessment of the case, the outgoing

custodian shall, in accordance with the directions given by the

competent authority, provide the monitoring, safekeeping and

oversight functions as the case may be in relation to the assets of the

scheme

Provided that, having regard to the circumstances of the

case, the competent authority may also order the suspension of the

collective investment scheme licence or the liquidation and winding

up of the scheme.

The constitutional documents of the scheme shall lay down

the conditions for the replacement of the custodian as well as rules to

ensure the protection of unit-holders in the event of such replacement.

In the event of insolvency of the custodian and, or of any Insolvency of

third party located in any Member State or EEA State to which the custodian.

custody of assets has been delegated, the assets of the scheme held in

custody shall not be available for distribution among, or realisation

for the benefit of, the creditors of such a custodian and, or such third

party.

(1) A custodian holding assets of a scheme in custody Assets held by

shall hold such assets solely for and on behalf of and in the interest of the

constitute a

the scheme and its investors.

distinct

patrimony.

(2) Notwithstanding the provisions of article 1894 of the Civil Cap. 16.

Code, the assets held by the custodian shall be deemed to constitute a

distinct patrimony, separate from that belonging to the custodian and

from that of other collective investment schemes, the assets of whom

are also held by the custodian.

(3) Except as expressly provided in the custody agreement

entered into between the custodian and the scheme or the fund

manager on behalf of the scheme and notwithstanding the provisions

of the Civil Code, the control of assets of the scheme, shall not give or Cap. 16.

be deemed or construed to give to the custodian any rights over such

assets nor shall it create any form of loan between the custodian and

the scheme and this notwithstanding the nature of the assets or the

rights or obligations of the custodian in relation to the assets.

(1) The scheme whose assets are held by a custodian Scheme enjoys

enjoys a right of ownership in such assets notwithstanding that they right

ownership in

may be registered in the name and title of or are otherwise vested in assets.

the custodian.

(2) The records, accounts and other statements held or issued

by the custodian shall, saving any proof to the contrary, constitute

evidence of their contents and of the right of ownership of the scheme

as provided in terms of sub-regulation (1).

(1) The creditors of the custodian shall have no claim or Assets held

right of action on or against the assets held by the custodian for and under

not subject to

on behalf of the scheme and such assets shall not be affected in any the

creditors of the

manner by the provisions of laws and regulations in force regulating custodian.

the insolvency or bankruptcy of the custodian.

(2) In the event of any such insolvency or bankruptcy or

related order or resolution, or in the event that the competent

authority so requires, the custodian or any administrator or receiver or

other officer appointed to represent it by any court or otherwise, shall

on demand of any scheme or of the competent authority, immediately

transfer the control, possession and title of all assets held by or in the

name of the custodian on behalf of the scheme to another custodian or

to such other person as may be instructed by the scheme or by the

competent authority.

(3) In the event that any assets held by the custodian are, at the

request of any creditor of the custodian, made subject to any

precautionary or executive act or warrant granted by any Court in

terms of the Code of Organization and Civil Procedure, the scheme on

whose behalf such assets are being held or the competent authority

may, by application to the Court, request the release of the assets from

such act or warrant and the Court shall on production of evidence, as

it may deem fit, accede to the application without delay.

(1) The delivery of the assets of a scheme to a custodian

and from a custodian to a scheme or another custodian for the purpose

of these regulations shall not be deemed to constitute a chargeable

transfer for the purposes of the Duty on Documents and Transfers Act

and for the purposes of article 5(1) of the Income Tax Act, where the

delivery of such assets does not constitute a change in the beneficial

owner of the assets.

(2) For the purposes of this regulation, beneficial owner means

a person who is the real owner of, or who is otherwise beneficially

entitled to, the assets held by the custodian, as is provided in

regulation 12.

Part 3

Requirements applicable to custodians of UCITS

(1)

This Part shall apply exclusively to custodians of

UCITS.

(2) The custodian of a Maltese UCITS shall also be guided by

the provisions prescribed in the Investment Services Rules for

Investment Services Providers applicable to custodians.

(1) The UCITS management company shall ensure that

a single custodian is appointed for each UCITS it manages.

(2) Where the scheme is a self-managed UCITS, it shall

ensure that a custodian is appointed.

(1) The custodian of a Maltese UCITS shall have an

established place of business in Malta.

(2) The following entities shall be eligible to provide custody

services to a UCITS

(a)

a national central bank;

(b) a credit institution authorised in accordance with

Directive 2013/36/EU and in possession of a licence issued in

terms of the Banking Act;

(c)

a branch established in Malta of a credit institution

authorised in a Member State or EEA State;

(d) a company incorporated in Malta, which is wholly

owned by a credit institution, provided that the liabilities of the

company are guaranteed by the credit institution, and the credit

institution is either a Maltese credit institution or a credit

institution established in an EU Member State or an EEA State

and authorised in accordance with Directive 2013/36/EU

Provided that the entity referred to in this paragraph

(d) shall be required to have a minimum of one director who is

resident in Malta on its board of directors;

(e)

an investment firm or branch of an investment firm

established in a Member State or EEA State other than Malta

subject to capital adequacy requirements in accordance with

Directive 2013/36/EU and Regulation (EU) No 575/2013

including capital requirements for operational risks and

authorised in accordance with Directive 2004/39/EC of the

European Parliament and of the Council of 21 April 2004 on

markets in financial instruments and which also provides the

ancillary service of safekeeping and administration of financial

instruments for the account of clients, including custodianship

and related services such as cash/collateral management in

accordance with point (1) of Section B of Annex I of Directive

2004/39/EC

Provided that such investment firms shall in any

case have own funds not less than the amount of initial capital

referred to in Article 28(2) of Directive 2013/36/EU

Provided further that the entity referred to in this

paragraph (e) shall be required to have a minimum of one

director who is resident in Malta on its board of directors.

(3) The entities referred to in sub-regulation (2) shall be in

possession of a Category 4a Investment Services Licence issued in

terms of the Act.

(4) An entity which is referred to in sub-regulation (2)(c), (d)

and (e) shall be subject to prudential regulation and ongoing

supervision and shall satisfy the following minimum requirements

(a)

it shall have the infrastructure necessary to keep in

custody financial instruments that can be registered in a

financial instruments account opened in the custodian’s books;

(b) it shall establish adequate policies and procedures

sufficient to ensure compliance of the entity, including its

managers and employees, with its obligations in terms of these

regulations;

(c)

it shall have sound administrative and accounting

procedures, internal control mechanisms, effective procedures

for risk assessment and effective control and safeguard

arrangements for information processing systems;

(d) it shall maintain and operate effective organisational

and administrative arrangements with a view to taking all

reasonable steps designed to prevent conflicts of interest;

(e)

it shall arrange for records to be kept of all services,

activities and transactions that it undertakes, which shall be

sufficient to enable the competent authority to fulfil its

supervisory tasks and to perform the enforcement actions

provided for in these regulations as well as in the applicable

Investment Services Rules;

(f)

it shall take reasonable steps to ensure continuity

and regularity in the performance of its custodian functions by

employing appropriate and proportionate systems, resources

and procedures including to perform its custody activities;

(g) all members of the management body and the senior

management of the said entity shall at all times be of

sufficiently good repute and possess sufficient knowledge, skills

and experience;

(h) the management body of the said entity shall possess

adequate collective knowledge, skills and experience to be able

to understand the custodian’s activities, including the main

risks; and

(i)

each member of the management body and senior

management shall act with honesty and integrity.

(5) UCITS or UCITS management companies acting on behalf

of the UCITS they manage which, prior to 18 March 2016, appointed

as custodian an institution that did not meet the requirements

prescribed in sub-regulations (2) and (4), shall, by 18 March 2018,

appoint a custodian that meets the said requirements.

(1) No company shall act as both UCITS management Conflicts of

interest.

company and custodian.

(2) A scheme which is in possession of a collective investment

scheme licence issued in terms of the Act shall not act as custodian. Cap. 370.

(3) In carrying out their respective functions, the UCITS

management company and the custodian shall act honestly, fairly,

professionally, independently and solely in the interests of the UCITS

and the investors of the UCITS.

(4) A custodian shall not carry out activities with regard to the

UCITS or the UCITS management company on behalf of the UCITS,

that may create conflicts of interest between the UCITS, the investors

in the UCITS, the UCITS management company and itself, unless the

custodian has functionally and hierarchically separated the

performance of its custodian tasks from its other potentially

conflicting tasks, and the potential conflicts of interest are properly

identified, managed, monitored and disclosed to the investors of the

UCITS.

The custodian shall

Oversight

function.

(a)

ensure that the sale, issue, repurchase, redemption

and cancellation of units of the UCITS are carried out in

accordance with the requirements prescribed by the competent

authority, if any, applicable to the UCITS and with the

constitutional documents of the UCITS;

(b) ensure that the value of the units of the UCITS is

calculated in accordance with the provisions of the

constitutional documents of the UCITS;

(c)

carry out the instructions of the UCITS management

company or the UCITS, unless they conflict with the

requirements prescribed by the competent authority, if any,

applicable to the UCITS and with the constitutional documents

of the UCITS;

(d) ensure that in transactions involving the assets of the

UCITS, any consideration is remitted to the UCITS within the

usual time limits;

(e)

ensure that the income of the UCITS is applied in

accordance with the constitutional documents of the UCITS.

(1) The custodian shall ensure that the cash flows of the

UCITS are properly monitored and, in particular, that all payments

made by or on behalf of investors upon the subscription of units of the

UCITS have been received.

(2) The custodian shall ensure that all cash of the UCITS has

been booked in cash accounts that are

(a) opened in the name of the UCITS, the UCITS

management company acting on behalf of the UCITS, or the

custodian acting on behalf of the UCITS;

(b)

opened at one of the following entities

(i)

a central bank;

(ii) a credit institution authorised in accordance

with Directive 2013/36/EU; or

(iii) a bank authorised in a third country;

(c)

maintained in accordance with the principles set out

in Article 16 of Directive 2006/73/EC.

(3) Where the cash accounts are opened in the name of the

custodian acting on behalf of the UCITS, no cash of the entity

referred to in sub-regulation (2)(b) and none of the own cash of the

custodian shall be booked on such accounts.

(1) The assets of the UCITS shall be entrusted to the

custodian for safekeeping as follows

(a) for financial instruments that may be held in

custody, the custodian shall

(i) hold in custody all financial instruments that

may be registered in a financial instruments account

opened in the custodian’s books and all financial

instruments that can be physically delivered to the

custodian;

(ii) ensure that all financial instruments that can

be registered in a financial instruments account opened in

the custodian’s books are registered in the custodian’s

books within segregated accounts in accordance with the

principles set out in Article 16 of Directive 2006/73/EC,

opened in the name of the UCITS or the UCITS

management company acting on behalf of the UCITS, so

that they can be clearly identified as belonging to the

UCITS in accordance with the applicable law at all times;

(b)

for other assets, the custodian shall

(i) verify the ownership by the UCITS or by the

UCITS management company acting on behalf of the

UCITS of such assets by assessing whether the UCITS or

the UCITS management company acting on behalf of the

UCITS holds the ownership based on information or

documents provided by the UCITS or by the UCITS

management company and, where available, on external

evidence; and

(ii) maintain a record of those assets for which it

is satisfied that the UCITS or the UCITS management

company acting on behalf of the UCITS holds ownership

and keep that record up to date.

(2) The custodian shall, on a regular basis, provide the UCITS

management company or the UCITS with a comprehensive inventory

of all the assets of the UCITS.

(1) The assets held in custody by the custodian shall not Reuse of assets

be reused by the custodian, or by any third party to which the custody held in custody.

function has been delegated, for their own account except where

(a)

the reuse of the assets is executed for the account of

the UCITS;

(b) the custodian is carrying the instructions of the

UCITS management company on behalf of the UCITS;

(c)

the reuse is for the benefit of the UCITS and in the

interest of the unit holders;

(d) the transaction is covered by high-quality and liquid

collateral received by the UCITS under a title transfer

arrangement

Provided that the use of the term "reuse" in this regulation

shall comprise any transaction of assets held in custody including, but

not limited to, transferring, pledging, selling and lending.

(2) The market value of the collateral shall, at all times,

amount to at least the market value of the reused assets plus a

premium.

(1) The custodian shall not delegate to third parties the

functions referred to in regulations 19 and 20.

(2) The custodian may delegate to third parties the functions

referred to in regulation 21(1) only where

(a) the tasks are not delegated with the intention of

avoiding the requirements prescribed in these regulations and in

the applicable Investment Services Rules;

(b) the custodian can demonstrate that there is an

objective reason for delegation; and

(c)

the custodian has exercised due skill, care and

diligence in the selection and appointment of any third party to

whom it intends to delegate parts of its tasks, and continues to

exercise all due skill, care and diligence in the periodic review

and ongoing monitoring of any third party to which it has

delegated parts of its tasks and of the arrangements of the third

party in respect of the matters delegated to it.

(3) The functions referred to in regulation 21(1), may be

delegated by the custodian to a third party only where that third party

at all times during the performance of the tasks delegated to it

(a)

has structures and expertise that are adequate and

proportionate to the nature and complexity of the assets of the

UCITS or the UCITS management company acting on behalf of

the UCITS which have been entrusted to it;

(b) for the custody tasks referred to in regulation

21(1)(a), is subject to

(i) effective prudential regulation, including

minimum capital requirements and supervision in the

jurisdiction concerned; and

(ii) an external periodic audit to ensure that the

financial instruments are in its possession;

(c) segregates the assets of the clients of the custodian

from its own assets and from the assets of the custodian in such

a way that they can, at any time, be clearly identified as

belonging to clients of a particular custodian;

(d) takes all necessary steps to ensure that in the event

of insolvency of the third party, assets of a UCITS held by the

third party in custody are unavailable for distribution among, or

realisation for the benefit of, creditors of the third party; and

(e)

complies with the general obligations

and

prohibitions prescribed in regulations 5, 21(1), 18 and 22.

(4) Notwithstanding the provisions of sub-regulation (3)(b)(i),

where the law of a third country requires that certain financial

instruments be held in custody by a local entity and no local entities

satisfy the delegation requirements laid down in that point, the

custodian may delegate its functions to such a local entity only to the

extent required by the law of that third country, only for as long as

there are no local entities that satisfy the delegation requirements and

only where

(a)

the investors of the relevant UCITS are duly

informed, prior to their investment, of the fact that such a

delegation is required due to legal constraints in the law of the

third country, of the circumstances justifying the delegation and

of the risks involved in such a delegation;

(b) the UCITS, or the UCITS management company on

behalf of the UCITS, has instructed the custodian to delegate the

custody of such financial instruments to such a local entity.

(5) The third party may in turn sub-delegate the functions

referred to in sub-regulation (3) subject to the same requirements. In

such a case, the provisions of regulation 24(4) shall apply mutatis

mutandis to the relevant parties.

(6) For the purposes of this regulation, the provision of

services as specified by Directive 98/26/EC of the European

Parliament and of the Council of 19 May 1998 on settlement finality

in payment and securities settlement systems, 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 to be a delegation of custody

functions.

(1) The custodian shall be liable to the UCITS and to Liability of the

the unit-holders of the UCITS for loss by the custodian or a third custodian.

party to whom the custody of financial instruments held in custody in

accordance with regulation 21(1)(a) has been delegated.

(2) In the case of loss of a financial instrument held in custody,

the custodian shall return a financial instrument of an identical type or

the corresponding amount to the UCITS or the UCITS management

company acting on behalf of the UCITS without undue delay

Provided that the custodian shall not be liable if it can

prove that the loss has arisen as a result of an external event beyond

its reasonable control, the consequences of which would have been

unavoidable despite all reasonable efforts to the contrary.

(3) The custodian shall also be liable to the UCITS and to the

investors of the UCITS for all other losses suffered by them as a

result of the custodian’s negligent or intentional failure to properly

fulfil its obligations pursuant to the provisions of the Act, these

regulations and the applicable Investment Services Rules.

(4) The liability of the custodian referred to in sub-regulations

(1) to (3) shall not be affected by any delegation as referred to in

regulation 23.

(5) The liability of the custodian referred to in sub-regulations

(1) to (3) shall not be excluded or limited by agreement.

(6) Any agreement that contravenes the provisions of sub-

regulation (5) shall be void.

(7) Unit-holders in the UCITS may invoke the liability of the

custodian directly or indirectly through the UCITS management

company or the UCITS itself provided that this does not lead to a

duplication of redress or to unequal treatment of the unit-holders.

(1) The custodian shall, on request, make available to

the competent authority all information which it has obtained while

performing its duties and that may be necessary for the competent

authority or for the European regulatory authorities of the UCITS or

the UCITS management company.

(2) Where the UCITS or the UCITS management company are

established in a Member State or EEA State, other than Malta, the

competent authority shall without delay share the information

received with the European regulatory authority of the UCITS and the

UCITS management company.

Part 4

Custodians of AIFs

The custodian of a Maltese AIF shall be either a Category

4a or a Category 4b Licence Holder as prescribed in Parts 4a and 4b.

Part 4a

Requirements applicable to custodians of AIFs - Category 4a

(1) This Part shall apply solely to custodians in Applicability of

possession of a Category 4a Investment Services Licence which Part 4a.

provide custody services to the following

(a)

Maltese AIFs which are managed by an AIFM; or

(b)

Maltese self-managed AIFs.

(2) A Category 4a Investment Services Licence Holder shall

also be guided by the provisions prescribed in the Investment

Services Rules for Investment Services Providers applicable to

custodians.

The AIFM shall ensure that a custodian is appointed for Appointment of

the custodian.

each AIF it manages

Provided that where the scheme is a self-managed AIF, it

shall appoint a custodian.

(1) The custodian of a Maltese AIF shall have an Eligibility

criteria.

established place of business in Malta

Provided that in the case of a non-EU AIF which is

managed by a Maltese AIFM, the custodian may be either established

in Malta or be established in the third country where the non-EU AIF

is established

Provided further that the competent authority may allow a

credit institution authorised in accordance with Directive 2013/36/EU

and established in a Member State or EEA State other than Malta to

be appointed as custodian to an AIF the units or shares of which are

marketed to professional investors until 22 July 2017.

(2) The following entities shall be eligible to hold a Category

4a Investment Services Licence issued in terms of the Act and to Cap. 370.

provide custody services to all AIFs

(a) a credit institution authorised in accordance with

Directive 2013/36/EU and in possession of a licence issued in

terms of the Banking Act;

(b) a branch established in Malta of a credit institution

authorised in a Member State or EEA State;

(c)

a branch established in Malta of an overseas credit

institution which is subject to prudential requirements at least

equivalent to the requirements applicable to Maltese credit

institutions;

(d) a company incorporated in Malta, which is wholly

owned by a credit institution, provided that the liabilities of the

company are guaranteed by the credit institution, and the credit

institution is either a Maltese credit institution or a credit

institution established in a Member State or EEA State and

authorised in accordance with Directive 2013/36/EU

Provided that in such a case, the custodian shall be

required to have a minimum of one director on its board of

directors who is resident in Malta;

(e)

a company incorporated in Malta which is wholly

owned by a Maltese or foreign institution or company which is

deemed by the competent authority to be an institution or

company which provides unit-holders with protection

equivalent to that provided by a custodian fulfilling the

requirements prescribed in paragraphs (a), (b), (c) or (d) and

provided the liabilities of the company acting as custodian are

guaranteed by the institution or company and the institution or

company has paid-up share capital of five million euro

(€5,000,000) or its equivalent in foreign currency

Provided that, in such a case, the custodian shall be

required to have a minimum of one director on its board of

directors who is resident in Malta;

(f)

an investment firm or branch of an investment firm

established in another Member State or EEA State subject to

capital adequacy requirements in accordance with Directive

2013/36/EU and Regulation (EU) 575/2013 including capital

requirements for operational risks and authorised in accordance

with Directive 2014/65/EU of the European Parliament and of

the Council of 15 May 2014 on markets in financial instruments

and which also provides the ancillary service of safekeeping and

administration of financial instruments for the account of clients

in accordance with point (1) of Section B of Annex I of

Directive 2004/39/EC

Provided that such investment firms shall in any

case have own funds not less than the amount of initial capital

referred to in Article 28(2) of Directive 2013/36/EU.

(1)

In order to avoid conflicts of interest between the

custodian, the AIFM and, or the AIF and, or its investors

(a)

the AIFM shall not be licensed to act as custodian;

(b) a prime broker acting as counterparty to an AIF shall

not act as custodian for that AIF unless it has functionally and

hierarchically separated the performance of its functions as

custodian from its tasks as prime broker and the potential

conflicts of interest are properly identified, managed, monitored

and disclosed to the investors of the AIF

Provided that delegation by the custodian to such

prime broker of its custody tasks in accordance with regulation

34 is allowed if the relevant conditions are met; and

(c)

the custodian shall not be appointed as external

valuer of the AIF, unless it has functionally and hierarchically

separated the performance of its functions as custodian from its

tasks as external valuer and the potential conflicts of interest are

properly identified, managed, monitored and disclosed to the

investors of the AIF.

(2) In the context of their respective roles, the custodian and

the AIFM shall act honestly, fairly, professional, independently and in

the interests of the AIF and the investors of the AIF.

(3) The custodian shall not carry out any activities with regard

to the AIF or the AIFM on behalf of the AIF that may create conflicts

of interest between the AIF, the investors in the AIF, the AIFM and

itself, unless the custodian has functionally and hierarchically

separated its tasks as custodian from its other potentially conflicting

tasks and the potential conflicts of interest are properly identified,

managed, monitored and disclosed to the investors of the AIF.

(1) The custodian shall in general ensure that the AIF’s Monitoring of

cash flows.

cash flows are properly monitored.

(2) The custodian shall in particular ensure that all payments

made by or on behalf of the investors upon subscription of units of an

AIF have been received and that all the cash of the AIF has been

booked in cash accounts opened in the name of the AIF or in the name

of the AIFM acting on behalf of the AIF or in the name of the

custodian acting on behalf of the AIF with any one of the following

entities

(a)

a central bank;

(b)

a credit institution authorised in accordance with

Directive 2013/36/EU;

(c)

a bank authorised in a third country; or

(d) another entity of the same nature in the relevant

market where cash accounts are required provided such entity is

subject to effective prudential supervision which has the same

effect as Union law and is effectively enforced in accordance

with the principles set out in Article 16 of Directive 2006/73/

EC.

(3) Where the cash accounts are opened in the name of the

custodian acting on behalf of the AIF, no cash of the entity referred to

in sub-regulation (2) and none of the custodian’s own cash shall be

booked on such accounts.

(1) The assets of the AIF or the AIFM acting on behalf

of the AIF shall be entrusted to the custodian for safekeeping as

(a)

for financial instruments that can be held in custody

(i) the custodian shall hold in custody all

financial instruments that can be registered in a financial

instruments account opened in the custodian’s books and

all financial instruments that can be physically delivered to

the custodian;

(ii) for that purpose, the custodian shall ensure

that all those financial instruments that can be registered in

a financial instruments account opened in the custodian’s

books are registered in the custodian’s books within

segregated accounts in accordance with the principles set

out in Article 16 of Directive 2006/73/EC, opened in the

name of the AIF or the AIFM acting on behalf of the AIF,

so that they can be clearly identified as belonging to the

AIF in accordance with the applicable law at all times;

(b)

for other assets

(i) the custodian shall verify the ownership of

the AIF or the AIFM acting on behalf of the AIF of such

assets and shall maintain a record of those assets for which

it is satisfied that the AIF or the AIFM acting on behalf of

the AIF holds the ownership of such assets;

(ii) the assessment whether the AIF or the AIFM

acting on behalf of the AIF holds the ownership shall be

based on information or documents provided by the AIF or

the AIFM and, where available, on external evidence;

(iii) the custodian shall keep its records up-to-

date.

(2) The custodian shall not reuse the assets referred to in sub-

regulation (1) without the prior consent of the AIF or the AIFM

acting on behalf of the AIF.

In addition to the tasks referred to in regulations 31 and Oversight

function.

32(1), the custodian shall

(a) ensure that the sale, issue, re-purchase, redemption

and cancellation of units or shares of the AIF are carried out in

accordance with the provisions of the Act, the Rules and Cap. 370.

regulations issued thereunder, and the fund rules or instruments

of incorporation;

(b) ensure that the value of the units or shares of the AIF

is calculated in accordance with the provisions of the Act, the Cap. 370.

Rules and regulations issued thereunder, the fund rules or

instruments of incorporation and the valuation procedures as

outlined in the applicable Investment Services Rules;

(c)

carry out the instructions of the AIFM, unless they

conflict with the provisions of the Act, the Rules and Cap. 370.

regulations issued thereunder, the AIF’s fund rules or

instruments of incorporation;

(d) ensure that in transactions involving the AIF’s assets

any consideration is remitted to the AIF within the usual time

limits;

(e)

ensure that the AIF’s income is applied in

accordance with the provisions of the Act, the Rules and Cap. 370.

regulations issued thereunder and the fund rules or instruments

of incorporation.

(1) The custodian shall not delegate to third parties its Delegation.

functions as described in this Part save for those referred to in

regulation 32(1).

(2) The custodian may delegate to third parties the functions

referred to in regulation 32(1) subject to the following conditions

(a) the tasks are not delegated with the intention of

avoiding the requirements prescribed in the Act, the Rules and Cap. 370.

regulations issued thereunder;

(b) the custodian can demonstrate that there is an

objective reason for the delegation;

(c)

the custodian has exercised all due skill, care and

diligence in the selection and the appointment of any third party

to whom it wants to delegate parts of 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 parts of its tasks and of the arrangements of the third

party in respect of the matters delegated to it; and

(d) the custodian 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 the structures and the

expertise that are adequate and proportionate to the nature

and the complexity of the assets of the AIF or the AIFM

acting on behalf of the AIF which have been entrusted to

it;

(ii) for custody tasks referred to in regulation

32(1)(a), 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 instruments 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 custodian 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 constrains 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, must instruct the depositary to delegate the

custody of such financial instruments to such local

entity;

(iii) the third party segregates the assets of the

custodian’s clients from its own asses and from the assets

of the custodian in such a way that they can at any time be

clearly identified as belonging to clients of a particular

custodian;

(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 custodian;

(v) the third party complies with the general

obligations and the prohibitions set out in regulation 30(2)

and (3) and regulation 32(1) and (3).

(3) The third party may, in turn, sub-delegate those functions,

subject to the same requirements prescribed in the above sub-

regulations. In such a case, regulation 36 shall apply mutatis mutandis

to the relevant parties.

(4) For the purposes of this regulation, the provision of

services as specified by Directive 98/26/EC by securities settlement

systems as designated for the purposes of said Directive or the

provision of similar services by third country securities settlement

systems shall not be considered a delegation of its custody functions.

(1) The custodian shall be liable to the AIF or to the Liability of the

investors of the AIF, for the loss by the custodian or a third party to custodian.

whom the custody of financial instruments held in custody in

accordance with regulation 32(1)(a) has been delegated.

(2) In the case of such a loss of financial instruments held in

custody, the custodian shall return a financial instrument of identical

type or the corresponding amount to the AIF or the AIFM acting on

behalf of the AIF without undue delay. The custodian shall not be

liable if it can prove that the loss has arisen as a result of an external

event beyond its reasonable control, the consequences of which

would have been unavoidable despite all reasonable efforts to the

contrary.

(3) The custodian shall also be liable to the AIF, or to the

investors of the AIF, for all other losses suffered by them as a result of

the custodian’s negligent or intentional failure to properly fulfil its

obligations pursuant to the provisions of the Act, the regulations and Cap. 370.

the Rules issued thereunder.

(4) Liability to the investors of the AIF may be invoked

directly or indirectly through the AIFM, depending on the legal

nature of the relationship between the custodian, the AIFM and the

investors.

(1) The custodian’s liability shall not be affected by any

delegation referred to in regulation 34.

(2) Notwithstanding the generality of sub-regulation (1), in the

case of a loss of financial instruments held in custody by a third party

pursuant to regulation 34, the custodian may discharge itself of

liability if it can prove that

(a)

all requirements for the delegation of its custody

tasks set out in regulation 34 are met;

(b) a written agreement between the custodian and the

third party expressly transfers the liability of the custodian to

that third party and makes it possible for the AIF or the AIFM

acting on behalf of the AIF to make a claim against the third

party in respect of the loss of financial instruments or for the

custodian to make such a claim on their behalf; and

(c)

a custody agreement between the custodian and the

AIF or the AIFM acting on behalf of the AIF expressly allows a

discharge of the custodian’s liability and establishes the

objective reason to contract such a discharge.

(3) Where the law of a third country requires that certain

financial instruments are held in custody by a local entity and there

are no local entities that satisfy the delegation requirements

prescribed in regulation 34(2)(d)(ii), the depositary can discharge

itself of liability provided that the following conditions are met

(a) the rules or instruments of incorporation of the AIF

concerned expressly allow for such a discharge under the

conditions prescribed in this sub-regulation;

(b) the investors of the relevant AIF have been duly

informed of that discharge and of the circumstances justifying

the discharge prior to their investment;

(c)

the AIF or the AIFM on behalf of the AIF instructed

the depositary to delegate the custody of such financial

instruments to a local entity;

(d) there is a custody agreement between the custodian

and the AIF or the AIFM acting on behalf of the AIF which

expressly allows such a discharge; and

(e)

there is a written agreement between the custodian

and the third party that expressly transfers the liability of the

custodian to that local entity and makes it possible for the AIF

or the AIFM acting on behalf of the AIF to make a claim against

that local entity in respect of the loss of financial instruments or

for the custodian to make such a claim on their behalf.

(1) The custodian shall make available to the competent Reporting

authority, on request, all information which it has obtained while obligations

the custodian.

performing its duties and that may be necessary in relation to the

AIFM or the AIF.

(2) Where the AIF or the AIFM are established in a Member

State or EEA State other than Malta, the competent authority shall

without delay share the information received with the European

regulatory authority of the AIF or AIFM.

Part 4b

Requirements applicable to custodians of AIFs - Category 4b

(1) This Part shall apply solely to custodians in Applicability of

possession of a Category 4b Investment Services Licence and which Part 4b.

provide custody services to the following types of AIFs

(a) AIFs which are managed by a Maltese or EU AIFM

or are self-managed AIFs and which have no redemption rights

exercisable during the period of five years from the date of the

initial investments and which, in accordance with their core

investment policy, generally do not invest in assets that must be

held in custody in accordance with regulation 32(1)(a) or which

generally invest in issuers or non-listed companies in order to

acquire control of such companies in accordance with the

provisions of the applicable Investment Services Rules; or

(b) third country AIFs which are marketed in Malta by a

Maltese or EU AIFM in terms of regulation 7 of the Investment S.L. 370.24

Services Act (Alternative Investment Fund Manager) (Third

Country) Regulations.

(2) A Category 4b Investment Services Licence Holder shall

also be guided by the rules prescribed in Part B IV of the Investment

Services Rules for Investment Services Providers applicable to

custodians.

The AIFM shall ensure that a custodian in possession of Appointment of

either a Category 4a or a Category 4b Investment Services Licence is the custodian.

appointed to act as custodian to AIFs referred to in regulation 38(1)

which are managed by the AIFM.

The following entities shall be eligible to apply for and

obtain a Category 4b Investment Services Licence

(a) an Investment Services Licence Holder in

possession of a Category 2 Investment Services Licence issued

in terms of the Act

Provided that UCITS management companies and

AIFMs shall not be included in the list of eligible entities;

(b) Recognised fund administrators in possession of a

Recognition Certificate issued in terms of article 9A of the Act.

A Category 4b Investment Services Licence Holder which

provides custody services to AIFs referred to in regulation 38(1)(a)

shall, in addition to the regulations prescribed in Part 2 applicable to

custodians of all collective investment schemes, also be regulated by

regulations 30 to 37 of Part 4a.

(1) A Category 4b Investment Services Licence Holder

which provides custody services to AIFs referred to in regulation

38(1)(b) shall, in addition to the regulations prescribed in Part 2

applicable to custodians of all collective investment schemes, also be

regulated by regulations 30(2), 31, 32(1), 33 and 37 of Part 4a

Provided that one or more entities may be appointed to

carry out the functions referred to in regulations 31, 32(1) and 33.

(2) A Category 4b Investment Services Licence Holder as

referred to in sub-regulation (1) shall also comply with regulations 43

and 44.

(1) A 4b Investment Services Licence Holder which

provides custody services to the AIFs referred to regulation 38(1)(b)

shall be liable for any loss or prejudice suffered by the AIFM, the AIF

or the investors of the AIF due to the custodian’s fraud, wilful default

or negligence, including the unjustifiable failure to perform in whole

or in part its obligations pursuant to

(a) the provisions of the Act, the regulations and the

Rules issued thereunder;

(b)

the custody agreement appointing the custodian;

(c)

any other requirements prescribed by the competent

authority.

(2) A Category 4b Investment Services Licence Holder as

referred to in sub-regulation (1) shall not be liable for any loss or

prejudice suffered by the AIF or the unit-holders of the AIF as a result

of the acts or omissions of the AIFM, except where and to the extent

that the custodian has failed to perform its functions and duties in

terms of the provisions of the Act, the regulations and the Rules Cap. 370.

issued thereunder

Provided that the term "custodian" shall be deemed to

include such third party to whom functions, duties or assets may be

delegated or entrusted in terms of regulation 44.

(3) Liability to the investors of the AIF may be invoked

directly or indirectly through the AIFM, depending on the legal

nature of the relationship between the custodian, the AIFM and the

unit-holders.

(1) A 4b Investment Services Licence Holder which Delegation of

provides custody services to the AIFs referred to regulation 38(1)(b) functions

custodian to

may delegate to third parties in whole or in part the functions referred third parties.

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 Cap. 370.

the Rules issued thereunder;

(b) the custodian 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 custodian 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 custodian 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 custodian 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

custodian’s clients from its own assets and from the assets

of the custodian in such a way that they can at any time be

clearly identified as belonging to the clients of a particular

custodian;

(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 custodian;

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 custodian’s functions.

Part 5

Requirements applicable to custodians of collective investment

schemes other than UCITS and AIFs

(1) Custodians of collective investment schemes which Applicability of

are not AIFs as defined in terms of the AIFMD or UCITS shall be Part 5.

regulated by the regulations prescribed in Part 2 together with the

regulations prescribed in this Part

Provided that for the purposes of this Part, the term

"collective investment scheme" shall be understood as referring to

collective investment schemes which are licensed as non-UCITS

retail schemes and Professional Investor Funds established in terms

of the Act and in terms of the Rules issued thereunder both of which Cap. 370.

are not managed by an AIFM falling within the scope of the AIFMD.

(2) The custodian of a collective investment scheme as

referred to in sub-regulation (1) shall also be guided by the rules

prescribed in the applicable Investment Services Rules.

(1) The scheme or the fund manager on behalf of the Appointment of

scheme which is licensed as a non-UCITS retail scheme or as a the custodian.

Professional Investor Fund targeting Experienced Investors shall

appoint as custodian an entity which is in possession of a Category 4a

Investment Services Licence.

(2) The scheme, or the fund manager on behalf of a scheme

which is licensed as a Professional Investor Fund targeting Qualifying

or Extraordinary Investors, may appoint as custodian an entity which

is in possession of a Category 4a or Category 4b Investment Services

Licence

Provided that such scheme may alternatively provide for

other safekeeping arrangements as accepted by the competent

authority

Provided further that a custodian which is appointed to

provide custody services as provided in sub-regulation (2) shall be

required to comply with the applicable provisions of this Part.

(1) The custodian of a non-UCITS retail scheme shall Eligibility

criteria.

have an established place of business in Malta.

(2) Where a scheme which is licensed as a Professional

Investor Funds appoints a custodian holding a Category 4a

Investment Services Licence, such custodian shall be

(a)

an entity having an established place of business in

Malta;

(b) an entity constituted in a Member State or EEA State

other than Malta providing the services of custodian to

collective investment schemes;

(c)

an entity constituted outside Malta and operating

from outside Malta providing the services of a custodian to

collective investment schemes, where the competent authority is

satisfied that such entity is of sufficient standing and repute and

having the business organisation, systems, experience and

expertise deemed necessary for it to act as custodian.

(3) The following entities shall be eligible to hold a Category

4a Investment Services Licence issued in terms of the Act and to

provide custody services to the collective investment schemes

referred to in sub-regulations (1) and (2)

(a) a credit institution authorised in accordance with

Directive 2013/36/EU and in possession of a licence issued in

terms of the Banking Act;

(b) a branch established in Malta of a credit institution

authorised in a Member State or EEA State;

(c)

a branch established in Malta of an overseas credit

institution which is subject to prudential requirements at least

equivalent to the requirements applicable to Maltese credit

institutions;

(d) a company incorporated in Malta, which is wholly

owned by a credit institution, provided that the liabilities of the

company are guaranteed by the credit institution and the credit

institution is either a Maltese credit institution or a credit

institution established in a Member State or EEA State and

authorised in accordance with Directive 2013/36/EU

Provided that, in such a case, the custodian shall be

required to have a minimum of one director on its board of

directors who is resident in Malta;

(e)

a company incorporated in Malta which is wholly

owned by a Maltese or foreign institution or company which is

deemed by the competent authority to be an institution or

company which provides unit-holders with protection

equivalent to that provided by a custodian fulfilling the

requirements of paragraphs (a), (b), (c) or (d) and provided the

liabilities of the company acting as custodian are guaranteed by

the institution or company and the institution or company has

paid-up share capital of five million euro (€5,000,000) or its

equivalent in foreign currency; or

(f)

an investment firm in Malta or branch of an

investment firm established in a Member State or EEA State

other than Malta, subject to capital adequacy requirements in

accordance with Directive 2013/36/EU and Regulation (EU)

575/2013 including capital requirements for operational risks

and authorised in accordance with Directive 2014/65/EU of the

European Parliament and of the Council of 15 May 2014 on

markets in financial instruments and which also provides the

ancillary service of safekeeping and administration of financial

instruments for the account of clients, including custody and

related services such as cash/collateral management in

accordance with point (1) of Section B of Annex I of Directive

2004/39/EC

Provided that such investment firms shall in any

case have own funds not less than the amount of initial capital

referred to in Article 28(2) of Directive 2013/36/EU.

A Category 4a Investment Services Licence Holder which Applicability of

provides custody services to a non-UCITS retail collective investment Part

custodians

scheme shall also comply with regulations 30 to 36

providing

custody services

to non-UCITS

Provided that, for the purposes of this Part, references in Retail Schemes.

regulations 30 to 36 to "AIFM" and "AIF" shall be construed to refer

to the "fund manager or management company" and the "non-UCITS

Retail Scheme" respectively.

A Category 4a Investment Services Licence Holder which Applicability of

provides custody services to a Professional Investor Fund which is Part

Professional

marketed to Experienced Investors, shall also comply with Investor

marketed to

regulations 30 to 36

Experienced

Investors.

Provided that, for the purposes of this Part, reference in

regulations 30 to 36 to "AIFM" and "AIF" shall be construed to refer

to the "fund manager or management company" and the "Professional

Investor Fund marketed to Experienced Investors" respectively.

A Professional Investor Fund which is marketed to Professional

Qualifying or Extraordinary Investors may appoint one or more Investor

marketed to

entities in possession of a Category 4a or Category 4b Investment Qualifying

Extraordinary

Services Licence to provide safekeeping of the assets of the scheme Investors.

and such entities shall ensure compliance with regulations 51 to 58.

(1) The scheme or the fund manager on behalf of the

scheme shall appoint a custodian. The scheme or the fund manager on

behalf of the scheme shall entrust the assets of the scheme to the

custodian for safekeeping in the interests of the scheme and in the

interests of the unit-holders thereof.

(2) The custodian shall carry out such functions and duties as

shall be required in accordance with these regulations, the terms of

the custody agreement entered into with the scheme, the conditions of

the custodian’s investment services licence and such other

requirements as may be laid down by the competent authority. The

terms of the custody agreement shall distinguish between financial

instruments that can be held in custody and other assets.

(3) The custodian shall maintain proper and adequate records

and accounts of the assets of all the schemes with which it has entered

into a custody agreement. The records and accounts shall identify the

schemes to which such assets belong and shall clearly indicate that

the assets of every scheme are separate and distinct from the assets

belonging to the custodian and from the assets of other schemes with

which the custodian has entered into a custody agreement.

(4) The records and accounts shall, upon due notice being

given by the custodian, indicate the instances where any pledge or

other right over assets has been given by the respective schemes to

any third parties and where any order by any Court has been made in

connection with such assets.

(5) The custodian entrusted with the safekeeping of the assets

belonging to a scheme shall, to every extent reasonably possible,

segregate in a proper manner the assets of each scheme from the

assets belonging to the custodian and from the assets of other

schemes

Provided that the custodian may, with the written consent

of the scheme and in accordance with the terms and conditions of the

custody agreement entered into with the scheme, the conditions of

any investment services licence and such other requirements as may

be prescribed by the competent authority and without prejudice to the

scheme’s right of ownership over the assets held under control, place

and keep such assets in a common pool of identical assets or

otherwise deposit them in a clients’ or common account.

(6) The custodian shall make appropriate arrangements for the

protection of assets held and shall ensure that such assets are placed

under adequate systems to safeguard them from damage,

misappropriation or other loss and which permit the delivery of such

assets only in accordance with the terms and conditions of the

custody agreement entered into with the scheme.

(7) Where it is not reasonably possible for the custodian to

carry out any of the duties specified in these regulations due to the

nature of the assets and of the custody agreement, the said duties may

be varied with the written consent of the scheme and in accordance

with the terms and conditions of the custody agreement entered into

with the scheme, the conditions of the investment services licence and

such other requirements as may be prescribed by the competent

authority.

(8) The custodian shall carry out monitoring, oversight,

administrative and such other functions where applicable in

accordance with the terms and conditions of the custody agreement.

(1) Where reasonably required by the nature of the Use of clearing,

assets and of the arrangements whereby the custody function is to be settlement

de-materialised

exercised, a custodian may, with the written consent of the scheme systems

settlement risk.

and in accordance with the terms and conditions of the custody

agreement entered into with the scheme, the conditions of any

investment services licence and such other requirements as may be

laid down by the competent authority, make use of any market

clearing system, settlement system, dematerialised book entry

system, centralised custodial depository or similar system for the

purpose of the control of assets in terms of these regulations.

(2) Such systems as are provided for in sub-regulation (1) may

also be used to effect all transactions including conveyance,

assignment, transfer, transmission and pledging of assets held in

custody by the custodian and the law of the country in which the

system is maintained shall apply to the validity of such transactions,

notwithstanding the provisions of any other law.

(3) The custody agreement with the scheme shall clearly

define the extent of liability of the custodian for any losses that may

be incurred by the scheme as a result of the use of such systems.

In the exercise of its functions, duties and responsibilities, Independence of

the custodian shall act independently of the fund manager and of the the

from the

management of the scheme and solely in the interest of the unit management

the collective

holders and of the scheme itself

investment

scheme.

Provided that the custodian shall act upon the instructions

of the manager and the manager shall act upon the instructions of the

custodian to the extent required by the conditions of any investment

services licence, such other requirements as may be prescribed by the

competent authority, and the conditions of the scheme’s constitutional

documents.

Except as may be authorised by the competent authority, a

person shall not act as member of the board of directors or similar

organ or as an officer responsible for the administration and

management of the manager acting on behalf of the scheme and at the

same time hold a similar position with the custodian entrusted with

the safekeeping of the assets of any scheme managed by the manager.

(1) The custodian shall be liable for any loss or

prejudice suffered by the scheme or the unit-holders due to the

custodian’s fraud, wilful default or negligence including the

unjustifiable failure to perform in whole or in part the custodian’s

obligations arising pursuant to

(a) the provisions of the Act, these regulations and the

Rules issued under the Act;

(b) the terms and conditions of the custody agreement

appointing the custodian;

(c)

the conditions of any investment services licence; or

(d) such other requirements as may be prescribed by the

competent authority.

(2) The custodian shall not be liable for any loss or prejudice

suffered by the scheme or by the unit holders as a result of the acts or

omission of the fund manager except where and to the extent that the

custodian has failed to perform its functions and duties in terms of

regulation 51.

(3) For the purposes of this regulation, "custodian" includes

such other sub-custodian to whom functions, duties or assets may be

delegated or entrusted in terms of regulation 56.

(1) The custodian may, with the consent of the scheme

or the fund manager acting on behalf of the scheme, delegate all or

part of the functions and duties referred to in regulation 51 to a sub-

custodian, and may also entrust or deposit all or part of the assets of

the scheme held in custody with such sub-custodian.

(2) The liability of the custodian for its own acts or omissions

pursuant to regulation 55 shall not be affected or reduced as a result

of the custodian delegating functions and duties or entrusting all or

part of the assets of the scheme to a sub-custodian.

(3) Where the custodian delegates or entrusts functions, duties

or assets in terms of sub-regulation (1) to a person who is either a

group company or is the fund manager or associate of the fund

manager, without prejudice to the liability of such person, the

custodian shall be liable for any loss or prejudice suffered by the

scheme or the unit-holders as a result of the acts, omissions or

insolvency of such person

Provided that the custodian may not delegate to the fund

manager acting on behalf of the scheme any function of oversight in

respect of the fund manager or any function of custody of the assets,

nor may the custodian delegate to an associate of the fund manager

any function of oversight in respect of such entity.

(4) Where the custodian delegates or entrusts functions, duties

or assets in terms of sub-regulation (1) to a person which is not a

group company nor the fund manager acting on behalf of the scheme

nor associate of the fund manager, without prejudice to the liability of

such person, the custodian shall be liable for any loss or prejudice

suffered by the fund manager, the scheme or the unit-holders as a

result of the acts or omissions of such person unless the custodian can

prove that such person was and remains qualified and competent to

carry out the functions and duties delegated to it and that the

custodian exercised reasonable care to oversee that the functions and

duties delegated were undertaken by such person competently.

(5) The liability of the custodian pursuant to sub-regulations

(3) and (4) may be varied or reduced with the written consent of the

scheme or the fund manager acting on behalf of the scheme, and in

accordance with the terms and conditions of the written custody

agreement appointing the custodian, the deed or other instrument

establishing and regulating the scheme, the conditions of the

collective investment scheme licence which may be held by the

scheme, the conditions of any investment services licence and such

other requirements as may be prescribed by the competent authority

Provided that the custodian discloses fully to the scheme or

the fund manager acting on behalf of the scheme, any risks that may

be associated with the nature of the custody arrangements, and that

the agreement appointing the custodian shall clearly define the extent

of liability of the custodian. Any such risks shall also be fully

disclosed to the unit-holders in the scheme.

(6) For the purposes of this regulation, "associate" in relation

to the fund manager means a body corporate which forms part of the

same group of companies as the fund manager acting on behalf of the

scheme.

(7) For the purposes of this regulation, "group company" in

relation to the custodian, means any body corporate which is the

custodian’s subsidiary or parent company, or a subsidiary of the

custodian’s parent company; and the terms "parent" and "subsidiary"

shall be construed in accordance with article 2(2) of the Companies

Act.

The custodian of a collective investment scheme which is

licensed as a non-UCITS Retail Scheme or a Professional Investor

Fund shall make available to the competent authority, on request, all

information which it has obtained while performing its duties and that

may be necessary for the competent authority of the fund manager or

the scheme.

Part 6

Transitional arrangements

(1) Non-UCITS retail schemes and Professional

Investor Funds targeting Experienced Investors or management

companies on behalf of such schemes, which on the date of

publication of these regulations appointed, as custodian, an entity

which did not meet the requirements prescribed in Part 5, shall have a

transitional period of eighteen months within which to comply with

these regulations. This eighteen-month transitional period shall

commence to run from the date of the coming into force of these

regulations and shall expire within eighteen months thereafter.

(2) Professional Investor Funds targeting Qualifying Investors

or Extraordinary Investors or managers on behalf of such schemes,

which on the date of the coming into force of these regulations

appointed, as custodian, an entity which did not meet the

requirements prescribed in Part 5 hereof, shall have a transitional

period of eighteen months within which to comply with these

regulations. This eighteen-month transitional period shall commence

to run from the date of the coming into force of these regulations and

shall expire within eighteen months thereafter.

€1.62