INVESTMENT SERVICES ACT (CUSTODIANS OF COLLECTIVE INVESTMENT SCHEMES) REGULATIONS

SUBSIDIARY LEGISLATION 370.32

INVESTMENT SERVICES ACT (CUSTODIANS

OF COLLECTIVE INVESTMENT SCHEMES)

REGULATIONS

5th April, 2016

LEGAL NOTICE 114 of 2016.

(1) The title of these regulations is the Investment Services

Act (Custodians of Collective Investment Schemes) Regulations.

(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;

" A I F M D " m e a n s D i r e c t i v e 2 0 11 / 6 1 / E U o f t h e E u r o p e a n

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 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;

"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

investment schemes.

(1) The custodian of a collective investment scheme shall

be in possession of a valid Category 4a or 4b Investment 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 manager

on behalf of the scheme shall ensure that a custodian is 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

p erfo rm its f uncti ons f or t he scheme for whi ch it has been

appointed as custodian in accordance with these regulations.

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

scheme and to be reimbursed for expenses in accordance with the

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

prescribed by the competent authority, a custody agreement may be

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

third party located in any Member State or EEA State to which

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

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

of the scheme and its investors.

(2) Notwithstanding the provisions of article 1894 of the Civil

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 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

enjoys a right of ownership in such assets notwithstanding that they

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

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

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

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

m an n e r b y t h e p r o v i s i o n s o f l a w s a n d r e g u l a t i o n s i n f o r c e

regulating 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

t h e a s s e t s f r om s u c h ac t o r wa r r a n t a nd t he C o ur t sh a l l o n

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 m anage which, prior to 18 March 2016,

ap poin ted as cu st odi an an instit uti on t hat 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

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.

(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

(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

m an age men t co mp any o r t he UC ITS w it h a com preh ensi ve

inventory of all the assets of the UCITS.

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

be reused by the custodian, or by any third party to which the

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

(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 the

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

of a Category 4a Investment Services Licence which 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.

INVESTMENT SERVICES ACT (CUSTODIANS

OF COLLECTIVE INVESTMENT SCHEMES

The AIFM shall ensure that a custodian is appointed for

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

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

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

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

follows

(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

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 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 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

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

regulations issued thereunder and the fund rules or

instruments of incorporation.

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

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 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

INVESTMENT SERVICES ACT (CUSTODIANS

OF COLLECTIVE INVESTMENT SCHEMES

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

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

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 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

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

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 possession

of a Category 4b Investment Services Licence and which 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 Services Act (Alternative Investment Fund

Manager) (Third Country) Regulations.

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

al so b e g u i d e d b y t h e r u l e s p r e sc r i b e d i n P a r t B I V o f t h e

Investment Services Rules for Investment Services Providers

applicable to custodians.

The AIFM shall ensure that a custodian in possession of

either a Category 4a or a Category 4b Investment Services Licence

is 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 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

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 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

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

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 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

scheme which is licensed as a non-UCITS retail scheme or as a

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

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

provides custody services to a non-UCITS retail collective

investment scheme shall also comply with regulations 30 to 36

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

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

provides custody services to a Professional Investor Fund which is

m arketed to Experienced Investors, shall also comply with

regulations 30 to 36

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

Qualifying or Extraordinary Investors may appoint one or more

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

Services Licence to provide safekeeping of the assets of the scheme

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

ma y be prescrib ed by t he co mp ete nt au th orit y and w it ho ut

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 assets

and of the arrangements whereby the custody function is to be

exercised, a 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

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,

the custodian shall act independently of the fund manager and of

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

holders and of the scheme itself

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

ot her req ui re men ts as ma y be prescrib ed by t he co m pet ent

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

c u s t o d i a n ’s p a r e n t c o m p a n y ; a n d t h e t e r m s " p a r e n t " a n d

"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.