The FCA has published a Q&A on its website clarifying its expectations for variation of permission applications from full-scope AIFMs.

In particular the FCA clarifies its position with respect an AIFM’s depositary arrangements, as follows:

"It is not necessary to provide the contractual agreements themselves, rather details of those arrangements. Firms should be sufficiently advanced in the contracting process to be able to provide the details of a single depositary and to be confident that the arrangements agreed with the depositary will comply with AIFMD. When we receive an application, we may ask to see agreements in place with depositaries."

The Q&A "strongly advises managers to supply all requested material with the initial submission to ensure that the application process runs as efficiently as possible and avoids potential delays."

The FCA goes on to state that an AIFM must provide confirmation of contractual relationships with depositaries at least one month before the date on which the AIFM intends to begin managing an AIF.

For many EU AIFM, this will therefore be by 21 June 2013 at the latest, since many AIFM are expected to request deferral of their AIFM authorisation until 21 July 2013.

In practice, this Q&A guidance means AIFM should be focussed between now and January 22, 2013 (the FCA’s recommended date for submission of an AIFM’s variation of permission) on selecting their depositary providers.

With over 750 offshore hedge funds alone expected to require a depositary-lite solution in order to continue to be marketed post 22 June 2013, there will be capacity constraints in the depositary market and delaying decisions could mean managers run up against these constraints and, as a consequence, be unable to meet the 21 June 2013 deadline.

At INDOS Financial we are already taking on new clients and allocating our expected capacity. Given the volume of funds requiring a solution, we expect to commence on-boarding activities during the period from May to July 2013 in order to on-board clients in a controlled manner and provide managers comfort that they are in compliance with the AIFMD by 22 July 2013.

To assist managers, we have produced a detailed due diligence questionnaire on our operations as well as a manager depositary selection checklist to facilitate a manager’s due diligence (a summary of which may be requested by the FCA as part of its review of applications).

For EU AIFM managing non-EU AIF, multiple providers are allowed to undertake the three core depositary duties of safe keeping of financial instruments (and record keeping of non-custody assets), cash flow monitoring and oversight.

Section 9 of the Variation of Permission applications enables managers to set out the different entities that will perform these duties.