Information statement on the safekeeping of client assets and funds

1. Introduction

1.1 This Information Statement has been prepared to comply with our disclosure obligations under MiFID II in relation to safekeeping of financial instruments and funds. It is not intended to be a complete disclosure of all risks which may arise in relation to your particular circumstances or as a result of our relationship with you.

1.2 This Information Statement is not intended to be, and should not be relied upon as, legal, financial, tax, accounting or other advice. Unless otherwise expressly agreed in writing, we are not providing you with any such legal, financial, tax, accounting or other advice and you should consult your own advisors for advice on the matters referred to in this Information Statement, including the impact on your business and the requirements of, and results of, entering into any transaction.

1.3 This Information Statement relates to our relationship with you under a Custody Agreement.

1.4 Terms used but not otherwise defined in this Information Statement shall have the meaning given to such terms in the Custody Agreement. In addition:

• (a) subject to paragraph 3.2, “we”, “our”, “ours” and “us” refer to the provider of this Information Statement that may conduct transactions with you (or, where we are acting on behalf of another person, including where that person is an affiliate, that person);
• (b) “you”, “your” and “yours” refer to each of the persons to which this Information Statement is delivered or addressed in connection with entering into, continuing, executing or agreeing upon the terms of transactions with us (or, where you are acting on behalf of other persons, each of those persons);
• (c) “central securities depository” means any clearing agency, clearing house, settlement system, central securities depository or similar entity as may from time to time be used in connection with the safekeeping of, or transactions relating to financial instruments or funds;
• (d) “Client Money Rules” means the Financial Conduct Authority’s (“FCA”) rules relating to client money, as in force or amended from time to time;
• (e) “Custody Agreement” means any agreement under which we provide custody and/or safekeeping services to you;
• (f) “financial instruments” has the meaning set out in MiFID II;
• (g) “MiFID II” means (i) Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU; (ii) Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012; and (iii) any relevant secondary legislation and applicable enacting legislation or regulation; and
• (h) “right of use” means, where relevant, any right we have to use, in our own name and on our own account or the account of another client, financial instruments received by us;

2. Client financial instruments

2.1 In the course of our dealing with you, we may hold financial instruments on your behalf.

Protection of client financial instruments

2.2 We hold your financial instruments in custody subject to the protections provided by MiFID II, unless we have exercised any applicable right of use in relation to those financial instruments. Any financial instruments which are not subject to the rules of MiFID II will be clearly indicated in the statements we provide to you.

2.3 MiFID II requires us to keep accurate records and accounts enabling us to distinguish your financial instruments from those held for other clients and from our own assets, to regularly reconcile our internal records and accounts and those of any third parties with whom your financial instruments are held, to take the steps outlined below when we deposit your financial instruments with third parties and to have adequate organisational requirements to minimise the risk of loss or diminution of your financial instruments.

Use of sub-custodians

2.4 Where we deposit financial instruments with a third party sub-custodian, we carry out due diligence in the selection, appointment and periodic review of the third party and of the arrangements for the holding and safekeeping of those financial instruments. In particular, we take into account the expertise and market reputation of the third party as well as any legal requirements related to the holding of financial instruments that could adversely affect clients’ rights. However, the acts, omissions, default or insolvency of a sub-custodian may result in the loss of your financial instruments and other losses.

2.5 We have set out the allocation of liability in respect of acts and omissions of the relevant sub-custodian in the relevant Custody Agreement.

Omnibus accounts

2.6 Financial instruments held on your behalf by us with a third party sub-custodian may be pooled with financial instruments belonging to our other clients in an omnibus account on the books of such sub-custodian. Accordingly you will not necessarily have the right to any specific financial instruments but will instead be entitled, subject to any applicable laws, rules and regulations and to the Custody Agreement, to the transfer or delivery of an amount of financial instruments of the same description and of the same amount.

As a result of certain of our other clients also beneficially owning financial instruments held in the omnibus account, you may be exposed to settlement risks arising from the transactions of such other clients in that financial instrument. Where permitted by the Custody Agreement or you have otherwise granted a right of use, your financial instruments may be pooled with financial instruments of the same description of those of other customers, in the course of settlement, and as a result may be used by us for our own account or for the account of other customers.

In the event of a loss of financial instruments held in an omnibus account that was not made good, it is likely that you would share in the shortfall together with other clients of ours who hold securities in the omnibus account on a pro rata basis.

Recording of financial instruments held in custody

2.7 Where your financial instruments are held with a central securities depository or sub-custodian, they may be recorded in the name of a third party or in our name (rather than in the name of a nominee). In the event of the third party’s or our default those financial instruments may not be as well protected from claims made on behalf of the creditors of the third party or us, as applicable.

Financial instruments held in third country jurisdictions

2.8 Before investing in a third country jurisdiction (i.e., a country outside the European Economic Area), you should independently satisfy yourself that you understand and appreciate the significance of the relevant risks, and that such an approach is suitable for you.

2.9 When your financial instruments are held in a third country jurisdiction, they may be subject to the law of that jurisdiction and to different settlement and regulatory requirements. Your rights relating to those financial instruments may differ accordingly.

2.10 Where your financial instruments are held in a third country jurisdiction, the applicable law of that jurisdiction may prevent us from complying with the requirements set out in MiFID II to ensure that any client financial instruments deposited with a third party are identifiable separately from the financial instruments belonging to us and from financial instruments belonging to that third party.

Where such applicable law prevents us from complying with such requirements, there is a risk that on our insolvency or that of the third party, your assets would not be separately identifiable and may therefore be available to our creditors or those of the third party.

In the event that a valid order were served on the sub-custodian seeking to freeze, attach or otherwise restrict assets belonging to us, a court in such jurisdiction may treat your financial instruments as assets belonging to us and open to seizure or arrest and your beneficial interest may not be recognised or upheld.

Lien and security interests – security which you grant to us

2.11 The security which you grant to us, and the terms on which such security is granted, is set out in the relevant Custody Agreement.

Lien and security interests – security which we grant to sub-custodians

2.12 We may grant security interests or liens over your financial instruments enabling a third party sub-custodian to dispose of your financial instruments in order to recover debts that relate to our clients or the provision of services to our clients, or otherwise where this is required by applicable law in a third country jurisdiction in which your financial instruments are held.

2.13 Where your financial instruments are held in third country jurisdictions which require the grant of such security interests or liens there is a risk that, if we fail or are unable to make any payment due to a third party sub-custodian, your financial instruments could be applied to discharge our liability to the extent required by the relevant law.

2.14 Where your financial instruments are affected by peculiarities in their ownership status, for instance due to such a security interest, we will make available to you a list of sub-custodians benefiting from a security interest or lien over your financial instruments under the terms of their sub-custody agreement with us.

Lien and security interests – security which we grant to central securities depositories

2.15 Where we or a sub-custodian have appointed a central securities depository on your behalf to hold your financial instruments, the central securities depository may hold a security interest or lien over your financial instruments.

Where your financial instruments are held in third country jurisdictions which require the grant of such security interests or liens there is a risk that, if we or a sub-custodian fail or are unable to make any payment due to a central securities depository, your financial instruments could be applied to discharge our or the sub-custodian’s liability to the extent required by the relevant law.

Securities financing transactions

2.16 Pursuant to the terms of the relevant Custody Agreement, we may be authorised to enter into securities financing transactions in relation to the financial instruments which we hold on your behalf. Where you provide financial instruments under a securities financing transaction, you may not have the right to any specific financial instruments but will instead be entitled, subject to any applicable laws, rules and regulations and the provisions of the relevant Custody Agreement, to the transfer or delivery of an amount of financial instruments of the same description and amount.

Those financial instruments will not be held in accordance with client asset rules and your ability to exercise rights (such as voting rights, corporate events and receipt of payments or distributions) attaching to the financial instruments may also be limited. The tax treatment that would have otherwise applied in relation to the financial instruments or any payments may differ. Further, your protections in the event of the entry into insolvency or resolution of the counterparty to the transaction may not be available.

2.17 To the extent that we enter into securities financing transactions in relation to financial instruments held by us on your behalf, or we use such financial instruments for our own account or for the account of another client, such financial instruments shall be returned in accordance with the terms of the Custody Agreement.

3. Client funds

3.1 Except where your Custody Agreement is with DB UK Bank Limited (“DBUKB”), or where required by applicable law in the relevant jurisdiction where we are providing services, we will generally hold your money in our capacity as a bank and not as a trustee or agent, and such funds will not be subject to the rules of MiFID II.

3.2 The following provisions of section 3 (Client funds) apply only where your Custody Agreement is with DBUKB, which may hold client funds as trustee. They do not apply where your Custody Agreement is with any other member of the DB Group. Where DBUKB holds your funds in this way, the following provisions will apply and references in this section 3 (Client funds) to “we”, “our”, “ours” and “us” refer only to DBUKB.

Protection of client funds

3.3 We will hold your funds as client money on trust, on the terms set out in the relevant Custody Agreement and the Client Money Rules. Accordingly, we may deposit such funds in one or more accounts maintained with third party banks selected by us in accordance with the Client Money Rules and held for and on behalf of our clients (each, a “Client Bank Account”). We will take the steps outlined below when we deposit your funds with third parties.

3.4 In accordance with the Client Money Rules, we will request each bank to acknowledge that all money standing to the credit of the Client Bank Account is held by us as trustee and that the bank is not entitled to combine the account with any other account or to exercise any right of set-off or counterclaim against money in that account in respect of any sum owed to us on any of our other accounts.

We will maintain records and accounts and carry out reconciliations on such records and accounts as to enable us to distinguish your client money from other clients’ client money and from our own money.

3.5 On the occurrence of a primary pooling event or a secondary pooling event, as defined in the FCA rules, cash standing to the credit of the Client Bank Account will be distributed together with cash held as client money for all other clients of DBUKB to you and such clients in accordance with the FCA’s client money distribution rules.

Depositing client funds

3.6 Where we deposit your funds with a credit institution or bank authorised in a non-EEA jurisdiction, we carry out due diligence in the selection, appointment and periodic review of the entity with which we deposit your funds. We take into account the need for diversification of funds as part of our due diligence. However, the default or insolvency of an entity with which we deposit your funds may result in the loss of your funds.

3.7 Subject to our responsibility in respect of due diligence, as described above, we are not responsible for the acts and omissions or for the solvency of any entity with which we deposit your funds.

Funds held in third country jurisdictions

3.8 When your funds are held in a third country jurisdiction (i.e., a jurisdiction outside the EEA) they may be subject to the law of that jurisdiction and to different settlement and regulatory requirements. Your rights relating to those funds may differ accordingly.

Lien and security interests – security which you grant to us

3.9 The security which you grant to us, and the terms on which such security is granted, is set out in the relevant Custody Agreement.

Lien and security interests – security which we grant to entities with which funds are deposited

3.10 We may grant security interests, liens or rights of set-off in relation to your funds in favour of entities with which your funds are deposited but only in respect of properly incurred charges or liabilities arising from the operation of the account in which your funds are held.

Lien and security interests – security which we grant to central securities depositories

3.11 Where we or a sub-custodian have appointed a central securities depository on your behalf to hold your funds, the central securities depository may hold a security interest, lien or right of set-off over your funds.