The role and responsibilities of a depositary for a collective investment scheme (CIS) authorized by the Securities and Futures Commission (SFC) are primarily governed by the Code on Unit Trusts and Mutual Funds (UT Code). The depositary has three core duties: safekeeping of assets, cash flow monitoring, and oversight of the fund manager’s activities.

Statement I is correct. A fundamental duty of the depositary is to ensure the safekeeping of the fund’s assets. This includes ensuring that the assets are properly segregated from the depositary’s own assets and the assets of the fund management company. This segregation is a critical investor protection mechanism, safeguarding the fund’s assets in the event of insolvency of either the depositary or the manager.

Statement II is correct. The depositary is required to monitor all cash flows of the fund. This involves ensuring that all payments made by investors for the subscription of units have been received and that all cash of the scheme has been booked in cash accounts opened in the name of the depositary acting on behalf of the scheme. This monitoring helps prevent misappropriation of funds.

Statement III is incorrect. The depositary’s role is one of oversight and control, not investment management. Providing investment advice would create a severe conflict of interest and blur the lines of responsibility between the depositary and the fund manager. The fund manager is solely responsible for making investment decisions for the portfolio.

Statement IV is correct. This falls under the depositary’s oversight duty. The depositary must ensure that the sale, issue, repurchase, and redemption of units are carried out in accordance with the provisions of the fund’s constitutive documents (e.g., the trust deed) and the offering documents (e.g., the prospectus), as well as the UT Code. Therefore, statements I, II and IV are correct.

The correct answer is that the depositary must ensure the fund manager’s investment decisions comply with the investment restrictions and objectives stated in the fund’s offering documents. Under the SFC’s Code on Unit Trusts and Mutual Funds, a core responsibility of the depositary is to exercise oversight over the fund manager. This includes taking reasonable care to ensure that the fund is managed in accordance with its constitutive documents, which define its investment mandate. When the fund manager deviates from this mandate, the depositary has a duty to intervene and ensure compliance to protect the interests of the fund’s investors. The depositary does not have the authority to directly manage the fund’s portfolio by liquidating assets; that is the fund manager’s role. While the depositary might report breaches, their primary duty is active oversight and ensuring rectification, not just passive reporting in a future statement. Furthermore, providing investment advice or recommending strategic changes falls outside the depositary’s oversight function and is the responsibility of the fund manager.

The correct answer is that the depositary is required to make inquiries into the fund manager’s conduct and report the matter to the Securities and Futures Commission if it has concerns about the interests of the unitholders. Under the Code on Unit Trusts and Mutual Funds, a depositary’s oversight responsibilities are not limited to simply checking for breaches of specific, quantitative investment restrictions. A core duty is to ensure that the fund manager manages the scheme in accordance with the provisions of the constitutive documents (including the stated investment strategy in the offering document) and in the best interests of the investors. A significant deviation from the fund’s stated strategy, even without breaching a hard limit, is a serious matter that warrants investigation and potential escalation to the regulator. The depositary acts as a crucial check and balance on the fund manager’s activities to protect investors. It is incorrect for the depositary to issue a direct instruction to the fund manager to liquidate positions, as this would constitute interference with the investment management function, which is beyond the depositary’s typical authority. The depositary’s role is oversight, not co-management. It is also incorrect for the depositary to initiate an update of the offering documents; this is the responsibility of the fund manager, and doing so would effectively endorse the manager’s deviation rather than policing it. Finally, taking no action unless a specific numerical limit is violated represents a failure of the depositary’s broader fiduciary and oversight duties, which require proactive monitoring of the fund’s overall management and strategy adherence.

The role of a depositary for a collective investment scheme, particularly an SFC-authorized fund, includes several key oversight responsibilities as mandated by the Code on Unit Trusts and Mutual Funds. Statement I is correct because a primary duty is to ensure the fund manager adheres to the investment objectives, policies, and restrictions detailed in the fund’s offering documents. Statement II is also correct; the depositary must verify that the Net Asset Value (NAV) is calculated in accordance with the methods prescribed in the fund’s constitutive documents to ensure fairness for all investors. Statement IV is correct as the depositary is responsible for monitoring that transactions for the fund’s portfolio are settled in a timely manner, which is part of its cash flow monitoring and asset protection duties. However, Statement III is incorrect. The depositary’s role is one of oversight, not management. Making the final selection of securities for the portfolio is the exclusive responsibility of the fund manager. The depositary checks for compliance but does not participate in investment decision-making. Therefore, statements I, II and IV are correct.

The correct answer is that the depositary must verify that the investment complies with the investment restrictions and policies stated in the fund’s constitutive documents. Under the SFC’s Code on Unit Trusts and Mutual Funds, a core responsibility of a depositary (or trustee) is to exercise oversight over the fund manager. This includes ensuring that the manager operates the fund in accordance with the provisions of its constitutive documents, such as the trust deed. If the manager makes an investment that appears to be outside the stated investment scope, the depositary’s primary duty is to check for compliance and take appropriate action if a breach is identified. The depositary’s role is not to provide prior approval for investment decisions, as this would constitute co-management and blur the lines of responsibility. While secure settlement and safekeeping are crucial functions, they follow the primary duty of ensuring the transaction itself is permissible. Finally, the depositary’s initial reporting line for a potential breach is to the fund manager for rectification and, if necessary, to the SFC, not directly to the unitholders.

A depositary’s role extends beyond mere safekeeping of assets. Under the SFC’s Code on Unit Trusts and Mutual Funds, a key responsibility is the oversight of the fund manager’s activities to protect the interests of the scheme’s investors. Statement I is correct because cash flow monitoring involves ensuring all payments from the fund’s accounts are consistent with its operations and properly reconciled. Statement II is also correct as part of the oversight function; the depositary must ensure that all actions, including payments, comply with the fund’s constitutive documents (e.g., the trust deed or offering document). Statement IV correctly outlines the escalation procedure; if a transaction appears inconsistent or improper, the depositary has a duty to investigate and, if unresolved, escalate the issue to the appropriate level, such as the fund’s trustee or board, and potentially the regulator. Statement III is incorrect because the depositary must act independently and with due diligence. Simply executing a fund manager’s instruction without proper verification, especially for an unusual transaction, would be a failure of its oversight and fiduciary duties. Therefore, statements I, II and IV are correct.

The role of a depositary (often a trustee or custodian) for a collective investment scheme (CIS) is primarily focused on investor protection through safekeeping and oversight, as stipulated by the SFC’s Code on Unit Trusts and Mutual Funds. Statement I is correct because a fundamental duty is the safekeeping of scheme assets, which includes ensuring they are properly segregated and held separately from the depositary’s own assets and those of the fund manager. This prevents commingling and protects assets in case of insolvency. Statement II is correct as the depositary has an oversight responsibility to ensure the fund manager adheres to the investment restrictions and borrowing limitations detailed in the fund’s constitutive documents (e.g., the trust deed). This is a key check and balance function. Statement IV is also correct; the depositary is responsible for monitoring all cash flows of the fund, including investor subscriptions and redemptions, to ensure they are properly reconciled and handled in accordance with the scheme’s operational procedures. Statement III is incorrect. The depositary’s role is one of oversight and custody, not investment management. It does not guarantee the investment performance of the fund or protect investors from market-related losses; this risk is inherent to investing and is the responsibility of the fund manager to manage within the fund’s mandate. Therefore, statements I, II and IV are correct.

The correct answer is that the depositary must verify that the fund manager’s investment decisions adhere to the restrictions outlined in the fund’s constitutive documents. Under the SFC’s Code on Unit Trusts and Mutual Funds, a key responsibility of a depositary is to exercise oversight over the fund manager. This includes ensuring that the fund is managed in accordance with the investment objectives and restrictions stated in its offering documents. When the fund manager’s trade causes the fund to breach the 10% limit on unlisted securities, it is the depositary’s duty to detect this non-compliance and take appropriate steps, such as notifying the manager to rectify the breach. The depositary’s role is not to pre-approve the fund manager’s investment strategy; the manager retains investment discretion within the established rules. Providing investment advice on rebalancing the portfolio would create a significant conflict of interest and is outside the depositary’s mandate. While the depositary is involved in the NAV process, typically by verifying the calculation performed by the fund administrator, its primary duty in a scenario involving a breach of investment limits is oversight and compliance monitoring, not the calculation itself.

A depositary for an SFC-authorized collective investment scheme has a fundamental oversight responsibility as outlined in the Code on Unit Trusts and Mutual Funds. Statement I is correct because a key duty is to ensure the fund manager operates the scheme in accordance with the provisions of the constitutive documents (e.g., the trust deed and offering document). This includes verifying compliance with investment restrictions. Statement II is correct as the depositary must always act in the best interests of the scheme’s investors (unitholders), which involves safeguarding their assets and ensuring the fund is managed properly. Statement IV is correct because if the depositary becomes aware of any breach of the constitutive documents or the Code that is not rectified, it has a duty to report the matter to the SFC. Statement III is incorrect; a depositary cannot delegate its oversight responsibility or accept an indemnity in place of performing its duties. Its role is to prevent such breaches, not to be compensated after the fact. Therefore, statements I, II and IV are correct.

According to the SFC’s Code on Unit Trusts and Mutual Funds, the depositary has a crucial oversight role to protect the interests of fund investors. This role includes ensuring the fund manager operates within the rules set out in the fund’s constitutive documents. Statement I is correct because a primary duty of the depositary is to verify that all investment and borrowing activities of the fund manager adhere to the restrictions and policies stated in the offering documents. Statement II is also correct; the depositary must ensure that the fund’s assets are valued correctly and that the Net Asset Value (NAV) is calculated in accordance with the offering documents. This includes overseeing the valuation methodology for complex instruments like derivatives. Statement III is incorrect because the depositary’s role is one of oversight and compliance, not investment management. Providing an opinion on the future performance of an investment falls squarely within the fund manager’s responsibilities. Statement IV is incorrect; while the depositary is concerned with counterparty risk, the selection and approval of specific counterparties is a management function performed by the fund manager. The depositary’s duty is to ensure the process is compliant and risks are managed, not to make the selection itself. Therefore, statements I and II are correct.

A depositary’s role is fundamental to investor protection in a collective investment scheme. Statement I correctly identifies the core duty of safekeeping, which includes holding assets in custody and ensuring they are segregated from the depositary’s own assets, as mandated by regulations like the Code on Unit Trusts and Mutual Funds (UT Code). Statement II accurately describes the oversight function, where the depositary acts as a watchdog to ensure the fund manager’s actions, particularly concerning unit transactions, comply with the scheme’s constitutive documents (e.g., the trust deed). Statement III correctly outlines the cash flow monitoring responsibility, a critical control to ensure all monies are properly accounted for and reconciled. Statement IV is incorrect; the depositary’s role is to ensure compliance with investment restrictions, not to approve specific investment selections to achieve performance targets. The responsibility for investment strategy and performance rests with the fund manager. The depositary provides oversight, not investment management advice or approval. Therefore, statements I, II and III are correct.

Under the SFC’s Code on Unit Trusts and Mutual Funds, the depositary (which may be a trustee or custodian) has several key responsibilities designed to protect the interests of investors in a collective investment scheme. Statement I is correct as the primary duty of a depositary is the safekeeping of the scheme’s assets, ensuring they are held in custody or under its control and are properly segregated. Statement II is also correct; the depositary has an oversight duty to ensure the fund manager adheres to the investment and borrowing limitations set out in the scheme’s offering documents and the Code. Statement IV is correct because monitoring the scheme’s cash flows, including verifying the receipt of subscription monies from investors, is a fundamental responsibility to ensure the integrity of the fund’s financial operations. Statement III is incorrect; the responsibility for making investment decisions and managing the portfolio to achieve the scheme’s objectives lies with the fund manager, not the depositary. The depositary’s role is to oversee these activities, not to perform them. Therefore, statements I, II and IV are correct.

The role of a depositary for an SFC-authorized collective investment scheme is primarily one of oversight and safekeeping, designed to protect the interests of investors. According to the Code on Unit Trusts and Mutual Funds, the depositary has several key responsibilities. Statement I is correct because the depositary must ensure that the fund’s assets are valued and the NAV is calculated strictly in accordance with the methods prescribed in the fund’s constitutive documents. This is a critical oversight function to ensure fairness and accuracy for investors. Statement II is also correct; the depositary has a duty to act as a check on the fund manager, ensuring that the manager’s instructions comply with both the law and the fund’s governing documents. Statement III is correct as cash flow monitoring is a fundamental responsibility of the depositary, which includes reconciling subscriptions and ensuring all investor monies are properly accounted for. Statement IV is incorrect because the depositary’s role is not to participate in or approve the fund manager’s investment strategies. The fund manager is responsible for investment decisions, and the depositary’s involvement in such activities would create a severe conflict of interest and overstep its oversight mandate. Therefore, statements I, II and III are correct.

The correct answer is that the depositary must independently assess whether the terms of the agreement are at arm’s length and serve the best interests of the fund’s unitholders. Under the SFC’s Code on Unit Trusts and Mutual Funds, a depositary has a fundamental oversight responsibility, which includes monitoring for and managing potential conflicts of interest. When a fund proposes a transaction with a connected party of the depositary (in this case, another subsidiary of the same parent company), the depositary must act as an independent check to protect investors. This involves verifying that the transaction is conducted on normal commercial terms and does not disadvantage the fund’s unitholders for the benefit of the related entity. Simply approving the transaction because it involves an affiliate would be a dereliction of this oversight duty. Delegating the decision entirely to the fund manager would negate the depositary’s role as an independent safeguard. Reporting the matter to the SFC before any internal assessment is premature, as connected party transactions are not prohibited, but they must be properly managed and demonstrably fair to the fund.

According to the SFC’s Code on Unit Trusts and Mutual Funds (UT Code), a depositary has a fiduciary duty to act in the best interests of the fund’s unitholders. This includes specific oversight responsibilities concerning the fund manager’s actions. Statement I is correct because the depositary must ensure that the fund manager adheres to the investment and borrowing restrictions detailed in the fund’s offering documents and constitutive documents (UT Code 10.3(f)). Implementing a new, unapproved strategy is a clear breach of these restrictions. Statement III is also correct as the depositary is responsible for ensuring that the issue, redemption, and cancellation of units are carried out in accordance with the constitutive documents, which includes verifying that the Net Asset Value (NAV) is calculated correctly based on the prescribed valuation methodology (UT Code 10.3(c)). Using stale prices against the stated policy would lead to an incorrect NAV. Statement II is incorrect because the primary responsibility for performing Know Your Customer (KYC) checks on investors lies with the fund manager or the distributor, not the depositary. While the depositary monitors cash flows for AML purposes, it does not oversee the fund manager’s specific investor onboarding procedures. Statement IV is incorrect because the selection of a service provider like a prime broker is an operational decision for the fund manager. The depositary’s role is to ensure the safe transition and custody of assets with the new party, not to approve the fund manager’s choice. Therefore, statements I and III are correct.

The core responsibilities of a depositary for an SFC-authorized collective investment scheme are centered on oversight, safekeeping, and cash flow monitoring to protect investors’ interests. Statement I is correct because a primary duty of the depositary is to ensure the fund manager’s investment decisions comply with the fund’s constitutive documents (e.g., the trust deed or articles of association). This oversight function prevents the manager from deviating from the agreed-upon investment strategy and restrictions. Statement III is also correct as cash flow monitoring is a fundamental responsibility. The depositary must ensure that all cash transactions, especially payments for investments, are consistent with the fund’s operations and instructions, preventing misappropriation or errors. Statement II is incorrect because the depositary’s role is not to provide investment advice or opine on the potential returns of an asset; that is the responsibility of the fund manager. The depositary’s focus is on compliance and control, not investment performance analysis. Statement IV is incorrect because the depositary must exercise independent due diligence and cannot simply approve a transaction based on the fund manager’s justification for high returns. The decision must be based on whether the investment is permissible and compliant, not on its potential profitability. Therefore, statements I and III are correct.

The role of a depositary (often a trustee or custodian) for an SFC-authorized collective investment scheme is primarily focused on investor protection through safekeeping, oversight, and cash flow monitoring. Statement I correctly describes the safekeeping duty, where the depositary must take legal custody or control of the fund’s assets on behalf of the investors. Statement II accurately reflects the oversight function, which requires the depositary to ensure the fund manager adheres to the investment and borrowing powers defined in the scheme’s constitutive documents (e.g., the trust deed). Statement III correctly outlines the cash flow monitoring responsibility, which involves tracking all monies flowing into and out of the fund to ensure proper handling and reconciliation. Statement IV is incorrect; the depositary’s role is to oversee the fund manager, not to approve their investment strategy or guarantee investment performance. The responsibility for investment decisions and performance lies with the fund manager. Therefore, statements I, II and III are correct.

The explanation states that a depositary’s core responsibility, as outlined in the Code on Unit Trusts and Mutual Funds, is to act as an independent overseer of the fund manager’s activities to protect unitholders’ interests. This includes ensuring that the fund is managed in strict accordance with its constitutive documents, such as the trust deed or articles of association. When a fund manager proposes an investment that clearly violates the restrictions laid out in these documents, the depositary’s primary duty is to prevent the non-compliant transaction from being executed. The correct course of action is to refuse to settle the trade and to formally notify the fund manager of the breach. This gatekeeping function is crucial for maintaining the integrity of the fund’s investment strategy. Processing the transaction first and then reporting it to the regulator would be a failure of this preventative duty, as the breach would have already occurred. Seeking an independent valuation is irrelevant if the investment type itself is prohibited; compliance with the mandate precedes valuation. Similarly, suggesting the fund manager seek unitholder approval is not the depositary’s immediate responsibility; their duty is to enforce the rules as they currently exist, not to facilitate a potential change to them.

The correct answer is that the depositary must verify that the instruction aligns with the fund’s constitutive documents and, if it does not, refuse to settle the transaction. A core responsibility of a depositary under the SFC’s Code on Unit Trusts and Mutual Funds is to exercise oversight over the fund manager’s activities to ensure compliance with the fund’s offering documents and applicable regulations. This includes monitoring investment decisions to prevent breaches of investment restrictions. The depositary acts as a crucial safeguard for investors’ interests. Simply settling the transaction and then informing the fund’s compliance department would be a failure of this primary oversight duty, as the breach would have already occurred. Processing the transaction under the condition that the fund manager provides a written indemnity is also incorrect; an indemnity does not absolve the depositary of its regulatory obligation to prevent such a breach. Seeking approval from the fund’s board of directors after the fact does not rectify the initial failure to adhere to the established investment mandate; the depositary’s role is to prevent the breach from happening in the first place.

The correct answer is that the depositary must verify that the investment complies with the investment restrictions and objectives stated in the fund’s offering documents. A core responsibility of a depositary, as outlined in the SFC’s Code on Unit Trusts and Mutual Funds, is to exercise oversight over the fund manager. This includes ensuring that the fund is managed in accordance with the provisions of its constitutive documents, which detail the investment objectives, policies, and restrictions. Discovering an investment that appears to be outside the stated mandate triggers this oversight duty as the primary and most immediate responsibility. The other options are incorrect. Assessing the potential financial return of an investment is the duty of the fund manager, not the depositary; the depositary’s role is focused on compliance, not investment selection or performance analysis. While ensuring the secure custody of assets is a key function, the initial and more critical responsibility in this scenario is to address the potential breach of investment mandate, which precedes the physical safekeeping of the asset. Immediately informing all unitholders is not the depositary’s prescribed first step; the depositary should first verify the breach with the fund manager and, if it is confirmed and not rectified, report the matter to the SFC.

The Code on Unit Trusts and Mutual Funds outlines the key responsibilities of a depositary (which includes trustees and custodians) for an SFC-authorized collective investment scheme. Statement I correctly describes the fundamental duty of safekeeping, where the depositary must take custody or control of all scheme assets. Statement II accurately reflects the oversight function, which requires the depositary to ensure the fund manager adheres to the investment limitations and borrowing powers stipulated in the scheme’s constitutive documents. Statement III correctly details the cash flow monitoring responsibility, ensuring all payments and receipts of the scheme are properly processed and recorded. Statement IV is incorrect; the depositary’s role is one of oversight and safekeeping, not investment management. The fund manager is responsible for making investment decisions and for the scheme’s performance, which is not guaranteed by the depositary. Therefore, statements I, II and III are correct.

The correct answer is that the depositary must verify that the proposed investment aligns with the investment objectives and restrictions detailed in the fund’s offering documents. A core responsibility of a depositary under the SFC’s Code on Unit Trusts and Mutual Funds is to exercise oversight over the fund manager. This includes ensuring that the manager adheres to the investment policies, borrowing limitations, and other restrictions specified in the fund’s constitutive documents (such as the trust deed and offering memorandum). This oversight function is a critical investor protection mechanism. The depositary is not responsible for approving transactions based on their potential to enhance performance; that is the fund manager’s role. While the depositary must be aware of risks, conducting an independent market risk assessment for each new instrument is the fund manager’s duty, not the depositary’s primary compliance check. Reporting a potential breach to the SFC is a step to be taken if the issue cannot be resolved with the manager, but the initial duty is to verify compliance and prevent the non-compliant transaction from proceeding.

The role of a depositary (or trustee for a unit trust) includes a critical oversight function to protect the interests of the fund’s investors. This duty is outlined in the SFC’s Code on Unit Trusts and Mutual Funds (UT Code). Statement I is correct because the depositary must ensure the fund manager adheres to the investment policies and restrictions detailed in the offering documents. Statement II is correct as the depositary has a responsibility to verify that the Net Asset Value (NAV) is calculated correctly and in accordance with the fund’s constitutive documents. Statement IV is also correct; the depositary must ensure that the fund’s income is applied and distributed in the manner prescribed by the trust deed. However, Statement III is incorrect. The depositary’s role is one of oversight, not active management. The fund manager is responsible for making specific investment decisions (e.g., stock selection), and the depositary does not pre-approve these individual trades. The depositary’s check is performed retrospectively to ensure compliance with the overall mandate. Therefore, statements I, II and IV are correct.

The role of a depositary for an SFC-authorized fund is governed by the Code on Unit Trusts and Mutual Funds. This role includes several key oversight responsibilities to protect the interests of investors.

Statement I is correct. A primary duty of the depositary is to ensure that the fund manager conducts all transactions in accordance with the fund’s constitutive documents (e.g., the offering document or trust deed). This includes verifying that investments adhere to the stated investment restrictions and borrowing limitations.

Statement II is incorrect. The depositary’s function is one of oversight and control, not co-management. The depositary does not typically provide pre-approval for individual trades. Its role is to check transactions after the fact (ex-post) to ensure compliance, although it must have processes to intervene if it identifies a potential breach.

Statement III is correct. The depositary has a critical responsibility to ensure that the fund’s assets are valued correctly and that the Net Asset Value (NAV) is calculated in accordance with the fund’s constitutive documents and applicable regulations. This includes ensuring that complex instruments like derivatives are properly and fairly valued.

Statement IV is incorrect. While the depositary must take action if a breach is identified, it does not have the authority to directly instruct the fund manager on investment decisions, such as unwinding a position. The proper procedure is to notify the fund manager of the breach and require them to take corrective action. If the breach is not rectified, the depositary has a duty to report the matter to the SFC. Therefore, statements I and III are correct.

The primary role of a depositary (or trustee/custodian) for a collective investment scheme, as outlined in the SFC’s Code on Unit Trusts and Mutual Funds (UT Code), is to act as an independent overseer to protect the interests of the scheme’s investors. This involves several key responsibilities related to the fund manager’s activities. Statement I is correct because a fundamental duty of the depositary is to ensure that all investments made by the fund manager comply with the investment objectives, policies, and restrictions set out in the fund’s offering and constitutive documents. Statement III is also correct as the depositary must oversee the valuation process to ensure that the fund’s assets are priced fairly and accurately according to the prescribed valuation methods, which is critical for the calculation of the Net Asset Value (NAV). Conversely, Statement II is incorrect because the depositary’s role is one of oversight, not active management. Providing instructions on investment or hedging strategy would be a management function, which is the sole responsibility of the fund manager and would create a conflict of interest. Statement IV is incorrect because advising on marketing and distribution strategies is not a function of the depositary; this responsibility lies with the fund manager and its appointed distributors. Therefore, statements I and III are correct.

A depositary’s primary role is to protect the interests of the investors in a collective investment scheme. This involves three core functions: safekeeping of assets, cash flow monitoring, and oversight of the fund manager’s activities. Statement I correctly describes the oversight function, where the depositary must ensure the fund manager complies with the rules set out in the fund’s constitutive documents (e.g., trust deed or articles of association). Statement II accurately reflects the cash flow monitoring duty, which involves tracking all payments and receipts to ensure they are consistent with the fund’s operations. Statement IV describes the fundamental duty of safekeeping, which requires the fund’s assets to be properly segregated from the depositary’s own assets and those of its other clients to prevent commingling and protect them in case of the depositary’s insolvency. Statement III is incorrect because the depositary’s oversight role is focused on compliance with rules and regulations, not on assessing the commercial merit or market performance of investment decisions. Vetoing a trade based on market outlook would be overstepping its mandate and interfering with the fund manager’s designated role. Therefore, statements I, II and IV are correct.

The role of a depositary for a collective investment scheme, as outlined in regulations like the SFC’s Code on Unit Trusts and Mutual Funds, is centered on investor protection through oversight and safekeeping. Statement I is correct as monitoring the fund’s cash flows, including subscriptions, redemptions, and investment transactions, is a primary duty to ensure cash is properly accounted for. Statement II is correct because the depositary is responsible for the safekeeping of the fund’s assets, which includes verifying the existence and ownership of these assets, even when held by sub-custodians. Statement IV is also correct; a key oversight function is to ensure that the fund manager calculates the Net Asset Value (NAV) per unit in accordance with the methodology prescribed in the fund’s constitutive documents (e.g., the trust deed). Statement III is incorrect because selecting specific investments and making buy/sell decisions is the core function of the fund manager, not the depositary. The depositary’s role is to oversee, not to manage the portfolio. Therefore, statements I, II and IV are correct.

A depositary has a fundamental fiduciary duty to act in the best interests of the fund’s investors (unitholders). This duty is paramount and overrides any other commercial relationships, including those with the fund manager or its own parent company. Statement I correctly outlines this core principle, which is a cornerstone of the Code on Unit Trusts and Mutual Funds (UT Code). Statement II is also correct; the situation described presents a clear potential conflict of interest. Under the UT Code and general principles of good governance, the depositary has an obligation to identify, manage, and where necessary, disclose such material conflicts to the Securities and Futures Commission (SFC) to ensure transparency and proper oversight. Statement III accurately describes the depositary’s oversight role. It must not passively accept the fund manager’s instructions but must independently verify that transactions, especially significant ones, comply with the fund’s investment objectives and restrictions as detailed in the offering documents. Statement IV is incorrect. While a fund manager might offer an indemnity, this does not absolve the depositary of its independent oversight responsibilities. The depositary’s decision to allow a transaction must be based on its compliance with the fund’s mandate and the best interests of the unitholders, not on a financial guarantee from the manager. Accepting an indemnity in lieu of proper due diligence would be a breach of its duties. Therefore, statements I, II and III are correct.

A core responsibility of a depositary, as outlined in the SFC’s Code on Unit Trusts and Mutual Funds, is to exercise oversight over the fund manager’s activities to protect the interests of the fund’s investors. This includes ensuring that the fund is managed in accordance with the investment restrictions and borrowing limitations stipulated in its constitutive documents (e.g., the trust deed and offering document). The correct action when a fund manager’s instruction violates these documents is for the depositary to refuse to settle the transaction and to inform the fund manager of the breach. This oversight function is a critical safeguard. Simply executing the transaction as instructed would mean the depositary is failing its fundamental duty to act as a watchdog for investors. While seeking an independent valuation is part of a depositary’s duties in other contexts, it is irrelevant when the investment itself is explicitly prohibited; the value does not change its non-compliant status. Similarly, requesting an indemnity from the fund manager does not cure the breach or absolve the depositary of its regulatory responsibility to prevent such actions.

A depositary’s role for an SFC-authorized collective investment scheme, as outlined in the Code on Unit Trusts and Mutual Funds (UT Code), extends significantly beyond simple asset custody. The depositary has a fiduciary duty to act in the best interests of the scheme’s investors. Statement I is correct because a primary oversight function is to ensure all actions by the fund manager, including investments, adhere strictly to the rules laid out in the scheme’s constitutive documents (e.g., the trust deed). Statement II is also correct as this oversight includes verifying that investment decisions align with the stated investment objectives and restrictions disclosed in the offering documents. This protects investors from strategies they did not sign up for. Statement III is incorrect; it describes a purely passive custodial role, which misrepresents the active oversight and supervisory responsibilities required of a depositary under the UT Code. The depositary must actively monitor the fund manager. Statement IV is correct because if the depositary identifies a breach of the constitutive documents or regulatory requirements, it has a duty to intervene and take appropriate steps, which includes escalating the issue and, if necessary, reporting the breach to the Securities and Futures Commission (SFC). Therefore, statements I, II and IV are correct.