Depending upon whether a prime broker is solely acting as a counterparty or as a counterparty and a depositary/sub-custodian, the prime broker may either enter into a prime brokerage agreement with the alternative investment fund manager (the “AIFM”) for acting as a counterparty and an agreement with the depositary for acting as a sub-custodian. Often this results in a tri-partite agreement between the AIFM, prime broker and the depositary. The checks and balances under the AIFM Law3/AIFMR4 require the AIFM, prime broker and depositary to fulfil certain duties in the prime brokerage relationship. The duties of AIFMs regarding its organization and disclose/reporting need to be proportionally applied, whereas the depositary’s (or depositary division of the prime broker’s) duties depend on whether and to what extent the prime broker holds financial instruments that can be held in custody.