Template:UK custody model

English law custody model

The standard English law custody model is a trust arrangement. That means legal title to securities is owned by the custodian, but the beneficial interest is held by the client. As against the rest of the world, the custodian owns the assets, but its contract with its client obliges it to follow the client’s instructions when dealing with custody assets.

Because of the trust, the custody assets do not form part of the custodian’s insolvency estate and (subject to any amounts owing to the custodian that secured by lien or security interest over the custody assets) they not available to the custodian’s creditors and are returned to the client. The Lehman insolvency showed that untangling the custodian’s books and records is a trial in itself, and navigating security interests a whole other ball of wax. Hence the CASS cutody rules (CASS 6) have been tightened, and the FCA (and hence, your own firm’s CF10A) takes an extraodinarily dim view of lax book keeping.