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Custodian: Difference between revisions
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{{a|cass|}}{{c|Prime Brokerage}}''You see [[custodian]]s mentioned in the context of a [[bankruptcy]], as some kind of [[insolvency administrator]]. That’s a different sort of [[custodian]] and not really what we're talking about here, which is that chap who looks after [[client asset]]s'' | |||
===Generally=== | ===Generally=== | ||
*A | *There are “[[Main custodian|main]]” or [[first level custodian|“first level” custodian]]s, who face end [[client]]s directly, and [[sub-custodian|''sub''-custodian]]s, who face [[main custodian]]s and other [[sub-custodian]]s in the [[custody chain]] but do not face end users directly. | ||
*A custodian generally will segregate clients assets from its own assets. | *A [[custodian]]’s main liability to its client is for the '''safekeeping''' and '''timely return''' of the [[client asset]]s. | ||
*The legal theory is that the client is the beneficial owner of the custody | *A [[custodian]] generally will segregate clients assets from its own assets. | ||
*The legal theory is that the client is the [[beneficial owner]] of the [[custody asset]]s at all times. Therefore, assuming the [[custodian]] diligently performs its role [[custody asset]]s are not part of the Custodian’s [[insolvency estate]], and as such the [[custodian]] has no economic exposure to the [[custody asset]]s. | |||
=== | ===[[Sub-custodians]] and the [[custody network]]=== | ||
Where a [[custodian]] has no physical presence in a local market, it will appoint a [[Custody network|network]] of [[sub-custodian]]s to hold client assets in that market on its behalf. Generally the [[sub-custodian]] must hold assets on the same terms that the custodian does: designated as [[client assets]] of the main custodian, and segregated in its records from its (and the custodian’s) own assets. | |||
===Weird jurisdictions=== | |||
Generally client assets should be isolated from the sub-custodian’s bankruptcy. In certain far-flung jurisdictions, local regulation or market practice may differ so that the custodian does not segregate its own assets from client assets. Custody rules would generally exclude the custodian’s liability for losses in this case provided it had diligently selected and monitored the sub-custodian in question. | |||
Actually, while we’re on that topic: | |||
{{Subcustodian risk}} | |||
===[[Escrow agent]]s and [[account control agreement]]s=== | |||
Custodians sometimes act to hold pledged collateral away from its owner, but outside the bankruptcy estate of the pledgee, under an [[account control agreement]]. This can put the custodian in an invidious position, because when the treacle hits the fan, everyone will be shouting at it at once, and it won’t know what to do. That will mean it won’t do anything. Unless you are prepared to give an [[indemnity]]. | |||
==={{tag|AIFMD}} and {{tag|UCITS}}=== | ==={{tag|AIFMD}} and {{tag|UCITS}}=== | ||
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and there is a loss to the client, the main custodian would have to accept some or all liability for that loss. | and there is a loss to the client, the main custodian would have to accept some or all liability for that loss. | ||
{{ | {{sa}} | ||
*{{tag|AIFMD}} and {{tag|UCITS}} | |||