Template:Delegate vs subcontractor: Difference between revisions

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====The difference betwixt====
====The difference betwixt====
Delegation, according to a natural definition, means “''to entrust (a task or responsibility) to another person, typically one who is less senior than oneself.''”<ref>{{google2|Define|Delegation}}</ref>. Being ''[[Delegation|delegated]]'' a [[custody]] function — agreeing to act as main [[custodian]] to a [[fund]] on behalf of the [[depositary]] whom the [[fund]] has appointed to carry out that function is a different thing from being appointed as a [[sub-custodian]].
Delegation, according to a natural definition, means “''to entrust (a task or responsibility) to another person, typically one who is less senior than oneself.''”<ref>{{google2|Define|Delegation}}</ref>. Being ''[[Delegation|delegated]]'' a [[custody]] function — agreeing to act as main [[custodian]] to a [[fund]] on behalf of the [[depositary]] whom the [[fund]] has appointed to carry out that function is a different thing from being appointed as a [[sub-custodian]].
*A delegating [[depositary]] won't hold the assets ''at all'': it will pass that responsibility to the [[prime broker]], who will record the end client's interests in the custody assets directly in its books and records. It may have to report this all to the depositary, but the depositary will not carry record of the client’s assets in its own books and records.  
*'''Delegate''': A delegating [[depositary]] won't hold the assets ''at all'': it will pass that responsibility to the [[prime broker]], who will record the end client’s interests in the custody assets directly in its books and records. It may have to report this all to the depositary, but the depositary will not carry record of the client’s assets in its own books and records.  
*A [[subcustodian]] is an entity who stands behind the main custodian and holds the [[custodian]]'s client assets in a single [[omnibus]] account, in the [[custodian]]'s name but marked as "client assets" and therefore unavailable for the prime broker's creditors. A [[sub-custodian]] won’t know who the custodian's clients are, let alone which assets are attributable to which clients, much less have a contractual relationship with those clients, and won’t be in a position to [[rehypothecate]] any assets it holds.
*'''Subcontractor''': A [[subcustodian]] is an entity who stands behind the main custodian and holds the [[custodian]]’s client assets in a single [[omnibus]] account, in the [[custodian]]’s name but marked as "client assets" and therefore unavailable for the prime broker’s creditors. A [[sub-custodian]] won’t know who the custodian’s clients are, let alone which assets are attributable to which clients, much less have a contractual relationship with those clients, and won’t be in a position to [[rehypothecate]] any assets it holds.


'''Careful though''': Both CASS  and {{tag|AIFMD}}/{{tag|UCITS}} are a little sloppy in their use of the word “[[delegation]]”, using it on occasion to mean something that is probably meant to refer to a [[subcontract]]ing arrangement<ref>See, for example {{tag|CASS}} {{cassprov|6.3.4}}, and the flush text after {{tag|AIFMD}} Article {{aifmdprov|21(11)}}(d).</ref>. {{tag|CASS}} only really talks about [[subcontract]]s, though {{tag|AIFMD}} and {{tag|UCITS}} deal with true [[delegation]] ''and'' [[subcontract]]s.
'''Careful though''': Both CASS  and {{tag|AIFMD}}/{{tag|UCITS}} are a little sloppy in their use of the word “[[delegation]]”, using it on occasion to mean something that is probably meant to refer to a [[subcontract]]ing arrangement<ref>See, for example {{tag|CASS}} {{cassprov|6.3.4}}, and the flush text after {{tag|AIFMD}} Article {{aifmdprov|21(11)}}(d).</ref>. {{tag|CASS}} only really talks about [[subcontract]]s, though {{tag|AIFMD}} and {{tag|UCITS}} deal with true [[delegation]] ''and'' [[subcontract]]s.
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*Structural problem therefore: [[Depositary]] is meant to hold the assets, but it can't lend against them. [[PB]] wants to lend against assets, but the [[depositary]] is meant to hold them.  
*Structural problem therefore: [[Depositary]] is meant to hold the assets, but it can't lend against them. [[PB]] wants to lend against assets, but the [[depositary]] is meant to hold them.  
::''“Hold on,”'' says the PB. ''“If the [[depositary]] holds the assets, then I can hardly [[rehypothecate]] them, can I, and we know how important [[rehypothecation]] is to my business model, don’t we?”''
::''“Hold on,”'' says the PB. ''“If the [[depositary]] holds the assets, then I can hardly [[rehypothecate]] them, can I, and we know how important [[rehypothecation]] is to my business model, don’t we?”''
::The [[depositary]] shrugs. ''“So, I'll make you my [[sub-custodian]],”'' he says, ''“There: [[rehypothecate]] to your heart's content.”''
::The [[depositary]] shrugs. ''“So, I'll make you my [[sub-custodian]],”'' he says, ''“There: [[rehypothecate]] to your heart’s content.”''
::''“No can do,”'' says the [[PB]]. ''“I can only rehypothecate against [[indebtedness]], and ''you'', dear depositary, don't owe me anything. Only the fund does. And besides, as a [[sub-custodian]] I only see an [[omnibus account]]. I don't know who owns what inside it. For [[rehypo]] to work, I have to have a direct contractual relationship with the fund. That's the deal.”''
::''“No can do,”'' says the [[PB]]. ''“I can only rehypothecate against [[indebtedness]], and ''you'', dear depositary, don't owe me anything. Only the fund does. And besides, as a [[sub-custodian]] I only see an [[omnibus account]]. I don't know who owns what inside it. For [[rehypo]] to work, I have to have a direct contractual relationship with the fund. That’s the deal.”''
*Answer: the [[depositary]] ''delegates'' the custody function to the [[prime broker]]. Both {{tag|AIFMD}}<ref>Art {{aifmdprov|21(11)}} AIFMD.</ref> and {{tag|UCITS}}<ref>Art {{ucits5prov|22a}} UCITS V.</ref> allow this in certain circumstances, but there are complicated rules as to whether the depositary can shift responsibility to the PB.
*Answer: the [[depositary]] ''delegates'' the custody function to the [[prime broker]]. Both {{tag|AIFMD}}<ref>Art {{aifmdprov|21(11)}} AIFMD.</ref> and {{tag|UCITS}}<ref>Art {{ucits5prov|22a}} UCITS V.</ref> allow this in certain circumstances, but there are complicated rules as to whether the depositary can shift responsibility to the PB.


====Further reading====
====Further reading====
For delegation under AIFMD, proceed to Art. {{aifmdprov|21(11)}} AIFMD and take it from there. For UCITS,  start with Art. {{ucits5prov|22a}} of UCITS V.
For delegation under AIFMD, proceed to Art. {{aifmdprov|21(11)}} AIFMD and take it from there. For UCITS,  start with Art. {{ucits5prov|22a}} of UCITS V.
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