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Custodian: Difference between revisions
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{{a|pb|}}''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 | {{g}}{{a|pb|}}''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 [[custodian]]’s main liability to its client is for the '''safekeeping''' and '''timely return''' of the [[client asset]]s. | *A [[custodian]]’s main liability to its client is for the '''safekeeping''' and '''timely return''' of the [[client asset]]s. | ||
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**The [[custodian]] has no economic exposure to the [[custody asset]]s. | **The [[custodian]] has no economic exposure to the [[custody asset]]s. | ||
=== | ===[[Sub-custodians]] and the [[custody network]]=== | ||
*Where a custodian | *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. | ||
==[[Escrow agent]]s and [[account control agreement]]s== | ===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]]. | 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}}=== | ||
*AIFMD and UCITS require custodians to accept [[strict liability]] for all losses from safe keeping (even where they have diligently selected and monitored a custodian which is insolvent). Therefore, regardless of how diligent the custodian has been if either: | *AIFMD and UCITS require custodians to accept [[strict liability]] for all losses from safe keeping (even where they have diligently selected and monitored a custodian which is insolvent). Therefore, regardless of how diligent the custodian has been if either: | ||
**A sub-custodian has negligently failed to respect appropriate segregation and insolvency remoteness; or | **A sub-custodian has negligently failed to respect appropriate segregation and insolvency remoteness; or | ||
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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}} | |||